What is the economic impact of institutions and technology?

GR: The importance of institutions has been central to much of your research. I’m wondering if you can explain why institutions are important and what lessons can be learned for the UK.

DA:

My view of institutions is actually very historically shaped and I tend to see them as inevitable. So it’s not like “we have institutions” or “we don’t have institutions”: it’s just politics and part of our overall social environment.

We always have rules – implicit or explicit – and these will evolve over time. But as they are present today, they will shape the way we interact with each other, how we behave as workers, as entrepreneurs, as managers and as innovators.

Of course, when you think about it, institutions will have a significant impact on what kind of society we build and what kind of economy we have. And when you look at history from this perspective, it becomes clear that the institutions that societies themselves have built and developed have always been of great importance. In some cases this has happened in nuanced ways, but institutions have always been a key determinant of economic growth, inequality, wages, poverty, health and public services.

The United Kingdom has a special place in this history as it has been at the forefront of institutional change. Europe was backward and developed enormously as an economy, society and polity over the course of the Middle Ages and then during the commercial revolution at the end of the Middle Ages through to early modern Europe. Britain was symbolic because it was perhaps one of the least developed parts of the European continent, but it was one of the first areas to undergo an institutional transformation process, which meant it played an important role.

What’s very interesting is when I wrote about institutions in the 2000s – and when I wrote my book Why nations fail with James Robinson, who took an institutional approach to world history and economic development – Britain was seen, and I saw it, as one of the most institutionally sound countries. This was because it used norms and institutions that had developed over centuries. It was not a process of enlightened democratization, but it was a process of democratization that was so embedded in British political culture and British political attitudes that I would have thought that Britain would have been the last country to go through an institutional crisis .

But in recent years we have seen this. In recent years we have also seen the economy collapse. I think this is partly because the UK economy is not at its best at the moment. There is not a very clear agenda or direction, and that is because it has not really dealt with the institutional crisis that began a few years ago.

I think that for the future of the country it is necessary to draw on the strengths of institutional precision. By this I mean an understanding of which laws must be followed and how norms will shape political attitudes and business attitudes, as well as the relationship between workers and managers, between civil society and democracy.

I think all of this is very clear, but we have seen them turned upside down and rebuilding them will be crucial. I believe that tolerance, predictability of institutions, the ability to express dissenting opinions and a certain level of trust in politicians and institutions are crucial. And I think those are the things that have been lost in Britain.

GR: Aside from the fact that our institutions seem precarious, we are also in a time of rapid technological change. Do you think this is something we should embrace positively or see as a challenge?

DA:

My research over the past three decades has been largely, almost exclusively, at the intersection of institutions and technology. Sometimes it has focused a little more on institutions, sometimes more on technology.

Just as I believe in the importance of institutions, I also believe in the importance of innovation and new technologies. One cannot understand the history of enriching and improving our health, comfort and prosperity over the last 250 years without recognizing the truly profound changes that have taken place in industrial technology, the scientific process and our understanding of how we cope with the Interact with nature, have taken place and control nature.

But technologies always bring challenges. And there is no economic law that says technology is always good for everyone. There is now a certain belief in the tech-optimistic circles of Silicon Valley and some US academics and media that if we invent something impressive, we will all benefit in some way.

Well, history is full of counterexamples to this – just think of nuclear weapons or control technologies that were at the heart of slavery and other things. So it’s really important How We innovate, what do we do with those innovations, and how do we create the institutional guardrails for how a new technology will affect democracy, production, communication, etc.

When it comes to artificial intelligence (AI), I think I have a very different perspective than the techno-optimists and techno-pessimists. I strongly disagree with the techno-optimists – I think they are really naive and misleading and often try to silence the discussion.

But I don’t agree with the techno-pessimists either. I don’t think you can say that AI will destroy us or kill humanity. Nor can one say that there is anything in the nature of AI that will be harmful to humanity. I think AI has a number of impressive architectures and achievements, as well as impressive goals. The changes we have experienced in recent years have been truly stunning.

The room for something that will be better for society is there, but I think that AI – just like nuclear physics – carries with it the dangers of something very negative for humanity: a much more unequal society, a much less democratic one Society, a much more manipulative society where very few people decide how others think and how others can be manipulated.

It really highlights another theme in my work, which is the choices we make. So AI is neither good nor bad. I don’t think we can talk abstractly about what AI will do for jobs or inequality – it will do whatever we want.

The conclusion of your question is then: Where are we heading right now? And I think I’m rather pessimistic. I’m hopeful but pessimistic, meaning that at the moment I see AI being controlled by a very small cadre of like-minded, undemocratic and dangerous people to be honest. It risks exacerbating inequality, representing an anti-democratic force and leading us to a two-tier society.

But I also hope that there is a way to redirect AI and use it in a way that is good for workers, good for citizens, good for all of us. But that won’t happen automatically.

GR: What radical idea would you propose to make technology work better for society?

DA:

First, let’s set the goals and I’ll give you the radical idea. As I said, we need to reorient AI, so first of all we need to clearly understand what we want. My argument here is that it is both technically feasible and socially desirable to have worker-friendly, people-friendly, and democracy-friendly AI.

But since that is not our goal, we need various policy levers to redirect the course of AI. And I don’t think we have a silver bullet here, we need a lot of tools. But since you only asked for an idea, I’ll give you one that many of your readers probably haven’t considered or heard.

I think part of the problem with the current direction of AI lies in the ecosystem that has emerged, both in terms of the ideology of AI and the business model of how to monetize it. We need to break through this, and I think a very effective tool to do this would be a very high tax on digital advertising.

We must ensure that social media companies do not exploit people in a manipulative manner. I think the way this is happening now – with terrible effects on mental health, political polarization and deteriorating communications – is by collecting people’s data and then monetizing it. They bind people to the platform with their attention and then monetize it with digital ads.

This is so profitable that it has blocked all possible alternative business models, and it has taken energy away from using AI for other, more valuable things, like helping workers. So I think a significant tax on digital advertising would be a transformative technology. It would essentially cause at least half of the industry that uses digital advertising to become unprofitable, forcing companies to shift their efforts elsewhere, to other business models and other ways to make money providing services to customers.

GR: What advice would you give a young economist today?

DA:

Well, now is a fantastic time to be a young person – I wish it were me! I would say just take advantage of it, and in an intellectual environment that means doing what you’re passionate about, being open-minded and tolerant, and being a thinker. I think what we need more than anything is people who think for themselves instead of just repeating lies that they get either from their professors, from social media, or from their peers.

I think that independent thinking is the gift that our current environment gives us, but we can choose not to use it. And I think one reason I’m so worried about social media and new communications technologies is because they really stop us from being thinkers. So be a thinker!

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