‘The rise of the robots’ and ‘productivity pessimism’ can’t both be right

Talk of looming automation, AI and robots is pervasive in public policy chat – including in the government’s new industrial strategy. Almost as common are projections that the weak growth of the past decade is here to stay – including in the latest official economic outlook. But these forecasts can’t both be right.

In the ‘robots’ view of the next ten or twenty years, machine learning will allow many jobs or tasks to be automated; from driving taxis to diagnosing disease and from cashiers to translators. And it’s not just AI. Greater physical capability could mean ubiquitous flying drones, robots on construction sites and the continued mechanisation of manufacturing. The new industrial strategy argues that “the world is undergoing a technological revolution… of a scale, speed and complexity that is unprecedented”.
But at the same time the government’s independent economic forecasters, the Office for Budget Responsibility, have downgraded their forecast for growth in productivity – or how much the country produces compared to the total number of hours worked by humans. Crucially, their projections are based not on expectations about future technology but purely on what past trends would suggest.

Over the three decades before 2008, productivity per hour grew at an average of 2.3% a year. Going back even further, productivity growth from 1837 to 2007 as a whole averaged 1.9% a year, and technological progress was of course a central part of this. After the financial crisis, it was generally assumed that those long-term productivity growth rates would return – or even that we’d make up the lost ground with a period of rapid catch-up growth. But instead productivity growth in the UK over the last decade has averaged only 0.1% a year.

As the years have worn on, the idea that this ‘stagnation’ might not just be temporary has accordingly gained credibility. Reflecting this, the Office for Budget Responsibility now expects trend productivity growth of no more than 1.2% a year. It’s a downgrade that has pushed up the government’s borrowing forecast by £91 billion over the next five years, and one that explains why real wages are not forecast to get back to their pre-crisis peak anytime soon. And they have revised up their employment and average hours projections to 2022-23: again hardly in keeping with predictions of technology-driven unemployment.

The ‘robots’ forecast and the ‘stagnation’ forecast are both reasonable, independently. But they are fundamentally at odds. If AI and robots can replace or supplement lots of existing human work, that must mean more goods and services with a reduced or unchanged number of hours worked. That is an increase in productivity.

There’s no evidence so far of the robot effect in the UK, with record high employment, terrible productivity growth and low investment. But although this gives little backing to the idea that a revolution is already in progress, on the other hand we should not assume that recent trends are a good guide to the future. Forecasters did not see previous periods of high growth coming, with empirical research by Nicholas Crafts concluding: “Recent [productivity] performance is not a reliable guide, implying that an econometric estimate of low trend productivity growth currently does not necessarily rule out a productivity surge in the near future. … Techno-optimists should not give [way] to secular stagnationists simply because recent [productivity] growth has been weak.”

Technology is not the only determinant of growth. But in 2030, we’ll surely look back and chuckle either at the productivity pessimists or at the ‘rise of the robots’ crowd (or both). At least one of these zeitgeist ideas must be wrong.

Adam Corlett is Senior Economic Analyst at Resolution Foundation