Economist urges Government to manage disruptive technologies
If Government is to bring down the country’s soaring debt through growth, an American economist is strongly advising the Mia Mottley administration to better handle disruptive technologies.
But while many pundits advocate a complete embrace of this technology, Michigan University economics professor Dr Linda Tesar is warning Government to expect significant short-term pain in order to gain potential benefits in the long run.
Disruptive technology has significantly altered the way businesses or entire industries have traditionally functioned.
In the most recent cases, much of it driven by e-commerce, businesses have been forced to change the way they approach their operations for fear of losing market share or becoming irrelevant.
With Amazon up-ending bricks-and-mortar retailers, Uber ride-sharing changing the face of public transport and Airbnb’s online hospitality marketplace disrupting the hotel and tourism trade.
Tesar, who was the featured speaker as the Central Bank of Barbados’ 6th Distinguished Visiting Fellow, said: “The thing about disruptive technology such as Airbnb and Uber, it is great, but it is disruptive for a reason because it disrupts what is already there. This means that the only way to take advantage of disruptive technology is to be willing to upset existing businesses.
“If you bring in Uber, the taxi drivers aren’t going to be very happy. For example, when driverless truck technology comes on stream, it is going to mean layoffs for many drivers.
“What are these drivers going to do? Re-training and re-tooling are all easy things to say but not so easy in practice.”
Dr. Tesar explained that because disruptive technologies are not contained by conventional rules, it is difficult to adequately plan for it in a growth strategy.
She said: “We don’t know what it is because if we knew, we would put a label on it. So, it is very hard to create the conditions for it to grow.
“I think it is tempting to say that growth is the way out, but I think it is dangerous to say that one is going to grow themselves out of debt. While it is probably good in the long run, in the short term it is very painful.”
The economist suggested that with a high debt to GDP, Barbados only has three options if Government is to attain the goal of bringing the debt to 60 per cent of GDP by 2033: taxation, cuts in spending and growth.
She said that of the three, growth is the most desirous option, but noted that in the quest for quick growth, unmanaged disruptive technologies become a concern.
Dr Tesar said: “In bringing down the debt there is only three things to do, spend less, tax more or growth. All three of those things are going to contribute to primary surplus, so that you can have a sustainable level of debt.
“Out of those, if one had to pick one, growth would be the one that they choose but getting growth is never that simple.
“How do we grow our way out of debt? One way is to create a climate where businesses can say this is a place where we want to invest. Another is increasing efficiency by getting more out of what you are currently doing.
“Finally, there is innovation, which sometimes shows up as a technology factor in the production function. It ends up being the residual that we can’t explain.”