To Drive Technological Progress, We Need Worker Power: An Analysis

To Drive Technological Progress, We Need Worker Power: An Analysis

By Isaac Kim and Joy Mills

    In class, we learned of the Solow Growth Model which concisely describes the relationship between technological growth and GDP growth through worker capital and firm productivity. A reflection of this theoretical framework can elucidate one on how this might make intuitive sense, but as with any scientific/economic model, it must stand against real scrutiny from examples in history and the current era to be considered legitimate. It just so happens that recent events in Britain’s current post-COVID economic climate and historical precedent may just help with this aforementioned goal.

    A Jacobin article titled To Drive Technological Progress, We Need Worker Power written by Rae Hart outlines Great Britain’s current royal treasury policy to deal with the aftermath of the COVID-19 pandemic. This policy essentially cuts corporate tax rates as an ongoing effort to spur investment into spur Britain’s “lagging productivity”, which, according to the Bank of England, is expected to only grow by 1% a year towards 2024. This policy is just a continuance of the status quo, decade-long reduction in corporate taxes which have not translated well into overall GDP growth. It is obvious that tax cuts to these businesses have not translated to technological growth (which the Solow Growth Model stipulates is the driving factor for GDP growth). This suggests that perhaps tax cuts are not the incentive needed for companies to innovate.

    To preface a possible solution, ecologist Andreas Malm wrote the book Fossil Capital which outlines his analysis of the history of the Industrial Revolution in Britain. On the cusp of the Revolution in 1769, cotton spinners were the first to “unionize” to increase their collective bargaining power. The government was in line with the firm’s interests and made such action illegal and suppressed their voices to the wayside. However, as time went on, growing fears of a strike by the general populace forced the firms to increase worker wages. This was effective because despite the workers only making up 10% of the workforce, a strike could shut down the whole economy due to how crucial cotton spinners were to the supply chain. Firms were bleeding financially because of these concessions, and their only way out was to approach an engineer to create the first automatic machine: a “‘self-acting’ spinning mule” known as the “Iron Man”. This technology exploded investment into replacing the man-powered cotton spinners and installing Iron Men, which increased GDP growth tremendously. Not only that, but the development of the Iron Man was integral to the creation of the steam engine (which draws its power from Iron Men). 

The same principle derived from this historical account can be applied to the current situation. According to the Solow Growth Model, technological progress is required to increase productivity in the long run. Figure 1 below shows an economy in equilibrium. The equilibrium output per worker and capital per worker occur where the depreciation function meets the savings function. On the diagram, the equilibrium output and capital are labeled with the letters A and B respectively. The economy will remain in this equilibrium unless there is an increase in the savings rate or a decrease in the depreciation rate (which are both caused by technological growth). Our article talks about how the UK is stuck in a “productivity paradox,” where they are not experiencing significant economic growth. Thus, currently, the UK is stuck in equilibrium. According to this magazine article and the history of technological growth related to bargaining power from Malm’s book, bargaining power will increase technology and therefore economic growth. Currently, union membership in Great Britain is at historic lows in the post-WW2 era. Increasing bargaining power by increasing wages for workers as well as allowing for unions will begin to cost employers. They will see a decrease in productivity as more of their resources are going towards their employees. This will force employers to begin investing in their process. Innovation to increase productivity will occur, often in the form of technological innovation. This can be seen historically with the Industrial Revolution and the story of the Iron Man. This technological growth will result in a lowered depreciation rate, and this new depreciation function is seen in Figure 2 below. The new depreciation function sees an increase in the equilibrium output per worker as well as capital per worker. Economic growth is present, and we know that technological growth is required for long run economic growth, but in order to foster technological innovation, an increase in workers bargaining power is essential.

The article then goes on to make an even bolder claim. “[T]he technological innovations that our era demands — to tackle the climate crisis and build a more prosperous and just society — will be brought about only if the balance of power in the economy tips away from capital and toward working people.” Through this quote Hart is asserting that modern day innovation should be environmentally positive . While this may make sense to the environmentally conscious person, he supports this claim by pointing out that renewable energy is also increasing jobs. An increase in jobs is always a plus and will also assist in the increasing inflation we are seeing. Hart says, “Nationalization of key industries and the creation of jobs in the renewable energies sector is another way the government could help to alleviate some of the supply-side constraints causing the current elevated levels of inflation.” So the increasing bargaining power is not only good for economic growth and the wellbeing of employees, it can also lead to technological innovation that will increase jobs available resulting in a slowed inflation rate.

With benefits to the climate, economy, workers, and firms, this article stands as a compelling argument for the unionization of workers in the long run. Hopefully, Great Britain will use these facts to assess whether or not their policies will benefit individual firms through tax cuts.

   

Works Cited

Hart, Rae. “To Drive Technological Progress, We Need Worker Power.” Jacobin, 16 May 2022, https://www.jacobinmag.com/2022/05/technological-progress-worker-union-power-inflation-cost-of-living.

Malm, Andreas. Fossil Capital: The Rise of Steam Power and the Roots of Global Warming, Verso, London, 2016. 

Quinn, Kevin, and John Hoag. "What really happens in the Solow model: technological progress versus population growth?" American Economist, vol. 58, no. 2, fall 2013, pp. 149+. Gale Academic OneFile, link.gale.com/apps/doc/A349903273/AONE?u=taco36403&sid=bookmark-AONE&xid=6e2e76c9. Accessed 17 May 2022.