Page - (000059) - in Disrupted Development and the Future of Inequality in the Age of Automation

52 L. SCHLOGL AND A. SUMNER limited even in upper middle-income developing countries. Compared to advanced high-income countries, they have a larger agricultural sector, and lower employment and value-added shares in industry and manufacturing, as well as a large informal service sector again not only in the world’s poorest countries but even in upper middle-income countries. Production in such economies is less capital-intensive and productivity levels are thus lower than in high-income countries. A number of developing countries have substantially shifted economic value-added activity from agriculture and resources to manufacturing and service sectors. For developing countries with such characteristics, a set of questions arises in the context of automation (that are differ- ent to the world’s very poorest countries): What if industrial production can increasingly be carried out with minimal human labor input? What if robots in high-income countries start to compete with cheap labor? Is it plausible that there could be a disintegration of global value chains via “reshoring,” i.e. the repatriation of formerly outsourced production to high-income countries? What if the service sector—where currently the largest share of labor is absorbed in many middle-income develop- ing countries—goes through dramatic shifts of labor productivity, thanks to innovations in software and AI? Does automation exacerbate a much- debated “middle-income trap” if it exists at all and thus impede catch-up development? Are there new sectors of economic activity emerging which promise decent employment opportunities for large popula- tions rather than economic growth accompanied by weak employment growth? These questions point toward the importance of situating the role of technology in broader theories of economic development. 5.2 disrupted development? the role of technologicAl chAnge in long-run economic development The neoclassical standard model of growth attributes a key role to techno- logical change in long-run economic growth. In the Solow (1956) model, growth can be achieved either via an increase in the inputs of production, e.g. an expansion of the labor force or an increase in the capital intensity, or it can happen via greater efficiency in the combination of inputs that generates a larger output. The latter route is known as the dynamics of total factor productivity (TFP) and innovation in automation technologies is generally considered an important factor in raising the TFP.