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The digital revolution could destroy the middle class, warns Joe Biden

Joe Biden is in Davos this week Image: REUTERS/Ruben Sprich

Stéphanie Thomson
Writer, Forum Agenda

“When people feel their shot at a decent life is eliminated, the inevitable human reaction is anxiety, frustration and anger.” Speaking in a special address in Davos yesterday, US Vice-President Joe Biden – known back home as “middle class Joe” – summed up what many are feeling, as middle class life comes under strain in the developed world.

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While the Fourth Industrial Revolution opens up new opportunities – “exciting new choices for consumers, new kinds of jobs, hopefully with good pay, for workers” – it is not without its challenges.

A shortened version of his speech is below and the full address can be viewed online.

Joe Biden on the Fourth Industrial Revolution

I’ve been asked to speak about the Fourth Industrial Revolution. There are two questions that we have to address at the outset. First, will this revolution transform the global economy? And secondly, if it does, will it be for the better or for the worse?

On the first question, there are some experts who say the technological advances we see are impressive, but mostly inconsequential to the overall economy. Some of you argue that they won’t lead to greater productivity or better jobs or wages for workers. For developed countries, the argument goes, sluggish economic growth will be the new normal. Get used to it.

I think those who have that view are mistaken. I think we’re already seeing how digital advances are not only impressive, but are also consequential for all our economies. Automated warehouses and assembly lines drastically improve productivity. Ride-sharing companies employ tens of thousands of new people.

On the second question, I believe, on balance, these transformations are changes for the good for average people around the world. They bring exciting new choices to consumers. New kinds of jobs, hopefully with good pay, for workers. The market makes services more affordable.

But these changes come with real peril, and they require us to be proactive. For how will the warehouse worker who used to ship your order, or the salesman who used to take it, now make a living when he or she is no longer needed in that venture? Does greater work flexibility mean fewer worker protections?

The point I’d like to make is that these perils exists regardless of what we call this digital revolution and regardless of whether you think it will be, on the whole, transformative for the economy or not.

I believe the underlying question for world leaders, civil society, academia, the media, for all of us, is the defining challenge of our time: How do we ensure wide access to a middle class which is being hollowed out in the 21st century?

What it means to be middle class

In the United States I’m referred to as Middle Class Joe. In Washington that's not meant as a compliment. It means I’m not sophisticated. But I’m not making a populist remark – this is not about class warfare. It’s about the shared economic wellbeing and global security. It’s something we should all care about, and that we can all do something about.

Let me start by defining what I believe to be middle class. I have a number of really bright economists who work for me. When I first got to the White House, I’d say middle class, they’d say in American terms, $50,240 or $51,500. It’s not a number. It’s a values set. It’s an idea. It’s a belief in possibilities.

I’ve spent a lot of time with President Xi of China. We were sitting in Chengdu two years ago and he looked at me and said can you define America for me? And I said, yes, I can do it in one word. But I can actually define middle class in one word: possibilities. It’s about possibilities.

The possibility of achieving a decent life and the dignity and respect that comes with a good job; that it’s possible for anyone willing to work hard to achieve it.


A broken promise

There used to be a basic bargain in industrial countries: if you contributed to the success and profitability of your company, you got to share in the profitability, you got to share in the benefits.

That bargain has been broken through no fault of any single enterprise or any segment of society. But it has been broken. There’s a gap that’s growing between productivity and wages resulting, at least in my country and some of yours, in stagnation.

I would also argue that it’s generated some political unrest and given voice to political elements that heretofore had not had much credence. So I say to all of you tonight that the digital revolution has the potential to exacerbate this breakdown and further hollow out the middle class – not just in America, but around the world.

Automation might mean higher-paying jobs for the manager of the trucking company with driverless trucks, but tens of thousands of truckers will be without a job. Where are the new enterprises? And I’m here to flatly state that I it’s our responsibility, like those who have gone before us, like what’s been done in every previous revolution, to bend these changes to the benefit of society, to make sure the digital revolution creates far more winners than losers. That’s what we’ve done in previous eras of such technological change, but it may be harder in this fourth revolution.

What are the other new industries that will be spawned by this fourth revolution? I’m just a plain, old politician. I run for public office. I try very hard to keep contact with my constituencies, for real. And people who are much less sophisticated than those assembled in this room, they worry about the answer to that question. They worry.

It’s true all of us in this room are probably going to be fine. But while we’ll be fine, we need an environment in the wake of this revolution where everyone has a chance. And it’s not so self-evident exactly how to do that.

My guess is that this revolution is going to require governments to refocus on core obligations and international corporations to take a hard look at their corporate culture, recognizing that their obligation goes beyond their shareholders to workers and to communities like it used to.

In my country, there’s been an emergence of the phrase “job creators”. The job creators today are thought by many in the US as the stockholders. What about the woman on the assembly line making the product? What about the salesperson who sells the automobile or the refrigerator or the product made? What about all those people on the chain? They used to be job creators and viewed that way. There used to be a sense of obligation to communities.

Five ways to prepare for the Fourth Industrial Revolution

I think there are at least five things we should be preparing to do now to follow through on, to take control of this revolution.

First, we need universal access to affordable education and job training. It is more needed today than ever in our history. Cognitive capability as opposed to brawn is the means by which you can climb that ladder into the middle class.

When I say education I'm talking about education that is early, lifelong, affordable and accessible. In today’s economy, there’s going to be a constant requirement for workers to retool and retrain for the very jobs they possess, because the technology that they’re engaged with is moving far beyond the ability to keep up with whatever basic education they have. The jobs they possess, particularly in areas of IT, advanced manufacturing, healthcare and energy, are going to need lifelong education.

And this education and training is not only the obligation of our governments, it's also the responsibility and opportunity for our businesses. I'd like to make a call to action to business leaders here to invest in your workers; make upskilling part of your business model.

Secondly, we need to continue to ensure basic protection for workers as these changes take place. I mean a living wage, payment of overtime, child care, sick leave, the right to unionize, to collectively bargain. Governments have, in my view, an obligation to strengthen these core protections. But so do companies.

I don't have to tell anyone in this room that over the last few decades, there’s been a real change in culture. A lot of you have written and spoken about short-termism that undermines the long-term growth of companies and stifles workers. Another change in the corporate culture is the way companies invest their profit. In the past, 54% of you bought back your own stock; 37% of that profit went to shareholders, the job creators, leaving 9% for research, development, cash reserves, raises, and training for employees. It worked because money was cheap. But it hasn’t grown much. As a consequence, it added to the problem of stagnant wages, reduced productivity for workers and left less investment for the future.

So my call to action here is simple: embrace the obligation to your workers as well as your shareholders. It's good for workers; it's good for your business; it's good for your productivity; and it's good for society. And there’s nothing about it that doesn’t recognize and support and reinforce the capital markets.

Third, we have to modernize our infrastructure. The reason for America’s exponential growth in the 1800s and early 1900s was the massive investment in technology. And the government, as a consequence of this infrastructure, opened up vast opportunities.

Governments have fundamental responsibilities to build roads, bridges, railways, ports, broadband. And all of this can have profound impact on economic growth, generating well-paying jobs and bringing opportunity to areas where it does not exist.

Fourth: we need a more progressive tax code. Not confiscatory policy, not socialism, but everybody should pay proportionately a fair share.

As we were all fly into Davos this week, the Oxfam report made a lot of headlines. It pointed out that 62 of the wealthiest people in the world have as much wealth as the poorest 3.6 billion people in the world.

If you read past the headline, the report explains that inequity is driven in large part due to tax avoidance and tax shelters. It’s not just about tax equity. It’s about economic growth.

You may not like hearing it, but keeping billions of dollars in offshore tax havens might be good for your shareholders, but it robs your home country. So bring it back. Invest it in the communities in which you live, the enterprises – the communities that allow your enterprise to thrive.

Lastly, we need to expand access to capital. I’m calling on all of you to make existing capital and the tools that support entrepreneurship more widely available to people who haven’t had access to it before.

I’ll conclude with this point. When people feel their shot at a decent life is dashed, is eliminated, the inevitable human reaction is anxiety, frustration, and anger providing fertile terrain for reactionary politicians, demagogues peddling xenophobia, anti-immigration, nationalist, isolationist views. And it begins to shred our social fabric in each of our countries. It stirs instability.

Never before have we had so much power in our hands to do better. And never before have I felt more strongly that we can. And just being here with many of you has reinforced my sense of optimism.

It’s not going to be easy. But it’s possible. And we're all about the possible. We're all about possibilities.

The Annual Meeting is taking place in Davos from 20 to 23 January, under the theme “Mastering the Fourth Industrial Revolution”.

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