431

Higher Education 12 (1983) 431-442 Elsevier Science Publishers B.V., Amsterdam - Printed in The Netherlands

TECHNOLOGY POLICY AND EMPLOYMENT

SIR BRUCE WILLIAMS Director, The Technical Change Centre, 114, Cromwell Road, London S W7 4ES

ABSTRACT

Current social and economic problems as experienced in the UK are placed in the context of long-term trends in labour economics and the impact of new technology. The reasons why technological unemployment has not hitherto been a growing problem are stated and the relation- ship between technical change and economic recovery is analysed. Policy implications are suggest- ed and the part which universities can play in recovery is discussed.

The invention and installation of labour-saving equipment has been a cumulative process for the last two hundred years. The most obvious effect has been on agriculture, where the percentage of the workforce'employed has come down from over 50 to under five. Following the first industrial revolution based on mechanical inventions in the textile industry and improvements in metal working, the proportion of the labour force in manufactures increased, and then fell back somewhat as a consequence of the increased demand for services that comes with rising real incomes.

As a result of recent technical changes in computers, micros and robots, there is now an expectation and a fear that the proportion of employment in manufactures will fall quite steeply towards that in agriculture. Employment in manufacturing in the USA is now only 30% and a RAND study predicts that it will be less than 5% by the end of this century. Employment in the tertiary sector has gone on growing, but now there are fears that advances in information technology will put that trend into reverse.

[Note by Editor. We are privileged to be allowed to publish an address given by the Director of the British Tec~hnical Change Centre to the Scottish Development Agency in March 1983. Sir Bruce Williams was formerly Vice-Chancellor of the University of Sydney.]

0018 1560/83/$03.00 �9 1983 Elsevier Science Publishers, B.V.

432

100 / Unemployment

90 ~"

80 Services \ \ 70 \ 6 0 ~ \

40 3C 2C \ \ 1(] 0

Output per head

Fig. 1. Percentage employment of the labour force.

But if the proportion of employment in each sector falls, the proportion of the labour force out of'work must rise. The fear that technical change will create more and more technological unemployment is endemic in industrial societies and becomes very strong during depressions.

In Fig. 1 the solid lines represent very roughly the changes that have taken place as a consequence of past changes in technology and which would take place if present trends continued. The broken lines reflect current fears for the future of employment. The solid lines show employment in agriculture down to less than 3% by, say, AD 2000, in secondary industry to about 22%, but employment in services up to 70%.

In Fig. 1 I have drawn unemployment as constant at 5%. In fact of course it has fluctuated cyclically between less than 1 and more than 20% but has averaged 4 or 5%. Periods of high unemployment have been followed by periods of low unemployment without any tendency for average unemployment to rise. But if current fears are justified and the proportions employed in secondary and service industries move as shown by the broken lines, to approximately 10% in secondary industries and 45% in service activities, then unemployment would move from 5% to 42%.

Is the prediction implied by the broken lines plausible? Past predictions of growing technological unemployment were wrong, so why fear current predic- tions?

Technological Unemployment?

The reasons why technological unemployment has not been a growing problem are these:

First, the introduction of new consumer products which require labou r to produce them are as integral a part of technical change as are new processes that encourage the use of labour.

Io

100

9 0

8 0

70

433

6 0 -

50"

s c a l e i n d e x : 1871 - - 1 0 0

9O

60

1 : H o u r s p e r w e e k

2 : H o u r s p e r y e a r

3 : L i fe h o u r s 5 0

1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980

Fig. 2. C o m p o n e n t s of reduction in male life hours of work.

Second, new or improved processes of production that reduce labour per unit output do not necessarily reduce the demand for labour. If the reduction in labour per unit output is 10% but because of lower prices and/or improved qualities the demand for the product increases by more than 10%, employment will increase. When motor cars were first introduced they were expensive and unreliable. A series of process innovations - many of them labour-saving - so reduced prices and improved qualities that the demand for cars increased greatly and so did employment. It is only in recent times that the trend reduction in labour per unit output has run ahead of the trend increase in output and employment.

A different aspect of the effect of labour-saving process innovations on employment operates through the competitive mechanism. Labour-saving pro- cess innovations may be required to meet greater price or quality competition from abroad and so reduce the extent of labour displacement that would otherwise take place. And of course, as Japan is now showing in electronics, getting al~ead of the field can yield big growth opportunities through interna- tional trade.

The third reason why there has not been a secular increase in technological unemployment is that the introduction of new technologies raises real incomes

434

B log scale

200

160 " ~ .

130 A

100 B ~ ' ~

80 "~"

30 ,~ A: Aver0ge annuQl hours of work for" men %-.

28- B: Index of hours worked per" unit output (1913=100)

A

log scole

' 3 0 0 0

' 2700

-2500

~300

-2100

-2000

-1900

-1800

1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980

Fig. 3. Relationship between productivity and average annual hours of work for men.

and (apart from the great effects of technical change in raising population) reduces the supply of labour as measured by hours offered through a working life. Fig. 2 plots for full-time male workers reductions in hours per week (line 1), the greater reduction in hours per year when holidays are brought into account (line 2), and the reduction in life hours in the labour force brought about by reductions in both hours per year and years in the labour force as ages of entry to the labour force rise and ages of retirement fall (line 3). The reduction in "life hours" between 1870 and 1980 was almost 50%.

Fig. 3 shows the relation between reductions in hours worked per unit output (line B) and the average annual hours of work for full-time males (line A). The two curves are parallel when hours worked fall at one-quarter of the rate of the fall in hours per unit output.

The third graph (Fig. 4) plots the relations between hours worked per unit output (line B), life hours of work for men and women (line C) and life hours of work for men (line D). CurvesB and C are parallel when life hours fall at 10/33 the rate of fall in hours per unit output, while curves B and D are parallel when life hours fall at 10/30 the rate at which hours per unit output fall.

These changes in hours are an important aspect of society's adjustment to technical change. The adjustment of hours is very largely a matter of collective bargaining. If we extrapolate past trends, a 2% average annual reduction in

435

240

200

160

130

100

80"

8 0

B

I n d e x ; 1913=100

~

40 ""-

B : H o u r s w o r k e d p e r unit output " ' ' %

C: L i f e h o u r s o f w o r k - t o t a l ( m o l e s u n d f e m a l e s ) "~ Dt L i f e h o u r s o f w o r k - m o l e s

30

25

1870 i i i J ~ i i i r , i

1880 18'90 1900 1910 1920 1930 1940 19.s 1960 1970 lg'lbO

Fig. 4. Relationships between productivity and life hours of work.

D 'O00s

150 �9

130"

110"

100"

9 0 �84

�9 1 0 0

hours per unit output will lead to a reduction in annual hours of approximately 10% between now and the end of the century, which is not dramatic. Adjust- ments in ages of entry to and exit from the labour market are determined by the ways families respond to changes in real incomes, and by political decisions on the finance of education and pensions, which in turn are sensitive to the buoyan- cy of public finance, A 2% average annual reduction in hours per unit output would on past trends lead to a reduction in the age of retirement and an increase in the age of entry to the labour market by the equivalent of a further 4% reduction in annual hours.

C

' 0 0 0

- 9 0

- 8 0

- 7 0

- 6 5

Technical Change and Recovery

But is the current depression a fluctuation around a trend? An eminent businessman with intimate knowledge of both the chemical and automobile industries recently argued to me that extrapolation from the past was no longer valid, that the old mould has been broken, and - in effect - that the new path would be along those broken lines in Fig. 1. Time may prove him right. I do not expect that it will, but should it do so, the reduction in life hours consistent with

436

full employment would have to take place at a much faster rate than hitherto. The current depression has many causes. When in 1957 Mr. Macmillan

made his famous and fully justified comment that "most of our people have never had it so good," he added: "What is beginning to worry some of us is, is it too good to last? Can we control inflation? That is the problem of our time." It still is a major problem. Between 1965 and 1972 the average annual increase in consumer prices was quite high enough at 5.5%. But it then jumped to 17% in the years 1973 75 and only fell to 14% in 1976-8 I. Only part of that acceleration can be blamed on movements in commodity prices - oil especially in 1973-74. Employees had built up expectations of annual increases in real salaries and wages which were too large even at pre-1972 growth rates, and when growth rates fell by about 50% after 1972 these expectations became much too large. Very inflationary salary and wage settlements, and cuts in public investment as part of anti-inflationary fiscal policy, contributed to the rise in unemployment. Mistakes in demand management policies at home and abroad have contributed to the depth of the depression, but I think it is now clear that demand manage- ment policies are not powerful enough to offset changes in rates of innovation, and in particular changes in the balance of labour-displacing and labour-creat- ing technical change.

In the boom from 1950-72 the average annual compound growth in GDP per worker-hour in the industrialised countries rose to 4.5%, at least 50% higher than in any previous period of growth. A cluster of innovations built round plant breeding, a wide range of synthetics, antibiotics, aircraft, computers and solid- state electronics, kept the labour-creating effects of technical change high rela- tive to the labour-displacing effects. But as the new technologies reached maturi- ty and markets began to saturate, the labour-displacing effects rose relative to the labour-creating effects, and this rise was intensified by a fall in profits which induced a drive to discover or make better use of cost-saving process innova- tions.

There is still much to learn about why the major innovations which generate high rates of growth come in periodic clusters, and about temporal changes in the balance between labour-displacing and labour-creating technical changes. The most plausible explanation of the periodic shifts in the relative strengths of labour-displacing and labour-creating technical change is that once a boom based on a cluster of innovations gets under way, the firms involved, both directly and indirectly, concentrate their innovative attention on developing, consolidating, and defending those areas of activity. When the new technologies mature and markets saturate, the emphasis on technical change in those indus- tries becomes predominantly labour-saving and because opportunities for dif- ferent product innovations were neglected during the boom, there is a shortage of labour-creating technical changes.

In the past this imbalance has been corrected after a few years, as I expect it

437

to be this time. The reasons why I expect some revival of labour-creating technical changes are, first, that there have been many such revivals in the past, second, that given the extent of the R & D activities it seems reasonable to expect that at least some firms, with substantial R & D departments and a capacity for innovation, will decide that the restoration of profits depends on product innovations, and, third, that from among the younger generation will come some who have the capacity both to identify new opportunities for innovation and to use those opportunities.

Recently the Minister for Information Technology wrote that the use of the new opportunities for innovation created by advances in IT would create an industrial surge to match those powered by the steam engine, the railways, electricity, cars and chemicals. He may have overestimated the growth potential of IT, but in combination with other innovations made possible by develop- ments in biotechnology, solar energy systems, robotics, agrochemicals, aquacul- ture, medical technology and scientific instruments, it could contribute to an industrial surge.

Policies

Demand management, however angelically administered, is not a suffici- ently powerful weapon of control. To maintain full employment it will need to be complemented by a technology policy which reduces the extent of periodic imbalances between labour-displacing and labour-creating technical changes and makes the adjustment mechanisms in the economic system operate more promptly.

There are two kinds of anti-cyclical policies that would help. First, a reversal of recent fiscal policies on taxes on employment would help. It does not make sense to have a national insurance surcharge when there is unemployment. Taxes on employment should become counter-cyclical. Government encour- agement to product innovation should also be counter-cyclical. Second, as recommended in a recent OECD (1980) report, Technical Change and Economic Policy, Governments should give more support to strategic research and exploratory development work on enabling technologies. Greater activity in this field would extend technology options - which at the moment tend to be restriced because of the dominance of large firms in industrial R & D - and reduce the time lags and risks involved in further innovation.

The extension of technology options and reduction of risks in further design and development work could be particularly valuable in assisting new and small firms. The importance in innovation of new firms, and of new generations is well known, though we have not been sufficiently inventive of ways to give them enough encouragement. The provision of consultancy services by State and

438

financial agencies can help, as can also of course special financial assistance. Mr William Kingston's proposal that firms investing in a product innovation be given an investment patent that would remain in force, and be given public protection, until profits reach a prescribed multiple of the investment, might help even more~ However, that scheme would also help the innovatory activities of larger firms which provide the bulk of employment. Legal innovation can be a very important stimulus to technical change - think of the importance of the legal changes on joint-stock companies and liability.

In the United Kingdom there is also a serious post-innovation problem. There is now a very large number of British post-war innovations, but many of them have not gone well from the time at which scaling-up to penetrate world markets and match international competition became critical. The Finniston Committee of Inquiry in its report Engineering Our Future (1980) explained this weakness as a consequence of the failure of British managers to grasp the nature and significance of the "engineering dimension". I would express it rather differently, as the continued failure of many British firms to treat R & D, production and marketing as interrelated activities. There are some innovations which are clearly technology-pushed and some that are clearly demand-pulled, but very many more which have elements of both.

All this has been known, at very least since Carter and I published Industry and Technical Progress in 1957 and Burns and Stalker published The Manage- ment of Innovation in the early sixties. But although lip service is paid to the importance of a matrix approach to management, it is frequently ignored. The reason, I have come to think, is that there are educationally-induced, or at least educationally-permitted, barriers to communication. There are barriers between those with and those without a knowledge of science and engineering, and also communication barriers between scientists and engineers, and even between different types of scientists and different types of engineers. Scottish secondary education is more general than in England, but even the Scottish system contrib- utes to communication barriers.

British economic performance has suffered from insufficient education, as well as from inappropriate education. Dr Prais of the National Institute of Economic and Social Research (NIESR) has shown that in the British engineering industry 62% of workers lack any formal qualifications and in metal manufactures 70%, compared to only 32% and 37% respectively in West Germany. And such formal qualifications as there are often become barriers to the redesigns of work organisation required to make good use of new technologies. There are some promising signs of change in the training and retraining arrangements made and proposed by the Manpower Services Commission, the Engineering Industries Training Board (EITB), and the Technician Education Council (TEC), but the changes needed are massive.

I referred above to the case for more strategic research and exploratory

439

development work on enabling technologies. I would like to see substantial Department of Industry contracts for work on the enabling technologies given to the selected university departments that have the appropriate skills, attitudes, and working relationships with the business sector. There are some very suitable departments in Scottish universities. Such contracts should be additional money and not a reduction in funds that would otherwise have gone to the Research Councils. The Science and Engineering Research Council (SERC) has taken some important initiatives in its Specially Promoted Programmes. Initially they were intended to provide a better scientific background in areas of industrial importance, but recent tendencies to become "more practical" have taken the scheme into fields which SERC is not well equipped to exploit.

3 2

3 0

2.8

2.6

2 4

2 2

2 0

18

16

14

12

1C

0.8

06

0,4

0 2

~-~. USA

\ \ \

m . A . .

J \ / f \ .-'�9

/ West Germ~any/ ~ - ~ - . . . - " /

/ , / / /

/ / / . -

~ . - ~ - i f - - - - - " - " J ~ p e n /

I I I I I I I I I I I I I I I I I 1963 64 65 66 67 68 69 70 71 72 73 74 7.5 76 77 78 79 8 0

Fig. 5. Total R & D expenditure as a proportion of GDP. Source: OECD.

440

Twenty-five years ago in Industry and Technical Progress, Charles Carter and I concluded that British growth prospects could be increased by reducing the proportion of our qualified scientists and engineers engaged in R & D �9 increasing the proportion engaged in applying the results of R & D, both indigenous and foreign. Since that time, the percentage of scientists and engi- neers in the labour force has increased from 1.6% to over 2.5% and technicians and draughtsmen similarly, and the case for a more substantial R & D effort - of the right kind of course - is now much stronger.

Our R & D percentage as shown in Fig. 5 looks quite high, though when the non-growth defence and space R & D are taken out we fall well below West Germany and Japan. In any case R & D percentages can sometimes obscure very

t b i l l i o n 21

2C

7

USA

\ /

�9

M J

f /

. . . . . . . . . : ; 5 7 1 o . . . - West G e r m a n y .= . . . . . . .

�9 . . / .... ~-~"

. - - ' " J a p a n

F r a n c e

UK

O 1 I I I I I I I I I I 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

Fig. 6. National gross expenditure on R & D. Note GERD (NSE and SSH) at 1975 prices. Source: OECD.

441

important factors. When I asked one eminent Japanese businessman whether I might ask what percentage of turnover was his R & D, he replied that if 1 did it would be a very silly question - that they spent what seemed most likely to contribute to the competitive strength of the firm. His firm was in the very competitive electronics industry. In the fifties and sixties our absolute level of expenditure was greater than that in West Germany, France and Japan, but because our postwar growth rate has been only two-thirds of the French, half of the German and one-quarter of the Japanese, our expenditure has fallen behind them all (Fig. 6).

The main reason for showing that graph is to highlight the smallness of British R & D in total R & D, and the consequential importance of monitoring and using opportunities for innovation created by other countries. Much is done now through inward investment and licence and knowhow agreements~ but much more needs to be done to lift our levels of product development and production efficiency to the levels in the USA and West Germany. And that requires not only a greater industrial R & D effort, but also a more effective integration of R & D, production, marketing and financial activities. And that effective integration includes a much better performance in changing manage- ment structures and processes, shop floor and office skills, working practices and work organisation more generally, to make better use of both existing and new technologies.

Incomes Policy

I come back now to Mr. Macmillan's doubt. Unless we can learn how to control inflation without restrictive monetary policies, British economic growth will continue to be constrained by balance of payments problems. The opportun- ities to use collective bargaining to increase the share of wages and salaries in GNP without squeezing rates of profits and reducing growth and employment are very limited. The main opportunity for a redistribution of factor shares is provided by increases in the output/capital ratio, for then labour's share can increase without a reduction in the rate of profit. When national product is, say, 100 and capital employed 300 and average gross profit 10%, the share of capital in product is 30%. If output rose to 120 and capital remained at 300 and profit at 10%, the share of capital would fall to 25%.

Increasing the output/capital ratio is partly a matter of technology policy and partly a matter for co-operative actions of managers and workers in making good use of the capital equipment. But if we cannot evolve sensible incomes policies from an increase in understanding of the conditions for redistribution consistent with growth and full employment, it will be necessary to make legal changes to reduce the inflationary consequences of collective bargaining.

442

Conclusions

1. There is currently an imbalance between the labour-displacing and la- bour-creating consequences of technical change. I do not expect this to be permanent.

2. Demand mismanagement contributed to the depression but did not create it.

3. Technology policy should be treated as an aspect of employment policy as well as a critical element of growth policy.

4. We need to discover ways of inducing a more even flow of innovations and reducing periods of imbalance between labour-displacing and labour-creat- ing technical change.

5. Reductions in hours in the labour force are part of society's mechanism of adjustment, but trends and fluctuations around trends call for different mecha- nisms of adjustment.

6. Major reforms in the education system are needed to make better use of new technologies and the prospective further reduction of life hours in the labour force.

References

Burns, T. and Stalker, G. M. (1961). The Management of lnnovation. London: Tavistock. Carter, Charles and Williams, Bruce (1957). Industry and Technical Progress. London: O.U.P. Finniston Committee of Inquiry (1980). Engineering Our Future: Report of the Committee of

Inquiry into the Engineering Profession. London: HMSO. OECD (1980). Technical Change and Econorhic Policy. Paris: OECD.