Understanding how extraordinary technological progress can sit alongside an economy where one third of British firms have seen zero net productivity growth since the millennium is vital to ensuring we effectively manage automation to widespread benefit. A critical part of the answer – as we argue in IPPR’s forthcoming report on managing automation for the benefit of all - is the slowing rate of technological diffusion from frontier firms to the ‘everyday economy’. Addressing this, with workers involved at the heart of the process, will be crucial to ensuring automation works for all.
Clearly, the effective integration of increasingly capable AI and robotic systems has the potential to deliver enormous productivity dividends, something the UK desperately needs. If managed well, this could have profoundly positive effects: better, more ‘human’ work, greater leisure time, improving living standards, and more efficient and less environmentally damaging forms of production.
Yet as both the OECD and the Bank of England have argued, the diffusion of technologies to the non-frontier economy has become worryingly slow, which is hindering the pace of automation and weakening productivity growth. For example, across the OECD labour productivity in the manufacturing sector at the global frontier increased at an average annual rate of 3.5 per cent over the 2000s, but only 0.5 per cent in non-frontier firms. In the services sector, productivity of frontier firms grew 5 per cent but actually fell by -0.1 per cent in non-frontier firms. The gap in productivity performance between the minority of leading firms and the broader, lagging majority of companies is even more pronounced in the UK than other advanced economies.
Closing this gap will require speeding up the diffusion and adoption of productivity-boosting technologies across the economy. For example, it is estimated that three-quarters of potential productivity improvements related to automation come from the broader adoption of best practices and technologies, as companies catch up with sector leaders. Only a quarter is from technological, operational, and business innovations that go beyond best practices and push the frontier of the world’s GDP potential.
If we can accelerate the pace at which ordinary firms adopt and use cutting edge technologies, the effects could be transformative. As Andy Haldane, chief economist of the Bank of England, points out, if productivity growth in the second, third and fourth quartiles of the distribution of UK firms’ productivity could be boosted to match the productivity growth of the quartile above, it would deliver a boost to aggregate UK productivity of around 13 per cent, taking the UK to within 90–95 per cent of German and French levels. Similarly, the Government’s ‘Made Smarter’ review of industrial digitalisation technologies (IDTs) estimates that the faster adoption of IDTs in particular could improve industrial productivity by more than 25 per cent by 2025.
Given this, a managed acceleration of automation to boost productivity across the economy should be a key goal of public policy. Crucially, maximising the benefits of automation will require improving the rate of diffusion of technologies from the minority of frontier firms to the majority of slow-adopting, low productivity firms in the rest of the economy. It isn’t enough to just focus on technological innovation at the frontier; we have to make sure that these technologies are adapted and used throughout the rest of the economy if we are to fully benefit from automation.
IPPR’s report, for our Commission on Economic Justice, argues for a dedicated programme to accelerate the diffusion of automation, robotics and other digital technologies throughout the economy. We recommend creating a new body, Productivity UK, tasked with driving firm-level productivity across the economy, including through the more rapid adoption of digital and automaton technologies. Its goal would be to help small and medium-sized businesses to understand the productivity-raising potential of new technologies and to accelerate their introduction, through information and advisory services, and grants and loans for investment. This would be done alongside wider management education and consultancy services, and support for skills training. It would work with sectoral bodies in key sectors, with the Scottish, Welsh and Northern Ireland governments, and in England with local enterprise partnerships (LEPs) and combined authorities.
A particular feature of such a national adoption programme should be an increase in the voice given to workers in the process. If automation and other digital technologies are to help create better jobs, it is important the workers are involved in shaping their use. To ensure workers’ voice is embedded in how Productivity UK operates, we recommend it is governed as a tripartite body between government, businesses and trade unions. Productivity UK should also seek to empower worker voice in how technologies are adopted and used, for example working with trade unions to ensure that employees play a partnership role in the development and deployment of new technologies in the workplace. It should also consider how best to ensure that workers in non-unionised workforces have an effective voice as new technologies are introduced.
A managed acceleration of automation through increasing adoption rates is crucial. More is needed, including new models of ownership to share the benefits, an upgraded skills system fit for the machine age, and new institutions to negotiate the ethical dilemmas of automation. However, if automation is going to benefit workers to the full extent it could, and at a pace that can positively transform the economy, they will have to be at the heart of how automation is managed.
Mathew Lawrence is a senior research fellow at IPPR and a co-author of Managing Automation: employment, ethics, and inequality in the digital age. He tweets @dantonshead