Growth, Inequality and Technology

By: François Kaboré

February 17, 2015

Technology, Values, and Development

Innovation and technology constitute a common thread between the first two lectures of the Global Futures Initiative. The first lecture by Jim Kim, president of the World Bank, challenges people involved in development to dare to change their mental models by using innovative approaches to face development challenges. The second speech by Kaushik Basu, chief economist of the World Bank, identifies technology as a key determinant of the future of the global economy. More precisely, he suggests that labor saving technology and labor linking technology are going to shape the world into the future. Along these lines, I would like to argue that technology and innovation explain much of the state of the world economy and will determine the future of development. Basu rightly referred to Smith’s seminal book “An inquiry into the Nature and Causes of the Wealth of Nations” (1776) to explain growth. He then identified exchange and international trade as important drivers of growth. Indeed, the growth of a nation could be limited by the extent of its domestic market. However, with international trade and exchange, the frontiers of any economy are limitless or are as limited as is the world’s market. Exchange and international trade are only possible if there is specialization, which in turn is driven by innovation and technology. Next, Basu explored savings and investment as drivers of growth as shown by first-rate economists (Harrod, Domar, Solow, etc.). In a financially globalized world however, everything else being equal, economies could borrow to finance their investment, as is the case with richer economies such as the United States.

A major driver of growth and inequalities that endogeneous and schumpeterian growth theorists (Aghion, Howitt, Romer, etc.) focus on and that Basu’s lecture implies is innovation. At the country level innovation explains a good deal of the divergent paths of contemporary world economies. In addition, the creative destruction aspect of innovation and technology means also that technology could deepen wage inequalities between and within educational groups as new technology displaces the old ones. In that regards, the social implications of technology could be very drastic in the labor market: people with old technology could either be displaced out of the labor market or see their returns to human capital depreciated.  

The two aspects of labor technology (labor saving and labor linking) identified by Basu will affect the future of both growth and inequality. If there is no “technological catch up” from developing countries, inequalities are bound to deepen. So where do we go from here? Innovative and creative education coupled with a change in mental models could help developing countries enjoy a pro-poor growth and invent a better future for their people.

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