In general, over the last millennium, technological advances have raised living standards. But this broad generalization obscures important historical variations. At least two conditions must be met if new technologies are to contribute to widespread prosperity. First, they must sustain labor demand by augmenting and not just replacing human labor. And second, high labor demand must generate high wages. According to Acemoglu and Johnson’s Power and Progress, directing new technologies toward these ends is a social choice, and the distribution of social power affects how that choice is made.
Even when couched in appeals to the common good, new technologies do not benefit everybody automatically. Often, it is those whose vision dominates the trajectory of innovation who benefit most.
An important implication of this argument is that the path to prosperity leads through democratization as well as through technological innovation. The middle part of the book supports their argument with many historical examples.
“Cultivating Misery”
The history of agriculture reveals that a positive relationship between technology and prosperity is mostly a modern urban phenomenon. For much of history, people who have worked the land have received little benefit from their own increased productivity. In Medieval Europe, the problem was not a low demand for labor, but the power of landowners over workers. England after the Norman conquest “was a dark age for English peasants because the Norman feudal system ensured that higher productivity would accrue to the nobility and the religious elite.” Farming methods gradually improved, but a coercive social system enabled the elites to claim the surplus product, while keeping the peasants at a subsistence level.
Beginning in the fourteenth century, this social order was disrupted by the high mortality rates of the Black Death. For a time, the demand for labor exceeded the supply, putting the surviving workers in a stronger bargaining position.
By the eighteenth century, agricultural laborers faced a new threat. The expansion of commercial agriculture led landowners to reorganize their holdings, throwing out peasants who worked the land for their own subsistence and replacing them with fewer workers producing commodities for the growing market. In the name of progress, “It was acceptable to strip the poor and uneducated from their customary rights and common lands because the new arrangements would allow the deployment of modern technology, hence improving efficiency and producing more food.”
Through much of history, therefore, agricultural systems have “cultivated misery.” When masses of farmworkers were in demand, they were usually dominated by more powerful landowners. When technology improved productivity, they were either worked harder so that others could profit, or else thrown off the land.
Acemoglu and Johnson worry that if the latest technologies replace too many workers and empower the few rather than the many, “our future begins to look disconcertingly like our agricultural past.”
Industrialization
The shrinking demand for farm labor would not have been an obstacle to prosperity if good jobs awaited the displaced peasants in the manufacturing sector. But in the early days of manufacturing, the factory system offered an alternative form of misery.
The Industrial Revolution was preceded by what the authors call a “middling sort of revolution.” By the mid-eighteenth century, a rising class of innovators, inventors and entrepreneurs were starting to reshape the economy. Innovations like the steam engine and the spinning frame appeared at this time. Just as important was a social transformation that weakened the power of the landed aristocrats and modestly expanded democracy.
As the rising entrepreneurs reorganized production and applied new technologies, productivity rose rapidly, especially in the textile industry. But the authors’ theory explains why this “progress” did not initially improve living conditions for the workers. The first reason was low labor demand. Because early industrialization emphasized the mechanization of existing tasks, notably spinning and weaving, the factory system created new jobs by destroying old ones.
The second reason was the power imbalance between entrepreneurs building capital and impoverished workers desperate for work. As the rising middle class expanded their wealth and political influence, their vision of progress increasingly dominated public discussion. The “industrial entrepreneurs’ choices of technology, organization, growth strategy, and wage policies enriched themselves while denying their workers the benefits of productivity increases—until the workers themselves had enough political and social power to change things.”
The result was that early factory workers—despite their high productivity—were made to work very long hours under dismal working conditions for very low wages. They were also crowded into urban factory districts plagued by coal-dust pollution, poor sanitation, unclean water, and related diseases.
As the rising middle class gained wealth and political power, their vision of progress dominated public discourse. Obsessed with how industrialization created new wealth—for them—they had little sympathy for those who earned too little to share in the benefits of their own productivity.
Conditions improved in the second half of the nineteenth century. New technologies like railroads and the telegraph created more jobs than they destroyed. Workers began organizing to exert countervailing power against employers. Social critics and reformers scandalized by social conditions began to challenge the dominant vision of progress. Governments took a few steps to improve public health and other urban conditions. With labor demand and labor power rising along with productivity, real wages could increase.
In the United States, conditions were generally better than in Europe because land was more abundant but labor was more scarce. That combination put workers, especially skilled workers, in a position to command a higher wage.
Rising real wages in Western Europe and America did not stop the rich from getting richer even faster, so that economic inequality increased during the Gilded Age. It also increased globally. At a time when the fruits of technological progress were starting to benefit more Europeans and Americans, colonialism impeded that process in many other places. The large flow of manufactured textiles from Britain to colonial India destroyed indigenous textile jobs, retarded industrialization, and confined a greater proportion of Indian labor to rural occupations.
A formula for prosperity
The time and place best characterized by a “productivity bandwagon” was the mid-twentieth century in Western Europe and the United States, especially the three decades after World War II. It had all the elements of an economically successful application of technology: Sustained growth in productivity; high labor demand in expanding occupations, and institutional structures supporting a more egalitarian distribution of power.
In the twentieth century, the proportion of the workforce needed in agriculture dropped sharply, but that was offset by a rising demand for labor in manufacturing and services. This was due to a better balance between labor replacement and labor augmentation. “The reduction in labor requirements driven by automation was offset, sometimes more than one for one, with other aspects of technology that created opportunities for workers.” Large-scale manufacturing needed not only blue-collar workers to run the assembly lines, but engineers to create them, technicians to repair them, and white-collar workers for managerial, clerical and sales jobs.
Operating the machinery of modern manufacturing required some skill, but the skills were not too hard to learn. Union contracts stipulated that employers would train their union employees. Rapid expansion of formal education provided qualifications for higher-level jobs.
Public policy supported broad-based prosperity in several ways: protecting the right of workers to organize and bargain collectively, spending tax dollars on public works and income support, and regulating business to place limits on corporate power.
The results were spectacular. Real wage growth averaged almost 3 percent per year for both more educated and less educated workers. The income distribution became more egalitarian, with labor’s share of national income rising and the share of the richest 1% falling.
Acemoglu and Johnson emphasize how exceptional the link between technology and prosperity was during this period:
In the long sweep of history, the decades that followed the end of World War II are unique. There has never been, as far as anyone knows, another epoch of such rapid and shared prosperity.
Even as they celebrate the accomplishments of the twentieth century, the authors are careful to acknowledge those who were left behind. Black Americans and immigrants were excluded from many of these gains. As individual earners, women were too, although they benefited indirectly as wives and daughters of upwardly-mobile men.
Despite these failures, we can understand why so many of the people who lived in that era—including many economists—came to accept the “productivity bandwagon” as a normal and natural phenomenon. That may have left them unprepared to appreciate the challenges of our new technological era. That is the issue for the last four chapters of the book.
Beneath the Surface 