Disrupting Engels' Pause

Disrupting Engels’ Pause Skype in the Classroom and 21st Century Skills Ross SMITH Director, Skype for Good :-), Microsoft Corporation [email protected] Abstract: In the late 18th and early 19th century, the introduction of the power loom had a decimating effect on the real wages of weavers and spinners. Economist Friedrich Engels tracked these trends and identified what’s become known as “Engels’ Pause” – the time that worker skills take to catch up to a new technology. During that time, overall productivity increased, prices dropped, and demand increased. Similarly, the number of bank tellers has increased since the introduction of the ATM. One could argue that we are in an Engel’s Pause period right now, as real wages for hundreds of millions have remained flat or declined since 2005. However, Skype in the Classroom and other technology solutions offer hope for how we educate - by introducing new skills and 21st century jobs to K-12 students by bring guest speakers into a virtual classroom. Keywords—jobs, economics, new collar skills, Skype, education

INTRODUCTION History doesn’t repeat itself, but it often rhymes – Mark Twain We are entering a time of rapid change. Technology is moving so quickly that it’s impossible for anyone to prepare. A high schooler learning JavaScript today will likely learn a half dozen new programming languages during their work career. As it did during the 19th century, technology is moving faster than the human capacity to keep pace. Machines are stealing jobs from humans – ATMs do the work of bank tellers, web sites and ticket kiosks replace airline agents, virtual assistants replace human executive administrators, and self-service checkout counters replace human cashiers. History has shown us, however, that humans know how to adapt and learn. When Gutenberg’s printing press changed the game for monks illuminating Bible’s, the monks adapted. When the power loom disrupted the weaving industry, weavers and spinners adapted. A hunter gatherer chasing food in the cradle of humanity was obsoleted by one who had learned how to nurture plants and grow food. Throughout history, humans have adapted to find their place alongside technology. The 21st century is no different 105 AD and the invention of paper, where “newfangled” technologies disrupt the landscape. Humanity never sits still and the pace of chance continues to accelerate… I. LEARNING FROM THE POWER LOOM For centuries, cloth manufacturing was done by spinners and weavers. Spinners would use these raw materials and use a hand loom to spin raw materials into threads. Weavers would use this thread to create cloth, which would be crafted into clothing. In 1784, Edmund Cartwright disrupted this century old process by inventing the power loom, which automated the spinning process. It took 20 years for these new power looms

to make their way into the mills, but the power loom was not good news for the wagers of the textile workers. At the time, Karl Marx claimed that the elimination of labor by technology in the Industrial Revolution would lead to the progressive immiseration of the working classes. He predicted that a new machine for spinning yarn, the “self-acting mule,” would allow the mills to replace adult spinners with children and adolescents.i Spinners were essentially replaced by the new machines. The advent of the new technology brought productivity increases and costs savings to the mill owners. Life was good. Weavers continued on their trajectory, buoyed by the new technology. In the early 19th century, something changed – people started to realize that strong skills as a weaver could harness the capabilities of the new power looms and dramatically increase output. All of a sudden, weavers were in high demand – similar to engineers today – offered free food and housing, high wages, and strong competition for talent between mills. By the late 19th century, former spinners and others started to learn the skills necessary to become weavers.

II. AUTOMATED TELLER MACHINES (ATMS) When we think about a modern-day change in the landscape of work, the introduction of ATM cash dispensing machines in the late 1960s is one of the most poignant. “The ATM finds its origins in the 1950s and 1960s, when selfservice gas stations, supermarkets, automated publictransportation ticketing, and candy dispensers were popularized. The first cash machine seems to have been deployed in Japan in the mid-1960s, according to a Pacific Stars and Stripes account at the time, but little has been published about it since. The most successful early deployments took place in Europe, where bankers responded to increasing unionization and rising labor costs by soliciting engineers to develop a solution for after-hours cash distribution. This resulted in three independent efforts, each of which entered use in 1967: the Bankomat in Sweden, and the Barclaycash and Chubb MD2 in the U.K.”ii On June 27, 1967, Barclays Bank installed a machine that allowed customers to withdraw cash using paper vouchers. The British press called it the "robot cashier." iii

The rise of ATMs through the end of the 20 th century would seem to be an predicture in the reduction of bank tellers. In 2014, President Obama discussed the impact of ATMs on bank teller jobs, “There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don't go to a bank

teller, or you go to the airport and you're using a kiosk instead of checking in at the gate.”iv However, bank teller jobs did not go away. As banks opened new branches and expanded services, teller positions continued to rise along with ATM installations.

19th century, weaving was done by power looms in Britain and America and by handlooms in the third world, while everyone had used hand looms a century before. However, the implication of the slow rate of aggregate TFP growth shown in Table 1 is that this modernization (and with it the increase in the elasticity of substitution) was confined to only a few ‘revolutionized’ industries (Crafts, 1985a; Crafts and Harley, 1992). Throughout the industrial revolution, the opportunities to substitute capital for labour in most branches of the economy were limited, and that is reflected in the low elasticity of substitution between capital and labour. The low elasticity of substitution has an important implication for growth: Under this circumstance, both capital and productivity (i.e., effective labour) must increase in tandem for growth to occur. More capital without more productivity scarcely raises output. Likewise, productivity growth without capital accumulation fails to increase production. Without both technical progress and the capital accumulation to match it, there was no economic growth. branches of the economy were limited, and that is reflected in the low elasticity of substitution between capital and labour.” vii IV. ENGELS’ PAUSE

Figure 1 - Bank Teller Positionsv

“There are now more than 420,000 ATMs in America, totaling upwards of 3.2 billion transactions a year, according to the US Government Accountability Office; the vast majority of those transactions, to the tune of nearly 2 billion a year, are cash withdrawals. But if the ATM is primarily a cash-dispensing machine, then its days may be numbered: Cash, if some financial commentators are to be believed, is on its way out.” vi The irony, as we’ve seen throughout history with disruptive and displacing technologies, is that humanity adapts. While online banking and a reduction in the use of cash have continued to disrupt banking, the role of the ATM has been diminished. In particular, the role of the ATM in disrupting bank tellers is even more diminished.

To move from a spinner to a weaver involved significant learning. The complexity of using the power loom – winding the yarn on the spindle, thread tension, temperature, humidity, quality of the cotton, fineness of the yarn – all these were skills learned on the job by weavers over the years.viii As they learned these skills, weavers were not initially paid more, but over time, the laws of supply and demand kicked in. Mills started to realize that weavers who could manage the output of 2 looms were more valuable, and then 3 looms. The demand started to have an effect on wages, which began to rise in the mid 1800’s. This has become known as Engel’s Pause – wage stagnation occurs as new technology is introduced and workers are displaced or disrupted – and then rises again as worker skills start to adapt to the technological displacement. This is clearly evident in the textile industry for a hundred years beginning in the late 18th century

III. FRIEDRICH ENGELS Friedrich Engels was a German philosopher who most famously co-authored the Communist Manifesto with Karl Marx. In 1845, Engels published a book, “The Condition of the Working Class in England” in which he wrote of his observations in Manchester at the heart of the Industrial Revolution. He wrote of wage stagnation and the worsening of living conditions – how capital investments in technology and automation served mill productivity and profitability. “…for many industries during the industrial revolution, there was little scope to substitute capital for labour even at the plant level. The implements of production in many industries were the same around the world irrespective of relative factor prices. In the 1760s, cloth was woven on similar looms in England where wages were high and in India where they were low (Broadberry and Gupta, 2006 a,b). The creation of mechanized technology during the industrial revolution meant that the scope for factor substitution broadened. By the late

Figure 2 - GDP and Real Wages

In 1864, Charles Darwin, in his renowned book “On the Origin of Species”, wrote of natural selection – that a “variation, if useful, is preserved”ix. The premise is that a species will adapt to their environment and “survival of the fittest” will prevail. That is exactly what happened to mill workers in the early part of the Industrial Revolution – they realized that a career in spinning was no longer possible, and they evolved and trained to be weavers. The productivity and output of a weaver, able to harness the output of multiple power looms earned them great wages and lucrative mill opportunities. It took 50 years, but real wages for mill workers once again began to rise. In economic terms, this period of wage stagnation has become known as Engels’ Pause – where the impact of technology on worker displacement and earnings disrupt workers – and the resilience of workers to adapt, retrain, and retrench. “While workers faced wage stagnation, productivity increased, prices dropped, and demand increased. “In the nineteenth century, 98 percent of the labor involved in weaving a yard of cloth got automated. The task went from 100 percent manual labor to 2 percent. “and what happened” added Besson, “the number of weaver jobs increased.” Why, because when you automate a job that has largely been done manually, you make it more productive, and when that happens, prices go down and demand goes up. for the product. At the beginning of the nineteenth century, many people had one set of clothes, and they were all man-made. And by the end of the century, most people had multiple sets of clothing, drapes on their windows, rugs on their floors, and upholstery on their furniture. That is, as the automation in weaving went up and the price went down, “people found so many more uses for cloth, and so demand exploded enough to actually offset the substitution of more machines for labor…”x V. PACE OF TECHNOLOGICAL CHANGE Moore's law is the observation that the number of transistors in a dense integrated circuit doubles approximately every two years. The observation is named after Gordon Moore, the cofounder of Fairchild Semiconductor and Intel, whose 1965 paper described a doubling every year in the number of components per integrated circuit and projected this rate of growth would continue for at least another decade. xi The impact of Moore’s law has never been more prevalent. The advances in computing power has led to a rise in mobile devices, cloud computing, artificial intelligence, augmented reality, robotics, data and analytics. These technological advances have great impact on the quality of life, but are driven demand for new skillsets and shift from traditional education. One might argue that we are already in the midst of Engel’s Pause. “According to McKinsey Global Institute, 540 to 580 million people-65%to70% of households in twenty-five advanced economies-had incomes that had fallen or were flat between 2005 and 2014. Between 1993 and 2005, fewer than 10 million people-less than 2% - had the same experience.” xii From the same McKinsey report, the researchers “incorporated a greater disruptive impact of technology on

employment. This reflects the potential for increasingly powerful digital technologies to take on many activities now requiring workers, further reducing demand for low- and medium-skill workers.39 To understand the potential range of this sensitivity, we assumed, on the basis of prior MGI research, that advances in technology might automate as much as 15 percent of the work that medium-skill workers do.40 Unemployment and underemployment would rise, and the wage share would fall further. Some 30 to 40 percent of the population might be in income segments where real market incomes in 2025 are flat or down compared with 2012. To sustain disposable incomes, additional targeted transfers of as much as 5 to 10 percent of 2012 net transfers might be needed.”xiii Our more digital and global economy has also become a more unequal economy. Last year, MGI published new findings on income inequality. It found that in 2014, 81 percent of US households were in segments of the income distribution that had experienced flat or declining market incomes since 200xiv

Figure 3 - US Households with flat or falling income

As an example, “Tech’s biggest companies are placing huge bets on artificial intelligence, banking on things ranging from face-scanning smartphones and conversational coffee-table gadgets to computerized health care and autonomous vehicles. As they chase this future, they are doling out salaries that are startling even in an industry that has never been shy about lavishing a fortune on its top talent.”xv

Figure 4 - Technology Adoption Ratesxvib

VI. JOB OUTLOOK 2030 Every generation experiences a sea change in labor demands. Ancient Roman and Greek academics gave way to Renaissance artists, who gave way to explorers and subsequently, politicians and statesmen. We’ve discussed the shift in a single industry with weavers and spinners. Bank tellers seemingly lost their jobs to automated tellers. As we look forward over the next decade, new jobs in robotics, data science, artificial intelligence and design thinking will change the requirements – and the skills required to fill these jobs are not being taught to the next generation of students. “Education, healthcare, and wider public-sector occupations are likely to grow while some low-skilled jobs, in fields like construction and agriculture, are less likely to suffer poor labor market outcomes than has been assumed in the past.”xvii As we think about the rise of machine intelligence, many traditional jobs will be replaced through automation. While there has been a trend towards increased automation over the last ten to twenty years, the next generation will include white collar jobs, such as lawyers, as well as those requiring physical or human skills – truck, taxi, and bus drivers, cashiers, and doctors. In a sense, there is nothing new here – farmers and scribes have seen their ranks shrink due to technology. What’s different in the 21 st century is the pace of disruption and replacement. And as new disciplines and career opportunities appear, we face a massive shortage of skilled workers entering the workforce with the skills required. According to Pearsonxviii , the top 10 skills required in 2030 will include: • Learning Strategies • Psychology • Instructing • Social Perceptiveness • Sociology and Anthropology • Education and Training • Coordination • Originality • Fluency of Ideas • Active Learning Most first grade curriculum are still focused on reading, writing, science, and social studies – which are clearly important, but will that education adequately prepare students for careers in 2030. The challenge ahead is how to affect classroom learning. Teachers have limited bandwidth and leeway to adjust their curriculum, governments impose core curriculum and standardized testing, so a bottom’s up approach is hard. Employers realize the need for these new skills, so how can we disrupt the status quo to infuse students with the desire to learn these new skills.

VII. GRADUATE SHORTAGE The United States Bureau of Labor Statistics predicts that “employment of computer and information technology occupations is projected to grow 13 percent from 2016 to

2026, faster than the average for all occupations. These occupations are projected to add about 546,100 new jobs. Demand for these workers will stem from greater emphasis on cloud computing, the collection and storage of big data, and information security.”xix “According to the National Center for Education Statistics, computer science and information technology graduates number 2.4 million between 1970 and 2011. The average rate of graduation is a little less than 50,000 every year, which means that there are about 2.7 million Americans with IT and computer science degrees in the United States, while the industry need currently is 3.9 million.”xx As we move to a world where every company is a technology company, where humans are more and more comfortable interfacing with technology instead of humans, where machines and technology are replacing humans, how do we ensure that the next generation workforce is learning the right skills to be able to participate in this next generation workforce? The number of open positions requiring technical skills has been on the rise since the beginning of the millennium, and it’s important that we leverage communication technology to bring together students and practitioners to share information about the new world of work.

Figure 5 - Open Tech Jobsxxi

VIII. DISRUPTING K-12 CURRICULUM Technology has flattened the landscape of knowledge dissemination. The internet has made all the world’s knowledge available to anyone with a connection. Technology has also allowed for curated, student-centered education. “there are plenty of opportunities to use the first disruptive innovation in education since the printing press—online learning—to transform teaching and learning to better serve each individual student within each school by personalizing and humanizing learning—and undo the factory-model

assumptions that dominate our schools and treat uniformly students in the process. Because online learning is inherently modular, it can help the education system customize for each child’s distinct needs and create opportunities for more meaningful collaborative work between children and teachers.:xxii A. Access to Expertise The internet has lowered the barriers to communication. Technology, such as Skype, have provided rural classrooms unprecedented access to expertise. A small school in rural India can connect with leading scientists at Oxford. “Disruptive innovation in K–12 education in the form of online learning is also the catalyst to bring about more equitable access to high-quality education. Far too many students attend schools that don’t offer the full suite of classes they will need in life to be successful, but through online learning, we can deliver high-quality teaching and learning experiences regardless of where students live.” xxiii Students today have unfettered access to experts across the globe, and as we think about 21st century skills – in robotics, data, science, machine learning, advance pharma, and genetics – leveraging these communication technologies to bring together experts in the field with K-12 students offers tremendous opportunities to bridge these socio-economic gaps and build a stronger 21st century workforce. B. Cost Control “The annual cost of K-12 education in the United States has increased steadily for decades. For 2015, the cost is about $600 billion. Fiscal reality has not diminished the demand by politicians and their powerful union cronies for even more money, a substantial portion of which would be earmarked to fund the high salaries of over-staffed administrators and trillions in retiree pension obligations.”xxiv “Public K–12 education consumes a larger chunk of each state and local taxpayer dollar than any other expense. More than one out of four tax dollars collected goes to the governmentrun K–12 education system. However, despite the importance of educating children and the huge expense it currently entails, there is a troubling lack of transparency in school budgets.”xxv C. Preparing Future Skills The future is here. The pace at which technology moves us forward far exceeds Moore’s law. K-12 students today face a world in which rapid change is the norm. Dystopian questions abound, we require a workforce that is well versed and well educated in areas of collaboration, social perceptiveness, originality, and learning. It is a new world of work and we need to address the gap between the world of education and the world of work! IX. INTRODUCING SKYPE IN THE CLASSROOM Skype in the Classroom bridges the dystopian gap – connecting modern day workers with up and coming students to share real world experiences, showcasing modern day skills. Through an invited guest speaker, students can be introduced to the world of data science, robotics, artificial intelligence, machine learning, climate change, disaster

preparedness, disease control, or any one of a number of new collar jobs. They get to hear first hand what it’s like to be a software engineer working on machine learning algorithms – or a marine biologist studying climate change – or an author writing childrens’ books. Compared to 50 years ago, the world is non-linear – the jobs that a 2nd grader might consider upon graduation don’t exist, so they need to learn skills like social perceptiveness – how do we build a robot that’s not creepy? And build a routine where they are active learning new technologies. These are not skills that mattered in the 1950’s, but they do to today’s generation. Else this next generation will face the same fate as the cloth spinners in the early 1800’s – obsoleted by technology and facing wage stagnation until they realized how to retrain and make themselves valuable in a new era of technology. The beauty of Skype in the Classroom is that it connects across socio-economic and geographic boundaries to expose students first hand to these new collar employees – to talk first hand about what they do, and what made them successful. The Skype technology can help bridge the gap and show students what it takes to evolve into the new world of work. A. Guest Speakers The Skype in the Classroom Guest Speaker program offers a collection of curated guest speakers to teachers to enhance the classroom experience. Teachers can invite speakers to join classroom discussions on a wide variety of topics. The Guest Speaker program is critical to addressing a 21 st century Engel’s Pause by connecting students directly with jobs of the future. A robotics engineer can speak directly to 1 st graders about what it takes to be a robotics engineer. B. Virtual Field Trips Virtual field trips (VFTs) help address Engel’s Pause directly by transporting students (virtually) to the “factory floor”of tomorrow. Students learn what it’s like to visit a museum in Egypt and to compare that with a chat on the International Space Station. They can visit a national park or a museum in Egypt. For many kids, who don’t travel far outside their place of birth, these virtual field trips open the door to a new world – expanding their skills and their interest – preparing them for a new world of work. X. CONCLUSION In 1962, when technological automation was also seen as a major threat, President Kennedy declared that “the major domestic challenge of the Sixties” was to “maintain full employment at a time when automation is replacing men.”xxvi For thousands of years, humans have always feared technology – and have struggled to stay one step ahead. Friedrich Engel’s research taught us about the economic impact on real wages. The rise of the internet over the last 20 years – and the rise of machine intelligence, AI, robotics, and automation has provided a wake-up call to humanity. As a species, we’ve been here before. The rise of the power loom at the advent of the industrial revolution offers a blueprint – and as we learn from Engel’s Pause, we can deploy programs like Skype in the Classroom to address things at a higher level. Technology is both friend and foe. Skype can break down

educational walls, improve access, reduce costs, and bridge socio-economic divides to reach each and every student, introducing them to new technologies in a way that 19 th century spinners never had. Before that, in 1930, John Maynard Keynes declared that the world was suffering from “technological unemployment,” meaning “unemployment due to our discovery of means of economizing the use of labor outrunning the pace at which we can find new uses for labor.xxvii REFERENCES i

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