Technology, innovation and the future of the UK workforce
Minister Matt Hancock delivered the annual Keith Joseph Memorial Lecture at the Centre for Policy Studies in London.
Introduction
It is a huge honour to give this lecture in the memory of the great Sir Keith Joseph. And a particular privilege that several members of the Joseph family are here tonight.
My generation can’t remember the Britain that existed before the revolution borne by Sir Keith. We owe him a great debt of thanks.
But my generation is having to refight battles which we all thought Sir Keith had won.
Keith Joseph was clear-eyed in analysing the problems of his time, rigorous in his pursuit of solutions. And one of today’s great challenges, that needs his sort of rigour, is the disruptive rise of new technology.
Technology and disruption
So today, I want to ask how he would have approached the rise of technology, and what my generation must do to rise to it. Let’s start with a story.
Fifteen years ago, the video rental company Blockbuster was at the very height of its powers.
It had 60,000 employees and 9,000 outlets worldwide, dominating its market almost as completely as the Roman Empire dominated the Mediterranean in the age of Hadrian.
Back then the famous blocky, yellow font could be seen on every high street in every town across Britain.
But, like the Romans, the decline proved just as irreversible.
In 2010 Blockbuster filed for bankruptcy. Shops were boarded up, thousands lost their jobs.
Their fate had been sealed when Blockbuster refused to move with the times, when the founder of a little-known tech start-up arrived at Blockbuster’s giant Dallas HQ with a business proposal.
He was offering to run their brand online, and was apparently laughed out of the room.
But today that little-known start-up - Netflix - has 80 million subscribers, including me, and no one’s laughing at them now.
This story of disruption has been repeated in different forms, with different protagonists, the world over. Yet the underlying plot remains the same.
An entrepreneur uses new technology to disrupt an established business model, offering consumers a better, faster, cheaper, or more convenient service.
The disruptor rakes in billions, consumers benefit, but the disrupted lose their livelihoods.
And those old jobs are often gone forever. Netflix employs just 3,500 employees worldwide. Tonight I want to address 2 big questions that come from this.
First, is this disruption a good thing?
Is the overall picture one of innovation and rising prosperity, or of dislocation and growing insecurity?
The second question flows from the first.
What, if any, is the role for government?
What place for lumbering Leviathan in a world that gets faster and more interconnected every year?
It’s vital we have answers to these questions, both so we can govern well, and because ideas we thought Sir Keith helped vanquish long ago are back on the agenda.
This is a battle of ideas we’ve got to win.
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Should we be afraid of disruption?
So let’s ask these 2 big questions.
First, should we be afraid of disruption?
Since Keith Joseph’s death 20 years ago, the global economy has changed profoundly. Back then a third of the world survived on less than $2 a day.
Just a billion people earned enough money to make any discretionary purchases at all. China’s economy was smaller than Italy’s. Twenty years on, in part because of what he did and what he stood for, that extreme poverty has more than halved.
The global middle class has doubled to over 2 billion, and China creates an Italian-sized economy every 18 months.
The explanation for that growth is a massive expansion of the free market, twinned with the mass-deployment of new technology.
It is impossible to separate out these forces, since both complement and catalyse the other.
Technology has opened up ever more avenues for trade. Think refrigeration and pasteurisation. Mass transit and bulk shipping. Click and collect.
At the same time, markets have refined and diffused new technology. The result is that, as a world, on all objective measures, we’re getting richer, healthier, less hungry, taller and more interconnected.
And yet despite all this, many suggest that we’ve hit the end of the road of rising living standards.
Today’s received wisdom seems to be that, despite all this technology, we live in an age of stagnation, that our children will not be as prosperous as our parents, and that technology is somehow making everything worse.
This belief is popular in academic circles, it’s espoused by Nobel-Prize winning economists and by politicians of the Left and the Right.
Now one of Sir Keith Joseph’s great talents was to face up to flawed assumptions, to be a warrior against lazy consensus.
In his day the received wisdom was that inflation was unmanageable, the trade unions ungovernable and that Britain’s best days were behind her.
He tackled that received wisdom head-on, and we now must do the same.
Is technological progress bad news?
So let us tackle this modern day pessimism that technological progress is bad news.
We can start with its internal contradiction.
Some say that the pace of innovation has slowed, that we’re now living in a world of diminishing technological returns to production.
This is the thesis of a book by Professor Robert Gordon that’s fashionable in academic circles right now.
Others say that new general-purpose technology is destroying good jobs faster than they can be replaced.
But they can’t both right. Do we have a problem of too much disruptive technology, or too little?
Are we stuck in a new Middle Ages? Or, are we hurtling towards a dystopian future?
Let’s look at the first. Has invention lost its momentum?
Professor Gordon argues that we came up with revolutionary inventions during what he calls the second Industrial Revolution, from 1870 to the post-war boom.
Inventions like electric lighting and the internal combustion engine, were, he says, transformational. But now, he says, the advances we’re making are only incremental.
To paraphrase, instead of making the jump from the telegraph to the telephone - written word to human voice - we’re just building slimmer phones.
As a result, he claims, young Americans will be first in their history not to exceed their parents’ standard of living.
When I hear that I can’t help but think of the words of William Preece, chief engineer at the British Post Office, back in the 1890s.
Preece, an expert on the telegraph, just couldn’t see the point of the phone, saying: ‘we have plenty of messenger boys’.
He wasn’t alone.
‘Unworthy of the attention of practical and scientific men’, concluded a Parliamentary Select Committee set up to investigate Edison’s light bulb.
I’m glad the accuracy of select committee predictions has improved.
‘We have reached the limits of what is possible with computers,’ said pioneering computer scientist John von Neumann in 1949.
Even our heroes sometimes make mistakes. Sir Keith once visited a high-tech factory as industry secretary and asked one of the directors: ‘Do you think television has really come to stay?’
Or maybe, with the advent of Netflix, he was once again ahead of his time.
Machines - thinking and doing
Now, for the first time in history, we have reached a point where machines can do cognitive as well as physical labour, thinking as well as doing.
And this affects almost everything. Let’s take cars.
Professor Gordon says they accomplish the same basic role of transporting people from A to B as they did in 1970, just with a bit more convenience and safety.
But this misses one vital detail. Computers are now learning to drive. Driverless cars promise a new revolution.
You can work in them en route. They can reduce emissions and traffic, make journey times shorter, give disabled people far greater mobility.
And as the vast majority of accidents are caused by human error, they promise to cut road deaths too.
For the average British family their car is their second biggest investment, and yet they’re used just 4% of the time.
What a massive waste of resources.
Should driverless cars become ubiquitous, families will be able to spend their savings on something far more useful than a steel box that spends most of its life sat on the driveway.
Everywhere we turn, digital technology is driving improvements in almost every sphere of life.
From 3D printers producing jet engine components, to the sensors in concrete that report on its own structural integrity.
From smart traffic planning, to dynamic energy demand.
The fact is we are just in the foothills of a new technological revolution, that will do even more to lift living standards and improve the human condition.
Have we lost inventive momentum?
Gordon’s hard evidence for a loss of inventive momentum is in the data on productivity, and here we optimists need to have an answer.
Because the data does show a slowing that coincides with the rise of the Internet. My response is that we need better measurement, because the current measures are broken.
It may surprise you, but we don’t measure productivity directly, we essentially take measured GDP and divide it by the total number of hours worked.
GDP matters. It’s the sum total of all the income our economy creates. It’s the best measure we’ve got of people’s standards of living.
But this way of measuring, it was designed in the middle of the last century to capture exactly the sort of things that were being made then – cars and fridges and widgets of all kinds.
It suits the economy of the second Industrial Revolution because it is a product of that revolution.
For decades this didn’t matter much. The economy was all about widgets.
But now it’s all about binary digits.
Why does this matter?
It matters in the theory because digital is breaking down the binary distinction between consumption and production that much of economics has been built on since the days of Adam Smith.
While much progress in the last 2 centuries was based on separating consumption and production in pursuit of efficiency, much of what gets produced in digital form today is done so at zero marginal cost to the producer and at zero cost to the consumer.
And in the act of consuming a digital service we are also producing, because much of the digital economy runs on the user data we provide.
In an information age, these zero marginal costs fundamentally change the economics. I don’t know what all the conclusions will be, but this is a big challenge to the economics profession.
And this matters hugely in practice too, because many of the benefits of technological advance don’t get picked up in traditional measures of GDP.
Let’s take an example.
A few years ago we released TfL travel data as open data, free for anyone to access and reuse.
Then CityMapper came along and used that data to build an app telling you whether it’s quicker to walk or take the Tube when you go home on a fine summer’s evening like this.
Not only that, but it tells you how many calories you’ll burn in the process.
Surely that represents an improvement in people’s wellbeing and quality of life?
Not according to GDP as measured.
The enjoyment of the walk compared to the sweaty compression of the Tube? Not measured.
The health benefits? Not included.
The improvement to the environment? Nope.
The time saved? Nada.
In fact the only way that decision troubles the scorers is that the cost of your Tube ticket no longer counts as economic activity.
GDP is lower. Productivity, as measured, is lower. We are, according to the stats, worse off.
The failure of GDP to capture the consumers’ side of life - the environmental or health considerations, for example - isn’t new, although where the impact was often negative - with more widgets meaning more pollution for example - now it’s often positive.
But the failure of GDP to measure the economic impact accurately – not even getting the direction of the GDP impact right – is on a completely new scale.
Because it’s not just CityMapper.
The watch that reminds you to take your medicine.
Ordering your weekly shop online.
Sharing pictures with your family, even though you’re a continent away.
These all have no impact on measured GDP, but they enrich our lives immensely.
What about the money saved from an online home-swap?
The app that saves energy?
How about the time and cost saved when you make a money transfer on your phone for free?
These changes, formally, reduce existing measures of GDP and therefore productivity.
Yet these are the innovations of our time.
One recent study in America found the welfare gains associated with access to free products on the internet was equivalent to a 0.75 percentage point boost to growth each year.
Fortunately, here the ONS recognise these problems, and we’re lucky to have one of the best statistical agencies in the world rising to the challenge of measuring the modern economy.
There are some big questions for them to answer.
What is the nature of the value consumers receive from digital services?
How does the sharing economy fit in?
So my response to Professor Gordon is clear: progress hasn’t faltered. Progress marches on.
Machines - taking our jobs?
Now let us look at the second hypothesis of the naysayers.
What if robots are coming for our jobs?
In George Eliot’s Middlemarch, set in 1832, a riot nearly breaks out when engineers from London come to survey the parish for the construction of a railway.
‘There’s no knowing what there is at the bottom of it’, says one suspicious local, ‘and it’s to do harm to the land and the poor man in the long-run.’
Some things never change.
This sums up the second hypothesis: that innovation is happening, that it might well benefit some, but everyone else is going to lose out.
This is not a new concern.
And I’m afraid I’ve got an admission to make.
Two hundred years ago in Nottinghamshire there was a large cottage industry of wool knitting. Then Richard Arkwright invented the water frame and the Luddites organised riots in protest.
In 1812, 1000 people met up near Arnold outside Nottingham to smash up the frames, and the riot was only stopped when dragoons rode in to arrest the ringleader.
The Luddites were protesting against the effects of the inevitable march of technology.
And the Luddite leader’s name? Benjamin Hancock.
Fast forward to 1933. Then it was John Maynard Keynes, who was worried about the ‘new disease’ of ‘technological unemployment’.
In 1963, it was Harold Wilson telling the Labour Party conference that technological progress would lead to ‘a high rate of employment for a few, and to mass redundancies for the many’.
Each time we enter a downturn and unemployment rises people point their fingers at the robots of the day.
My argument is that blaming technology is a mistake.
Today we’re recovering still from a deep cyclical downturn, not just an ordinary demand-led recession but a debt crisis.
As Carmen Reinhart and Ken Rogoff’s history of financial crises shows, after a systemic banking crisis it takes on average 8 years to reach pre-crisis levels of income.
It took the UK 7 years to do this after the 2008 crisis, so there’s nothing to suggest that this time is different.
That Great Recession is now thankfully abating, and a jobs-rich recovery is in train – which, unlike some pessimists like Paul Krugman, I think is unambiguously a good thing.
Likewise on pay.
In the aftermath of the Great Recession, real wages stagnated.
The good news is that here in the UK they are rising again, and there is no evidence of permanent stagnation.
There is, rightly, a debate about the labour share – the proportion of national output paid out in wages.
I’m firmly from the school of thought that holds that the purpose of growth is better pay, and so we should bend policy towards pay-rises.
Where in the last Parliament we made huge progress on the quantity of jobs, now we must make further progress on quality. Whether it’s ensuring shareholders can express a view on executive pay in the last Parliament, or introducing a National Living Wage in this one.
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Technology doesn’t make humans obsolete
But where a generation ago the challenge was in the unaccountable power of trade unions, now the labour share is at historic lows, and we want to ensure everyone benefits from economic recovery and that the proceeds of growth are spread fairly.
Here too, as with jobs, with the right approach, technology can be our ally in the drive for higher pay.
Yet techno-pessimists continue to forecast a future in which the average human is obsolete.
Those who only see the job losses have fallen for the classic Lump of Labour fallacy.
As Keith Joseph himself said, the history of the last 200 years, packed as it is with labour-saving inventions, demonstrated the error.
Once again he was right.
There is not a static stock of jobs, which, if destroyed, reduces available employment.
People are dynamic.
Technology boosts productivity. It cuts costs and allows people to spend more of their money on other things. This creates new jobs.
The jobs our forebears did 100 years ago were vastly different from the ones we do today.
My great grandfather was a Nottinghamshire miner. When he was in his prime in the 1920s, over a million people were employed in coal mines deep underground.
Now there are none.
Last year there were 20,000 fewer personal assistants and secretaries than in 2001.
Thinking ahead, there are still one million jobs in call centres, and 200,000 check out operators.
But for how long?
Carl Frey and Michael Osborne at Oxford University estimate that 35% of UK jobs are at risk from automation.
Yet while every period of unprecedented innovation has seen its pessimists predicting mass unemployment, technological advancement has never previously failed to deliver new opportunities.
The same is true today.
Employment rates in the UK are at record highs.
Whole occupations exist that didn’t exist 20 years ago.
In the future machines will do lots of the things that are currently done by humans.
But get this right and technology will free us up to do the jobs that only we humans can.
Jobs that involve problem-solving, creativity and social intelligence, for instance. Coming up with new business ideas, writing thrilling books, making scientific breakthroughs. Caring for one another, teaching one another, motivating one another.
We should automate work and humanise jobs. Let’s give the mundane to the machines and purpose back to people.
Causing technological unemployment isn’t the only charge levelled at the disruptors.
They’re also accused of being the driving force behind unacceptable levels of inequality.
So is technology creating undeserving rich?
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Digital advancements can better lives
It’s no good creating a fantastically productive and sophisticated economy if only the top few can enjoy it and the rest are consigned to the scrap heap.
Some argue that digital technology has an inherent tendency to concentrate wealth and market power.
This is because the value of a digital network increases as more people join.
Simply put, the more who sign onto Facebook, the more use it is to everyone.
So many digital services are dominated by a few giant platforms - Google for searching, Amazon and Ali Baba for retail, Uber for minicabs.
The owners of these platforms can make a fortune, and we’ve seen vast fortunes made.
But these platforms have another crucial characteristic: they create new markets so millions or billions of others can improve their lives.
Indeed, Professor William Nordhaus has suggested that only 2% of the social value of innovation is captured by the innovators themselves.
The PhD student who drives an Uber part-time to fund her course. The family-run takeaway business who use Just Eat to grow their brand. The retired couple who supplement their pension trading on Ebay.
They all benefit from the platforms and the new markets that they create.
What’s more, by replacing mundane jobs technology can enhance social mobility too.
Technology, ultimately, is what makes it possible to live better lives than our parents and grandparents.
I say the more difficult and dangerous work that can be done by machines, the better. But some argue that the real truth is more brutal – that we can’t all rise: that for each person who climbs, another must fall.
Social mobility
So who is right?
I know which view Keith Joseph would have supported.
He would have pointed out that, just as free markets and technology mean people as a whole are more prosperous than at any time in the course of human history, so these same forces mean the overall direction of social mobility is upwards.
He would, in other words, have argued that the lump of labour fallacy is matched by a lump of advantage fallacy.
As humanity becomes wealthier through technology, as work is automated and jobs are humanised, all can rise.
Of course there can only be one Lord Chief Justice or chief executive of Rolls Royce. But if we get this right there will be more of these interesting, rewarding and stimulating jobs and a higher proportion of the workforce in them.
In short, we shouldn’t think of social mobility as relative to our peers. That is the politics of envy.
We should think of social mobility as relative to our forebears. That is the politics of progress.
But social mobility is not automatic, it doesn’t happen without effort.
So while it is wrong to discriminate against anyone because of their background, it is right to measure how effectively people can access the top.
Let’s take the specific example of entry into the Civil Service.
A lot of ink has been spilled over the last couple of weeks about our approach to broadening access to the Civil Service.
Some have accused me of fomenting a class war, others have called me suicidally brave.
So I want to set out exactly what we are, and are not, planning to do.
Recent evidence suggests that the Fast Stream is less socially diverse than Oxbridge.
And it’s true that too little effort has gone into finding talent from all parts of our country and all backgrounds. This is much broader than the school you attended.
I’m a product of, and proud supporter of, Britain’s independent schools. I’m about as far from a class warrior as you could get.
But the Civil Service is not drawing on the all the talents it could.
And unlike gender or ethnicity, for example, this isn’t normally measured.
Over the past few years we’ve put a huge amount of effort into broadening access to the Civil Service. Our apprenticeship schemes bring in talent from completely new backgrounds. We’ve expanded outreach to encourage people to apply more broadly.
We’re making recruitment processes less London-centric.
And we want to measure, overall, how successful these policies are.
Any background measures would be collected on an entirely voluntary basis and used anonymously.
Let me be absolutely clear. They will not form the basis of any individual recruitment decision.
When it comes to appointment, that is and should always be on merit.
Positive action yes. Positive discrimination no.
In fact, we’re going further to remove discrimination. Some have suggested that the best way to tackle this is anonymous applications. They are exactly right.
Since September we’ve ensured that applications are both name-blind and school-blind.
This now covers 70% of the Civil Service by default, and will soon be standard across the board.
It’s part of a wider plan to remove bias in peoples’ applications.
Just like the success we’ve had in radically increasing the number of women on boards, this meritocracy can only be promoted by eschewing quotas and sticking rigorously to appointment on merit, while measuring how well we do in giving everyone a fair chance to serve their country.
It is my core belief that technology enhances opportunity and upward social mobility. But we must not be blind to the challenges in getting there.
The role for government
So given all this, let us turn to what is the role for government?
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Sometimes developed economies – the UK included – have historically not done enough to support those who lose their jobs to economic disruption.
Especially when the losses have come in highly concentrated geographic areas, meaning whole towns and industries have closed virtually overnight.
Luddite may now be a byword for backwardness, but the original Luddites were skilled workers with families to feed, who’d seen the value of lifetime’s craftsmanship vanish overnight, and who had no legitimate, democratic power to protest.
We have to remember that for all the benefits driverless technology will bring, it’s not much good if you’re a truck driver.
So how do we get to the future without leaving anyone behind?
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Supporting the disruptors and the disrupted.
The first thing need to do is support the disruptors. This isn’t just about the Valley.
Huge efforts over the last 6 years have gone into creating a dynamic environment for enterprise in which peoples’ talents and passions can be unleashed.
We can be incredibly proud that we are home to fastest growing tech cluster in Europe, that we’ve embraced sharing economy platforms like Uber and AirBnB, that we do more e-commerce per head than any other nation, and that other governments are using code written by our very own GDS.
Of course, technology sometimes has its frustrations, as I’ve discovered myself in the last 24 hours.
But it is the flexibility of an economy that allows its people to make the most of the new technologies available.
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It’s true that the things that make a smartphone work - GPS, the internet, even Siri - began life as DARPA research projects.
Yet no-one at the Pentagon dreamed that one day Cold War-era military hardware would be used for online shopping. That required the market.
Yes, there is a vital role for government in scientific research, but only as part of a dynamic economy that can take that research to market.
Likewise we need a regulatory framework that stays up to speed with new technologies and ensures a level playing field. We need a business environment and competition policy in which the disruptors can themselves be disrupted: pro-market not pro-incumbent, where businesses can arrive, thrive and fail to survive.
It means relentlessly tackling barriers to entry, like licenses, restrictive practices and monopolies, while pursuing smart deregulation so businesses aren’t crippled by bureaucracy and consumers are protected.
It means lower corporate tax, to encourage businesses to expand.
And it means allowing for new platforms to be developed.
Just one example. Care work is a difficult, low-paid and incredibly important job that has so far been untouched by the digital revolution.
It can’t be done by machines, but how about a platform allowing local authorities, with appropriate safeguards, to get services directly from care-workers, that would cut out the huge agency fees and allow direct user feedback from families?
Another way the government can support disruption is to release the data it holds on behalf of the country.
Where we’ve published our data in open, usable format, entrepreneurs, academics and pioneering local authorities have found applications for it that we simply couldn’t have imagined.
Travel apps, property valuations, flood modelling, footfall simulations for retail: these are a small fraction of the applications that have been engineered with open data.
So far we’ve released 29,000 datasets and counting.
We are already world leaders at this, with a blossoming data economy to show for it, but there is much more to do.
So first, we support the disruptors.
Second, supporting both disruptors and the disrupted demands the right skills.
The quality of schools are critical of course, and must produce rounded, dynamic and entrepreneurial young people prepared to adapt to an ever-changing world.
We need to think of digital skills as foundational, alongside English and maths, and continue the massive expansion of apprenticeships.
But we must stop thinking of education as ending at 18 or 21. Constant learning is the norm, and we must do much more to harness education technology to expand the options for adults and children alike.
Third, we must support those who are disrupted too.
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The purpose of a strong and flexible economy is to support people.
Where job-losses from automation are dispersed, and among people with transferable skills, the challenge is not as great.
But when a big change hits an area with a high concentration of jobs in one place we’ve got to be prepared to intervene.
The benefits of technological progress are well worth the cost of government intervention to support the disrupted.
Over the past few years, government has improved its toolkit for helping communities manage disruption.
In 2011, when Pfizer decided to sell its Sandwich site, the government stepped in to create an enterprise zone with lower business rates and superfast broadband.
In 2012, when Ford shut their production plant in Southampton we worked to redeploy workers who were out of a job. By 2014, under 2% were out of work.
We are now working intensively to save the Port Talbot steelworks.
And for those who say we shouldn’t have industrial strategies, my answer is clear: government has an imprint on the economy just by existing, so let’s be strategic about that imprint and not passive.
Geography matters too: increasing agglomeration, like with the Northern Powerhouse, improving transport and economic ties reduces the impact of any given shock.
Balancing the proven value of clusters, with the need to avoid wherever possible isolated industries.
So we must help new businesses create jobs, not just in general but specifically in the places that need them.
This all means government rolling its sleeves up and getting its hands dirty to regenerate and attract businesses where jobs have been lost.
Look at the Orgreave colliery site, derelict for years after the mine closed.
But now, thanks to our work in the last Parliament, it’s a cutting-edge catapult centre combining business, government and academic research.
Our attitude to the rise in self-employment matters too.
Some see the rise in self-employment as a problem: by contrast it brings flexibility and dynamism that needs to be matched by tailored support where feasible.
This is the way a modern, dynamic, free economy works.
Freeing disruptors to expand, helping the disrupted where needs demand. Supporting people to change, not to stay the same.
Sir Keith Joseph spent his life in a battle of ideas in pursuit of a free society that worked for its citizens.
He believed, as he put it, in ‘government as a maker of rules for men who want to fashion their lives for themselves’.
Today we must remake those rules, drawing inspiration from and learning from the past, recognising that technology is not an enemy of humanity but a collective expression of humanity.
We have a duty to win this battle against the reactionaries of left and right.
We need to be on the side of the disrupted, as well as the disruptors.
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Conclusion
Now our generation must win that battle of ideas once again.
There is a lot at stake, but the prize is worth it.
We have the opportunity to remake Britain once again as a world-leading, dynamic, prosperous society, in which all can play their part.
We should be excited about what the future could hold, determined that all should benefit from it.
And in so doing win the case for a country in which all can reach their potential.