TECHNOLOGY AT WORK

12
Citi GPS: Global Perspectives & Solutions February 2015
The digital age has broken the historical
observation that shares in national income
accrue to capital and labour in a constant
manner
Digital technologies can also make capital
less relevant
So far, the digital age has been the age of capital rather than the era of labour. This
sheds a different light on the six stylised facts about economic growth Nicholas
Kaldor famously published in 1957. Having observed remarkable historical
consistency in the shares of national income accruing to capital and labour
respectively over longer periods of time, he concluded that these shares are roughly
constant — an assumption that is still at the heart of many growth models. 19 As the
labour share of GDP has steadily declined over the past decades, across countries,
this assumption has nevertheless become difficult to maintain.
Yet, in the future, digital technologies could also increasingly substitute for capital.
Crucially, the digital economy allows many goods and services to be codified, and
once codified, they can be digitised and replicated. Furthermore, as has been
pointed out by Erik Brynjolfsson, Andrew McAfee and Michael Spence: “digital
copies can be made at virtually zero cost and transmitted anywhere in the world
almost instantaneously, each an exact replica of the original.” 20 Consider Twitch, a
live streaming video platform employing some 170 workers, which was acquired by
Amazon.com for $970 million in September 2014. While receiving venture capital
(VC) funding, the company did not need much physical capital relative to the
industrial giants of the past. The same is true of Instagram and WhatsApp: both did
not need much capital investment to get started, and thus not many workers to build
up the new capital.
While digital technologies increasingly substitute for labour, they may also reduce
the demand for capital. In the digital age, innovators and entrepreneurs, not workers
or investors, will be the main beneficiaries.
Meeting the Challenge
The speed of technology diffusion has
increased…
Technologies are diffusing much faster now than they have in the past. Historically,
countries have adopted a new technology on average 45 years after its invention,
although the lag has shortened over time. It took on average 119 years for the
spindle to diffuse outside Europe. By contrast, the Internet has spread across the
globe in only seven years. The extent to which new technologies have been
adopted still varies substantially across countries and can account for some 25% of
the differences in nations’ per capita income today. 21 However, as adoption lags
become shorter, the rich world’s advantage of being an early adopter will inevitably
decrease.
Figure 5 shows the shortening of the lag in adoption, from telephones needing 75
years to get to fifty million users, to Angry Birds taking just 35 days. Services like
Instagram reached 300 million users in just four years and Forbes recently noted
that WhatsApp gained more followers in its six years of existence (700m) than
Christianity did in its first nineteen centuries.
19 Kaldor (1957).
20 Brynjolfsson, McAffe and Spence (2014).
21 Comin and Hobjin (2010).
© 2015 Citigroup