Twin Transitions and InclusivenessOECD Global Forum on Productivity – Santiago, Chile
Dr Tim Sargent
Centre For The Study Of Living Standards

Ottawa, Canada1

Inclusion: What Is It and Why Do We Like It?
 Broad agreement across political spectrum that everyone in every community

should have at least the opportunity to participate in the economy and earn a“middle class” income
 Alternative is a lack of social cohesion that leads to conflicts over redistributing

resources rather than focussing on how to increase overall growth Both Brexit and 2016 US election are very obvious examples of “left behind”

communities taking revenge on a political class seen as unresponsive to theirinterests
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Transition #1: Green Transition
 Government-led
 Means widespread replacement of physical, tangible capital Threatens well-paying blue-collar jobs in energy-intensive

manufacturing, natural resources
 Fear that winner-take-all nature of new technologies means gains willaccrue to very few companies (in very few countries) Not going as fast as governments would like3

Transition #2: Digital Transition
 Private sector-led
 Means widespread replacement of human, intangible capital Threatens well-paying white-collar jobs in professional services,

information and culture, education
 Fear that winner-take-all nature of digital markets means gains willaccrue to very few companies (in very few countries) Going a lot faster than governments would like4

Policy Trilemma Governments want simultaneously Green transition, social inclusion, economic growth But there are inevitable trade offs
 Green policies can lower growth, hit blue collar workers, rural areas
 Redistribution can also lower growth, and takes resources away from greentransition Growth leads to more emissions, may skew to already affluent
5Solution: Subsidies For Green Investment?

 Huge fiscal cost (e.g. $10 billion subsidy for battery factory inCanada) Risk of trade/subsidy war
 Governments betting on specific technologies
 Economic benefits often accrue to small number of individuals

6Solution: Sand in the Wheels of Big Tech?
 Calls for Targeted anti-trust regime for big tech firms
 Pre-emptive regulation or even a pause on AI But
 Not obvious that tech firms face no competition
 Benefits from adoption mostly captured by users

 Hard to get balance right for brand new technologies, esp. GPTs
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Better Solution #1: Investing in Non-University
Education, Especially Skilled Trades Focus on university education means too people many people chasing whitecollar jobs, some of which are potentially threatened by technology
 Meanwhile, economy needs skilled tradespeople for housing, green

infrastructure, retrofitting homes etc.
 Need to focus more on encouraging technical skills, as well digital skills andentrepreneurial skills for non-university graduates Crucial for moving people from working poor to middle class8

Better Solution #2: Investing in “Left-behind”
Communities
 Having people move from depressed communities to sprawling suburbs isexpensive and Need to construct new infrastructure—schools, roads etc.
 Exacerbates already tight housing markets

 WFH makes it easier to work outside of major urban centres andGovernment could lead by example, but Need connectivity, both digital and physical Need good quality of life, better amenities
9Better Solution #3: Streamlining Regulatory Processfor Major Projects
 Capital investment required for a green transition can be impeded byburdensome regulatory processes that facilitate NIMBYism E.g. Electricity transmission, wind/solar generation, nuclear power plants

 Projects provide good jobs outside of big urban centres
 Need predictable and timely approvals for investors Does not mean answer has to be yes: but should not take years to get adecision10Better Solution #4: More Efficient Government Public sector must embrace digital transition, particularly AI
 Public services such as education can be more tailored to individuals Back office functions such as HR can be significantly streamlined
 Quality and speed of decision-making can significantly enhanced

 More efficient Government
 Improves private sector efficiency
 Releases resources for other priorities, such as Green Transition and Inclusion

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Conclusion
 Governments are not good at micromanaging economic development
 Especially when technology is changing fast

 Governments should focus on what they know best…
 Education, local public goods

 …and look to be more efficient at what they do Smarter regulation, streamlining service delivery
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