How and under what conditions would technological revolution create overall societal benefit? ICT, productivity, and capital

Abstract

With the advent of smart machines, ICT revolution is moving towards a relatively unknown territory. Economic theories play important role in shaping the direction and effect of this technological change to the lives of everyone. The acceleration of unemployment and dualism which the ICT revolution is expected to create has raised concerns regarding the social benefit of technological progress, and raises the question whether existing theoretical frameworks are adequate to deal with the societal consequences of technological revolution. The objective of this thesis is therefore to explore how and under what conditions technological revolution would create overall societal benefit. This study explores and analyzes five economic perspectives: neoclassical, (Neo)-Schumpeterian, Marxian, (Post)-Keynesian, and Aristotelian economics to understand the impact of technological revolution to productivity growth its economic consequences. Empirical study is also conducted to estimate the impact of ICT revolution from 1970 to 2007 in seven advanced economies: Denmark, Finland, Sweden, Germany, The Netherlands, The U.K., and The U.S. The various economic perspectives explored in this thesis seem to agree that technological revolution could give rise to savings (neoclassical), profits (Schumpeter), or surplus value (Marx). The empirical observation examines the impact of ICT to productivity growth in the seven advanced economies. This gain in productivity gives rise to productivity dividend, either in the form of more goods produced or reduced working hours. The econometric analysis of panel data from EU KLEMS database from 1990 to 2007 suggests that this productivity dividend, if expressed in money terms, is estimated to contribute U.S.$ 5.4 trillion (in 2007 value) as profit before taxes. The empirical result, however, does not satisfactorily answer whether the use of this productivity dividend has led to societal benefit, prompting further theoretical work. The result of further theoretical work on capital allocation suggests that standard economic framework found in the neoclassical theory prescribed capital allocation to maximize financial returns due to its tendency to focus social benefit solely on the basis of material gains. Schumpeterian perspective which encourages entrepreneurship also tends to emphasize on the accumulation of material wealth by the entrepreneurs. On the other hand, perspectives from Marx, Keynes, and Aristotelian economics adduce to the notion of social benefit by incorporating people’s immaterial needs. Importantly, the assertion that human’s material needs are limited makes possible the existence of freed capital – the capital arising from that is no longer needed to finance human beings’ material needs. This thesis argues that freed capital has its very origin in the human capacity, following Wilken (1992). The counterpart of this freed capital is proposed to be the immaterial needs of human beings, which include the need to develop human capacity. For the next step, it is recommended to dissect further the ethical foundations of these economic theories to strengthen the case for capital allocation that they prescribe.