Malthus and the Luddites: Demographics and technological progress
The first economist who tried to summarize technological progress, living standards and demographics was Thomas Robert Malthus. In his “An Essay on the Principle of Population”, the English demographer described the risk of a “poverty trap” that mankind was doomed to: in a world characterized by a limited production factor (land and its diminishing returns), the standard of living depends only on fertility. Countries with a low population density are the richest, but only temporarily. The “passions between the sexes” can only lead to an increase in births. All countries are doomed to impoverishment once the resources are fully used. The excess population is then “regulated” by famines or diseases. That does not mean, which his contemporary Adam Smith had written, that the growth in a country’s population is not the “mark of its prosperity”. Malthus was only describing a phenomenon that had been at work for centuries, i.e. a virtual stagnation of per capita GDP at 0.15% per year - a trend that had not changed since the end of the Middle Ages.
He stated that technological progress - at the time mainly seen as the development of new land or farming techniques - has no impact on per capita income. Its only impact is on population density. The increase in GDP it leads to is accompanied by a simultaneous increase in the size of the population - and therefore, once again, a stagnation in purchasing power. As a corollary, with or without technological progress, living standards are caught in a trap of “perpetual” stagnation.
Published in 1798, Malthus’ theory was soon proved to be wrong. The scientific developments and advancements in engineering that started in the 1820s would change the nature of technological progress. As it was more demanding in terms of skills, it also increased the education premium. Innovations were until then made in the workplace, by individuals who were able to directly adapt and improve their tools or production processes - in the textile sector, paper industry, mining and mechanical engineering. They were now applied to more complex activities in the steel and chemicals sectors, medicine and communications and were concentrated upstream from the production process.
The link between technological progress and demographics - or more exactly its link with households’ income and their fertility - is based on advancements in terms of general and academic knowledge and, equally importantly, applied knowledge. It is the relationship between these two factors that determines the nature of technological progress and exerts an influence on the trend in relative wages, for production techniques have a “bias”, which increases the capacities of the type of labor it uses and increases - or on the contrary reduces - the wage gap between skilled and unskilled workers. This qualitative “bias” of various techniques exerts an influence on demographic trends, in the same way as institutional factors such as the level of education.
Knowledge, innovation and offspring
Accumulation of knowledge has an irreversible character. The “stock” of knowledge increases continuously with new discoveries. It is easier to draw on science or ideas accumulated over the centuries. However, the probability of finding drastically new technologies or breakthrough and revolutionary inventions will not follow the same upward trend.
The higher the population’s level of education, the faster knowledge is accumulated and the more massive it is. So there is a self-reinforcing phenomenon between the level of education and the general state of knowledge, which tends, as it develops, to favor and increase the capacity of the most qualified individuals, and it is an incentive to increase the training of the population.
On top of this virtually autonomous dynamics of basic research are the practical applications that characterize entrepreneurship. This knowledge, or “knowhow”, is based on incentives that vary according to the degree of protection provided by patents, the temporary comparative advantage that innovation provides against competition, technical expertise and also knowledge of potential markets. This may involve entrepreneurs in the traditional sense, but also “inventive” individuals that are able to improve processes and reorganize information and labor flows within organizations.
The link between the general state of knowledge and its practical applications determines the nature of technological progress and, in particular, what economists call its “bias”. As we have seen, a technology that increases the productive capacities of a population - or more generally of a production factor - presents a “bias” to its advantage. A shift from a low-skilled labor-intensive technology to intensive use of well-trained people is explained by different knowledge trajectories. The different phases of the industrial revolution in particular illustrate the transition from incremental innovation and trial and error, to technological progress driven by science and theoretical knowledge. This point has reversed the relative demand for unskilled labor in favor of better-educated individuals and the increase in the education premium has ended up transforming the demographic landscape by leading to a more qualitative than quantitative view of offspring.
From incremental innovation to theoretical knowledge
Technological progress from the first phase of the industrial revolution - the second half of the eighteenth and the first decade of the nineteenth centuries - had a twofold characteristic. It benefited the least skilled individuals of the population and was also driven by the application of common sense to machines and daily work tools. This phase of economic development was negative for craftsmen and skilled workers for whom the wage gap against the lesser skilled narrowed, a development that gave rise to the Luddites. The weak incentive to “invest” in the education of children - and therefore to reduce the number of births - all the more confirmed the Malthusian pattern as numerous discoveries considerably improved the quality of daily life: lighting, vaccinations, food preservation. Furthermore, and even though we find this intolerable nowadays, children could be hired to work in factories from a very early age and without training. In the same way as a massive offspring could be an “asset” in an agricultural society, having fewer offspring during the pre-industrial age could not be driven by any sort of economic incentive. Driven by the base and skewed to the advantage of the less skilled, technological “progress” did not increase the level of per capita income as there was no adjustment of the demographic dynamics.
This technological progress was primarily disseminated by craftsmen and mechanics who were able to adopt and implement marginal innovations. They used their technical expertise to apply, combine and improve new instruments or mechanisms. This period was obviously characterized by significant progress in research methods and fundamental knowledge. However, as the historian Joel Mokyr emphasizes, “the scientific methods of Bacon, Newton and Hooke had a marked, but indirect impact on the dynamism of innovation in this period”. The particularity of the end of the eighteenth century was that innovations were indeed the result of the curiosity generated by the Enlightenment, but above all of the improvement in processes. The absence of direct influence from academic knowledge seems all the more plausible as in England, a country where access to higher education was a privilege reserved for the ruling classes, illiteracy was still the norm at the end of the eighteenth century. Rather than being driven by science, this initial phase of the industrial revolution was rather driven by good ideas, improvements, trial and error and transmission of experience within manufacturing plants. An elite of workers, mechanics and craftsmen without “big ideas”, but who were able to make many incremental innovations, transformed the economic landscape.
Things changed from the 1820s. Economies exited what Mokyr calls a “combination of trial and error and perspicacity”. Incremental innovations were now insufficient to keep up with the progress made in science, engineering (first steel and chemicals, later electricity) and mechanization of production processes. The accumulation of knowledge had reached a threshold from which the qualitative requirements for labor would be increasingly high. The Luddites had been “avenged”. Between 1815 and 1851, the ratio of skilled to unskilled wages rose from 2.4 to 3.8. The nature of technological progress put an end to this rare incident in economic history when technological progress favored the least educated individuals. Unskilled labor, who were in a majority in the eighteenth century, had benefited from technological innovations in the textile, iron, shipbuilding and paper sectors. The capital and technological intensity of chemicals, steel and communication called for another type of skills.
Birth rates and production techniques
The widening of the wage gap between skilled and unskilled employees was stopped, towards the end of the nineteenth century, only by two forces. The first was “exogenous” and was due to intuitional changes sparked by the destitution of the working class. The introduction of mandatory education and the monitoring of - and then the ban on - child labor played a crucial role. The former lifted the general level of knowledge and aptitude. The latter changed the birth rate dynamics by making it far less attractive to have a large offspring. One cannot say that this turning point was due to technical requirements in terms of skills, but one cannot say that it did not have any impact either, for by increasing the education premium between adults, but also between parents and children, technological progress also had a definitive impact on the birth rate, an “endogenous” dynamics.
It is therefore under the twofold impact of technological progress and birth rate control that developed countries have enjoyed a formidable improvement in their standard of living in the last 150 years. The “natural” bias of technologies to favor skilled labor should, however, have been accompanied by an increase in wage inequalities and a growing skill premium. On the contrary, until the end of the 1970s, there was a major flattening of incomes which was due to, in addition to the extension of compulsory schooling, many institutional arrangements: trade unionism, Fordist compromise, tolerance of inflation, progressive taxation.
This era is now over. The ferocity of the debate on inequalities is all the more justified nowadays as beyond the institutional upheaval over the past 40 years, the new wave of technological progress is having an even more marked bias to the advantage of the better-educated. This is a bias that a lengthening of the period of schooling, which is already very high historically, hardly will be able to counterbalance. The impact is all the more detrimental as, beyond even its impacts on wages, it is leading to marked job losses for an increasing part of the population, i.e. the part that to some extent had felt protected by its level of education until now. The list of jobs threatened by robots and digital technologies is getting ever longer. It goes far beyond the professions that in the past were considered as moderately skilled. The new Luddites are therefore individuals that until now have been considered as skilled; not necessarily those with the largest number of degrees and the best education, but individuals with a rather decent educational background. They make up the part of the population for which an increase in the number of years of studies could prove to be useless given the intensity of technological progress. The flattening of incomes is over. From now on there will be greater divergence in terms of wages and access to employment.