New people replacing an age-old hierarchy sounds like the stuff that could produce an inclusive vision, and if so, we should expect this vision to propel us toward shared prosperity. Unfortunately, this was most definitely not what happened in the short term.

Social power matters in every aspect of our lives. It becomes particularly consequential for the direction of progress. Even when couched in appeals to the common good, new technologies do not benefit everybody automatically. Often, it is those whose vision dominates the trajectory of innovation who benefit most.

There is perhaps no better evidence for this type of corruption than the work of social psychologist Dacher Keltner. In experiments spanning the last two decades, Keltner and his collaborators have amassed a huge amount of data that the more powerful people become, the more likely they are to act selfishly and ignore the consequences of their actions on others.

This of course does not mean that there is no way of reining in selfishness and hubristic visions. But it does very much mean that we cannot expect this type of responsible behavior to emerge automatically. As Lord Acton pointed out, we cannot count on social responsibility among those who hold great power. We can count on it even less among those who have forceful visions and dreams of shaping the future. The cards are further stacked against responsibility because the power to persuade corrupts and makes the powerful less likely to understand or care about others’ woes.

We need to reshape the future by creating countervailing forces, particularly by ensuring that there is a diverse set of voices, interests, and perspectives as a counterweight to the dominant vision. By building institutions that provide access to a broader range of people and create pathways for diverse ideas to influence the agenda, we can break the monopoly over agenda setting that some individuals would otherwise enjoy.

Progress has a way of leaving many people behind unless its direction is charted in a more inclusive way. Because this direction governs who wins and who loses, there is often a struggle over it, and social power determines whose favorite direction prevails.

We have argued in this chapter that in modern societies it is the power to persuade—even more so than economic, political, and coercion powers—that is critical in these decisions. Lesseps’s social power did not come from tanks or cannons. Nor was he particularly rich or the holder of any political office. Rather, Lesseps had the power to persuade. Persuasion is especially important when it comes to technology choices, and the technological visions of those who can convince others are more likely to emerge as dominant.

We also explored where the power to persuade comes from. Ideas and charisma of course matter. But there are more-systemic forces shaping persuasion power as well. Those with the ability to set the agenda, typically high-status people with access to the corridors of power, are more likely to be persuasive. Social status and access are both shaped by a society’s institutions and norms; they determine whether there is room at the table for diverse voices and interests when the most important decisions are made.

In 1875, taking advantage of the Egyptian government’s financial distress, Prime Minister Benjamin Disraeli acquired a significant stake in the canal company. The Suez Canal was now effectively under the protection of the world’s most powerful navy.

I am going on 11, I worked at one of Mr. Stansfield’s pits. I was lamed at Christmas by a sleeper falling on me, and have been off work since. I went to work usually at 6, but at 4 on odd days. We came out at 6 or 7, sometimes at 3—whenever our work was done. We found it very hard work. The roads [height of the tunnel] were nearly a yard but at the face it was half a yard. I did not like it because it was very low and I had to work till night.

Parents understood full well what their children were doing and admitted that this was because the families needed the money and other potential sources of employment were less attractive. As a Mrs. Day explained, I have two girls in the pit: the youngest is 8 and the oldest will be 19 in May. If the girls don’t go into the pits they will have to take a bowl and go begging. Employers were candid, too. Employing children in this fashion was all about maintaining the profitability of mining operations. As Henry Briggs, co-owner of a mine in Flockton, put it, We could not have horse roads or even higher roads when the coal seams are so thin, because it would be so expensive. If children were to be stopped from working in pits the best Flockton seams must cease to be mined because it would cost too much to increase the height of the gates.

Third, although skilled workers enjoyed higher wages than others throughout this period, what it meant to be “skilled” changed a great deal. Men who worked looms in the early 1800s were considered skilled and commanded a premium wage. But as we will see later in this chapter, automation wiped out large categories of jobs that previously required artisanal skills, including the work carried out by male weavers. Those workers were then forced to seek employment as unskilled laborers, at a lower wage. At least through the mid-1800s, the wage gains of skilled industrial workers were precarious or even fleeting.

Equally important was the transformation of the British labor market throughout this period, with longer working hours and a very different organization of work. Indeed, as economic historian Jan de Vries has pointed out, the Industrial Revolution was very much an “industrious revolution,” in the sense that first the British, and then everyone else, began to work much harder.

These conditions of the working class were entirely in line with the vision of the politically powerful segments of society. Their attitudes, and the implications thereof, are well illustrated by the 1832 Royal Commission into the Operation of the Poor Laws, convened to reform these laws dating back to Elizabethan times. The old Poor Laws were already ungenerous and unforgiving to those in distress. But they were viewed by the new thinkers of the age as insufficiently motivating for the poor to get their act together and supply their labor. The commission consequently proposed organizing all poor relief in the context of workhouses so that the recipients of aid would continue to work. It also recommended tougher eligibility requirements and making poorhouses less hospitable so that people were motivated to choose work instead of relief.

The workhouse effectively created what one expert described as a “prison system to punish poverty.”

In the second half of the nineteenth century, wages started growing steadily. From 1840 to 1900, output per worker rose by 90 percent while real wages increased by 123 percent. This included substantial income growth and improvements in diet and living conditions for unskilled laborers. For the first time in the modern era, productivity and wages rose at roughly the same rate.

There was nothing automatic about any of the improvements that ushered in a broader sharing of productivity gains and the cleanup of cities. They resulted from a contested process of political and economic reforms.

The productivity bandwagon needs two preconditions to operate: improvements in worker marginal productivity and sufficient bargaining power for labor. Both elements were largely absent for the first century of the British industrial revolution but started falling into place after the 1840s.

As we explained in Chapter 1, advances in automation do not preclude shared prosperity, but there is a problem if automation predominates—in the sense that workers are displaced from their existing work at the same time as there are insufficient new tasks in other productive positions.

Arguably, the defining technology of the second half of the nineteenth century was railways.

Steam-powered trains reduced transportation costs and destroyed some jobs—for example, in the horse-drawn coach business. But railways did much more than just automate work. To start with, advances in railways generated many new tasks in the transport industry, and the jobs demanded a range of skills, from construction to ticket sales, maintenance, engineering, and management.

Technological change is never enough by itself to raise wages, however. Workers also need to get more bargaining power vis-à-vis employers, which they did in the second half of the nineteenth century. As industry expanded, firms competed for market share and for workers. Workers began to obtain higher wages through collective bargaining. This was the culmination of a long process that had started at the beginning of the century and reached fruition only in 1871, when trade unions became fully legal. This institutional transformation strengthened and in turn was supported by a broader push for political representation.

By 1850, nearly 40 percent of all British people lived in cities; by 1900, urban residents constituted almost 70 percent of the total population.

Even more jarringly, conditions in most European colonies, rather than improving, significantly deteriorated. Some, such as India, were forcefully deindustrialized when British textiles flowed into the country. Others, India and parts of Africa included, were turned into raw-material suppliers to meet the ferocious appetite of growing industrial production in Europe. And yet others, like the US South, saw the intensification of the worst type of coercion toward labor in the form of slavery, as well as vicious discrimination against native populations and immigrants, all in the name of progress.

The Austrian novelist Stefan Zweig captured the desperation that many of his generation felt when he wrote this in his memoir, The World of Yesterday, before he and his wife took their lives in 1942: Even in the abyss of despair in which today, half-blinded, we grope about with distorted and broken souls, I look up again and again to those old star-patterns that shone over my childhood, and comfort myself with the inherited confidence that this collapse will appear, in days to come, as a mere interval in the eternal rhythm of the onward and onward. One might have taken issue with Zweig’s cautious optimism that this was an interval on the way to some sort of progress, onward and onward. In the 1930s few could express the optimism of the Whig version of history.

If industry had also moved in the direction of automating work and shedding labor, the implications for the US labor force would have been dire. Instead, something very different happened. As US industry innovated rapidly, the demand for labor increased significantly. The share of workers employed in US manufacturing increased from 14.5 percent in 1850 to 22 percent in 1910.

How did the US avoid the Luddite phase of British industrialization, with workers displaced and impoverished by machines and stagnant or declining wages? Part of the answer is about the technological path that the US developed as machines came into wider use. As we saw in Chapter 6, the American path of technology strove to raise productivity to make better use of labor that was relatively in short supply. The interchangeable parts system was first and foremost an effort to simplify the production process so that workers lacking in artisanal skills could produce high-quality products. Efforts to improve productivity in similar fashion continued throughout the second half of the nineteenth century. One indication of this innovativeness was an explosion in patents. The United States had 2,193 patent applications in 1850. By 1911, this number had increased to 67,370. More important than the number of patents was the direction this innovative energy took, building on two blocks: mass production and a systems approach, both founded on Whitney’s lead. Mass production meant the use of machinery to produce a large amount of standardized, reliable output at lower cost. The systems approach focused on integrating engineering, design, manual labor, and machinery, and organizing different parts of the production process in the most efficient way.

Electricity is particularly important because it is a general-purpose technology. This new, versatile power source enabled the creation of many new devices. It also spurred fundamentally different organizations. And choices available for developing and using electrical technologies produced widely different distributional effects.

There were advances in the science of electricity starting in the late eighteenth century, but the big breakthroughs that reshaped the world began in the 1880s. Thomas Edison not only advanced the scientific understanding of light but also spearheaded its mass-scale adoption. Filament bulbs increased the amount of available light for reading during nighttime darkness by a factor of about twenty (compared with candles).

It is worth reiterating two critical aspects of the direction of technology during this First, companies continued to automate parts of the production process. In fact, not just in agriculture, but throughout the economy, new machinery substituted for labor in some tasks. The key difference from the first phase of the British industrial revolution was that the reduction in labor requirements driven by automation was offset, sometimes more than one for one, with other aspects of technology that created opportunities for workers, especially for those with some basic schooling, to be employed in manufacturing or services. Second, although some of the benefits for workers from the expansion of various sectors were natural given the productivity improvements and linkages from new factories, others were a result of choices made by companies and the new cadre of engineer-managers. The direction of progress during this era was not an inexorable consequence of the nature of the leading scientific breakthroughs of the age. In fact, electricity, as a general-purpose technology, allowed different applications and distinct development paths. Managers and engineers could have chosen to double down on automation as a method to cut costs in existing industries. Instead, they built on the American path of technology and pushed to build new systems and machinery, increasing efficiency and in the process augmenting the capabilities of both skilled and unskilled labor. These technological choices were foundational to the increase in demand for workers in industry, which more than made up for declining labor intensity in agriculture and in some manufacturing tasks.

US automobile manufacturing started in 1896. The Ford Motor Company, led by its iconic owner and manager, Henry Ford, was established in 1903. Its early vehicles, known as models A, B, C, F, K, R, and S, were produced using techniques common in the industry, combining elements of the interchangeable parts system with artisanal skills. These were medium-priced automobiles serving a niche market. Henry Ford’s ambition from early on was to produce many more cars and sell them at a lower price in order to reach a mass market. Although Model N was a first step in this direction, it did not break the mold. It was produced in the company’s Piquette Avenue plant in Detroit, which employed the same architecture and structure as factories powered from a central source and did not contain the full suite of electrical machinery. The sea change came with the famous Model T, which Ford launched in 1908 as a “car for the masses.”

There was another reason why Ford was receptive to higher wages. As Magnus Alexander, an electrical engineer who had helped design the production systems at Westinghouse and General Electric, put it, “Productivity creates purchasing power.” And purchasing power was vital for mass production.

The first half of the century witnessed the two most brutal, destructive, and murderous wars of human history and a massive depression that instilled fear and uncertainty in the people who survived it. These fears were deep and long-lasting. Recent research documents that people who lived through the Great Depression were often permanently scarred and remained unwilling to take economic risk for the rest of their lives. There were periods of robust economic growth in the first half of the century, but these were, as often as not, associated with much of the benefits being captured by the wealthy, so inequality remained high and sometimes even increased.

Against this background, the decades after 1940 were striking. US aggregate output (gross domestic product, or GDP) per capita grew at an average rate of more than 3.1 percent between 1940 and 1973. This growth was fueled by productivity improvements, both during and after the war. In addition to GDP per capita, total factor productivity (TFP) growth is an informative measure of economic growth, in part because it takes out the contribution of increases in the capital stock (machinery and buildings).

For one, inequality fell rapidly during and after World War II. The share of the top 1 percent of the income distribution was down to less than 13 percent by 1960, from its high of 22 percent in the 1920s. Other aspects of inequality during the postwar years declined as well, in part because of tighter regulations and price controls. Two researchers who studied this episode were so struck by the declines in inequality during this era that they dubbed it the “Great Compression.”

Mass-production methods were already well established in the automobile industry, and they spread throughout American industry after the war. Car manufacturing itself continued to expand rapidly. In the 1930s, the United States produced an average of about three million automobiles every year. By the 1960s, production had increased to almost eight million. It is not an exaggeration to say that America made the automobile but then the automobile remade America.

striking advances in numerically controlled machinery built on and perfected the ideas that dated back to Jacquard’s loom. Designed by Joseph-Marie Jacquard in 1804, this loom was one of the most important weaving automation devices of the nineteenth century, performing tasks that even skilled weavers found challenging. Its breakthrough was conceptualizing and designing a machine that wove fabric according to the designs entered via a set of punch cards.

For example, telephone switchboards were operated manually in the 1920s, often by young women. AT&T was the largest US employer of women under the age of twenty. Over the next three decades, automatic switchboards were introduced around the country. Most manual operators were displaced, and by 1960, there were almost none left. In local markets where automatic switchboards were introduced, there were fewer jobs for young women.

Yet fears of dwindling job opportunities did not materialize; labor fared quite well, and demand for workers of all different skills continued to increase throughout the 1950s, 1960s, and early 1970s. Most of the women displaced from the Bell Company switchboards, for example, found opportunities in the expanding service sectors and business offices in the decades that followed.

The United Auto Workers (UAW) demanded large wage hikes from General Motors in their first postwar contract negotiation. When GM did not accept, a major strike ensued. The automobile sector was not alone. The same year, 1946, witnessed a broader wave of strikes, which the Bureau of Labor Statistics called “the most concentrated period of labor-management strife in the country’s history.” For example, an electrical workers’ strike paralyzed another behemoth of American manufacturing, General Electric.

We should not get carried away with this upbeat assessment. Even as an unparalleled episode of shared prosperity transpired in the Western world, three groups were excluded from both political power and some of the economic benefits: women; minorities, especially Black Americans in the US; and immigrants.

But the East Asian experience was the exception, not the rule. The populations of remaining European colonies had little voice and little chance at shared prosperity. Independence, which arrived for most colonies between 1945 and 1973, did not mean the end of misery, violence, and repression. Many of the former European colonies soon discovered that colonial institutions fell into the hands of authoritarian rulers, who used the system they inherited to enrich themselves and their cronies, and squeeze everyone else. Europe stood back from this, sometimes providing support to kleptocrats in order to access natural resources. America’s Central Intelligence Agency stepped in to help coups against democratically elected politicians—for example, in Iran, Congo, and Guatemala—and was always ready to support US-friendly rulers, whether they were corrupt or even murderous. Most of the non-Western world remained far behind in terms of economic development.

One might say that the process by which progressive introduction of new computerized, automated, and robotized equipment can be expected to reduce the role of labor is similar to the process by which the introduction of tractors and other machinery first reduced and then completely eliminated horses and other draft animals in agriculture. —Wassily Leontief, “Technological Advance, Economic Growth, and the Distribution of Income,” 1983

The beginnings of the computer revolution can be found on the ninth floor of MIT’s Tech Square building. In 1959‒1960, a group of often-unkempt young men coded there in assembly language into the early hours of the morning. They were driven by a vision, sometimes referred to as the “hacker ethic,” which foreshadowed what came to energize Silicon Valley entrepreneurs.

US median real wages (hourly compensation) grew at above 2.5 percent per year between 1949 and 1973. Then from 1980 onward, median wages all but stopped growing—increasing only 0.45 percent per year, even though the average productivity of workers continued to rise (with an annual average growth rate of over 1.5 percent from 1980 to the present).

This growth slowdown was far from equally shared. Workers with postgraduate degrees still enjoyed rapid growth, but men with a high school diploma or less saw their wages fall by about 0.45 percent, on average, every year between 1980 and 2018.

It was not just a widening gap between workers with postgraduate degrees and those with low levels of education. Every dimension of inequality skyrocketed from 1980 onward. For example, the share of the richest 1 percent of US households in national income rose from around 10 percent in 1980 to 19 percent in 2019. Wage and income inequality tells only part of the story. The United States used to pride itself for its “American dream,” which meant people from modest backgrounds rising in terms of income and children doing better than their parents. From the 1980s onward, this dream came under growing pressure. For children born in 1940, 90 percent of them earned more than their parents did, in inflation-adjusted terms. But for children born in 1984, the percentage was only 50 percent. The US public is fully aware of the bleak prospects for most workers. A recent survey by the Pew Research Center found that 68 percent of Americans think that today’s children will be financially worse off than their parents’ generation.

The distribution of income between capital and labor also changed significantly. Throughout most of the twentieth century, about 67‒70 percent of national income went to workers, and the rest went to capital (in the form of payments for machinery and profits). From the 1980s onward, things started getting much better for capital and much worse for workers. By 2019, labor’s share of national income had dropped to under 60 percent.

Labor’s share of national income has been on a protracted downward trend in most industrialized economies. In Germany, for example, it fell from close to 70 percent in the early 1980s to around 60 percent in 2015. At the same time, the income distribution became more skewed in favor of the very richest people. From 1980 to 2020, the share of the top 1 percent increased from about 10 percent to 13 percent in Germany, and from 7 percent to almost 13 percent in the UK. During the same period, inequality increased even in Nordic countries: the share of the top 1 percent rose from about 7 percent to 11 percent in Sweden and from 7 percent to 13 percent in Denmark.

At some level, what happened is clear. There were two pillars of shared prosperity in the postwar period: alongside automation, new opportunities were created for all kinds of workers, and robust rent sharing (meaning the splitting of productivity and profit gains between capital and labor) kept wages buoyant. After about 1970, both pillars collapsed, most spectacularly in the United States.

Even at the best of times, the directions of technology and high wages are contested. Left to their own devices, many managers would try to reduce labor costs by limiting wage raises and also by prioritizing automation, which eliminates labor from some tasks and weakens the bargaining power of workers. These biases then influence the direction of innovation, pushing technology more toward automation.

Two other changes amplified the decline of labor and inequality. First, without countervailing powers from the labor movement, corporations and their managers developed a very different vision. Cutting labor costs became a priority, and sharing productivity gains with workers came to be viewed as akin to a failure of management. In addition to taking a harder line in wage negotiations, corporations shifted production toward nonunionized plants in the United States and increasingly abroad. Many firms introduced incentive pay, which rewarded managers and high performers, but at the expense of lower-skill workers. Outsourcing became fashionable as another cost-cutting strategy. Many low-skill functions, including cafeteria work, cleaning, and security, used to be performed by employees of large organizations such as General Motors or General Electric. These employees used to benefit from the overall wage increases that these companies’ workforces enjoyed. In the cost-cutting vision of the post-1980s, however, this practice was seen as a waste, so managers outsourced these functions to low-wage outside providers, severing another channel of wage growth for workers.

Second, it was not only companies choosing more automation from a given menu of technologies. With the new direction of the digital industry, the menu itself shifted powerfully toward greater automation and away from worker-friendly technologies. With a whole slew of digital tools enabling new ways of substituting machines and algorithms for labor, and little countervailing powers to oppose this move, many corporations embraced automation enthusiastically and turned their back on creating new tasks and opportunities for workers, especially those without a college degree. Consequently, although productivity (output per worker) continued to increase in the US economy, worker marginal productivity (how much that an additional hour of labor boosts production) did not keep up.

It bears repeating that shared prosperity was not destroyed by automation per se, but by an unbalanced technology portfolio prioritizing automation and ignoring the creation of new tasks for workers. Automation was also rapid in the decades following World War II but was counterbalanced by other technological changes that raised the demand for labor. Recent research finds that from 1980 onward, automation accelerated; more significantly, there were fewer new tasks and technologies that created opportunities for people. This change accounts for much of the deterioration of workers’ position in the economy. The labor share in manufacturing, where the acceleration of automation and the slowdown in the creation of new tasks has been most pronounced, declined from around 65 percent in the mid-1980s to about 46 percent in the late 2010s. Automation has also been a major booster of inequality because it concentrates on tasks typically performed by low- and middle-skill workers in factories and offices. Almost all the demographic groups that experienced real wage declines since 1980 are those that once specialized in tasks that have since been automated. Estimates from recent research suggest that automation accounts for as much as three-quarters of the overall increase in inequality between different demographic groups in the United States. The automotive industry is indicative of these trends. US car companies were some of the most dynamic employers in the country in the first eight decades of the twentieth century, and as we saw in Chapter 7, they were at the forefront of not just automation but also the introduction of new tasks and jobs for workers. Blue-collar work in the automotive industry was plentiful and well paid. Workers without college degrees and sometimes even without high school diplomas were hired and trained to operate new, sophisticated machinery, and they received quite attractive wages. The nature and availability of work in the automobile industry changed fundamentally in recent decades, however. Many of the production tasks in the body shop, such as painting, welding, and precision work, as well as a range of assembly jobs, have been automated using robots and specialized software. The wages of blue-collar workers in the industry have not increased much since 1980. Achieving the American dream through the automotive industry is much harder today than in the 1950s or 1960s. One can see the implications of this change in technology and organization of production in the hiring strategies of the industry. Since the 1980s, the US automotive giants stopped hiring and training low-education workers for complex production tasks and started accepting just higher-skilled applicants with formal qualifications, and only after a battery of aptitude and personality tests and interviews. This new human-resource strategy was enabled by the fact that there were many more applicants than available jobs and many of them had postsecondary education. The effects of automation technologies on the American dream are not confined to the automotive industry. Blue-collar jobs on other factory floors and clerical jobs in offices, which used to provide opportunities for upward mobility to people from disadvantaged backgrounds, have been the main target of automation by robots and software throughout the US economy. In the 1970s, 52 percent of US workers were employed in these “middle-class” occupations. By 2018, this number had fallen to 33 percent. Workers who once occupied these jobs were often pushed toward lower-paying positions, such as construction work, cleaning, or food preparation, and witnessed their real earnings plummet. As these jobs disappeared throughout the economy, so did many of the opportunities for workers with less than a postgraduate degree.

Although the abatement of rent sharing and the automation focus of new technologies have been the most important drivers of inequality and the decline of the labor share, other factors have also played a role. Offshoring has contributed to worsening conditions for labor: numerous jobs in car manufacturing and electronics have been shifted to lower-wage economies, such as China or Mexico. Even more important has been rising merchandise imports from China that have adversely affected many US manufacturing industries and the communities in which they were concentrated. The total number of jobs lost to Chinese competition between 1990 and 2007, just before the Great Recession, may be as high as three million. However, the effects of automation technologies and the eclipse of rent sharing on inequality have been even more extensive than the consequences of this “China shock.” Import competition from China impacted mostly low-value-added manufacturing sectors, such as textiles, apparel, and toys. Automation, on the other hand, has concentrated in higher-value-added and higher-wage manufacturing sectors, such as cars, electronics, metals, chemicals, and office work. It is the dwindling of this latter set of jobs that has played a more central role in the surge in inequality. As a result, although competition from China and other low-wage countries has reduced overall manufacturing employment and depressed wage growth, it has been the direction of technological change that has been the major driver of wage inequality.

In fact, globalization and automation have been synergistic, both driven by the same urge to cut labor costs and sideline workers. They have both been facilitated by the lack of countervailing powers in workplaces and in the political process since 1980. Automation, offshoring, and import competition from China have also impacted other advanced economies, but in more nuanced forms. Collective bargaining did not decline as much in most of Europe. In the Nordic countries, union coverage has remained high. Not coincidentally, even though their inequality levels also increased, they did not experience the declines in real wages that have been such a major part of US labor market trends. In Germany, as we will see, companies often shifted workers from blue-collar occupations into new tasks, charting a somewhat different, more labor-friendly direction of technology. In France, too, minimum wages and unions have limited the rise in inequality, albeit at the cost of greater joblessness.