The Bank of Canada’s Senior Deputy Governor, Carolyn Wilkins, spoke at the G7 Symposium on Innovation and Inclusive Growth. Her speech reflected the theme of the symposium, focusing on the inequality of growth and other challenges associated with recent technological innovations.
Wilkins pointed out that the world has enjoyed a significant run of economic growth and associated reductions in international poverty over the last 70 years, thanks to ongoing advancements in technology. But, at the same time, inequality has risen in advanced economies, which can result in sub-optimal economic outcomes. More shocks appear to be on the horizon, with nearly half of tasks currently done by workers potentially becoming automated using technology that exists today.
The speech was broken into three key areas of discussion:
- That the technologies may be different, but innovation is not new, and lessons can be drawn from the past. Experience suggests that rising inequality comes from the characteristics of innovations: First, technology tends to benefit skilled workers, leading to divergent labour market outcomes. Second, some forms of technology lead to rising market concentration and ‘superstar’ firms – the classic example are early telephone monopolies, but in the modern context, data can be used as a source of monopoly power, while digital products make taxation more challenging. And finally, that technology has also made it easier to separate work into discrete tasks, enabling greater use of short-term jobs to maintain flexibility.
- These implications don’t have to hold. That is, policymakers (though, not the Bank of Canada) can help address these negatives through increasing the skills of their workforces, including on-the-job training. The technology itself can also serve to improve outcomes: workers with disabilities (roughly 10% of the labour force across the G7) represent a largely untapped resource, but new technologies, such as chat and email have already made workplaces more accessible, while other technologies such as self-driving cars may improve mobility.
- We are unlikely to get the full benefits of innovation if market power is left unchecked. Particular focus was given to the tech industry, where firm concentration raises potential concerns regarding monopoly power. Data in particular are seen as creating a potential ‘wall’, reducing firm creation and market contestability. Wilkins suggests that solutions may lie in the modernization of anti-trust policy, changes in the treatment of user data ownership, and potentially, patents. Also of concern are the growing operational risks posed by the concentration of service providers in areas such as cloud services, which have traditionally fallen outside of current regulatory areas.
Bringing it closer to home, the Senior Deputy Governor suggested that regulators can follow the Bank of Canada’s lead in testing and implementing new technologies, both to understand and benefit from them.
Key Implications
If you were looking for guidance on the path of interest rates, this was not a speech for you. That said, while this speech may not have been typical fare for the Bank of Canada, it was nonetheless an excellent discussion, providing a fascinating insight into how the Bank of Canada thinks about the implications of ongoing technological advances and how policymakers might respond.
Today’s speech is also of particular note as the next Federal budget is likely not far away, and likely to focus on addressing similar themes, notably inclusive growth. To the extent that the government is communicating with the Bank of Canada on these issues, the advice they’d receive hews closer to a European-style, interventionist bent, rather than a more laissez-faire approach.
These issues are complex, and many potential solutions exist, although some may debate whether some of these outcomes are problems at all. Ultimately, there is likely one piece of advice that all will agree on: gaining hands-on knowledge of and experience with new technologies is bound to lead to more informed, and thus better, decision-making.
