Policy Pathways for the New Economy

Shaping Economic Policy

in the Fourth Industrial Revolution

Platform for Shaping the Future of the New Economy and Society
November 2019
This white paper is the outcome of a set of international, multi-
stakeholder dialogues organized by the World Economic Forum’s
Platform for Shaping the Future of the New Economy and Society under
the umbrella of the Second Dialogue Series on New Economic
Frontiers. The First Dialogue Series was convened between September
2018 and January 2019 (https://www.weforum.org/whitepapers/
dialogue-series-on-new-economic-and-social-frontiers-shaping-the-
new-economy-in-the-fourth-industrial-revolution).

This second series engages the Platform’s Global Future Councils on

the New Economic Agenda and the New Social Contract, representing
views from business, government, civil society and the research
community. It identifies some of the most urgent challenges at the
intersection of globalization, technology, economics and society, and
explores a range of potential interventions to address them. As opposed
to the First Dialogue Series, which considered a broad range of public-
and private-sector led solutions, this Series focuses entirely on
interventions in the public policy space, in the areas of labour, innovation
and tax policy.

As a key output of the learning created, this white paper draws upon
discussion contributions by leaders and experts who engaged in the
Dialogue through a series of virtual calls between May and August 2019.
It also includes the latest thinking from international organizations,
academic researchers, think tanks, businesses and other stakeholders.
It aims to develop consensus towards a common narrative on the new
economic and social context and objectively identify emerging response
options for policy makers. The white paper is intended to be a resource
for governments, business and other stakeholders interested in
furthering economic and social progress in the Fourth Industrial
Revolution.

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REF 03112019
Contents
Introduction

01 Introduction This white paper has been published

by the World Economic Forum as a
contribution to a project, insight area or
interaction. The findings, interpretations
05 The Future of Innovation Policy and conclusions expressed herein are a
result of a collaborative process facilitated
by the World Economic Forum, but whose
results do not necessarily represent the
13 The Future of Labour Policy views of the World Economic Forum, nor
the entirety of its Members, Partners or
other stakeholders.

21 The Future of Fiscal Policy

29 Acknowledgements

Dialogue Series on New Economic Frontiers iii

Introduction

Systems Change While the challenge is tremendous,

there is a unique window of opportunity
towards delivering a new social contract
fit for the Fourth Industrial Revolution.
to Build Inclusive today to mobilize human collaboration
and technology to move toward more
Economies in the equitable outcomes. Achieving the kind
of multi-systems change that will be Three Interrelated
Fourth Industrial needed to fully realize the new potential
Emerging
and fairly distribute the gains from
Revolution openness and technological progress
Challenges
will require breaking with established
Globalization and technological progress
have profoundly transformed economies
paradigms that have proven insufficient.
It will require leaders committed to
for Economic
and radically redistributed opportunities
to participate and thrive. As a result,
institutional change and policy reform as Policy-Makers
well as shifts in societal norms, business
there is a need for new deliberate practices and attitudes by individuals. It The paper builds on the First Dialogue
action across stakeholders—business, will also need to involve fresh thinking on Series on New Economic and Social
government and workers—to create the best way to redraw the boundaries Frontiers, which laid out four key
greater shared prosperity. Economic on roles and responsibilities in managing challenges to leveraging emerging
inequality and social polarization are the transition to the new economy. In technologies to advance economic
growing in many countries. Their the best case this would lead to the prosperity while keeping in check the
sources are many and the guises formulation of a new social contract host of polarizing forces unleashed by
varied: technological change has between governments, businesses and the recent technological transformations:
been hollowing out the middle class1; individuals. (1) rethinking the traditional concept of
productivity gains have not translated economic value and its measurement,
into higher wages for the vast majority While collaboration between the public (2) addressing market concentration, (3)
of workers and the labour share of total sector, business and populations will enhancing job creation, and (4)
income continues dropping2; career be a critical component of such a reimagining social protection.
paths have become more volatile and contract, policy-makers have a central The current dialogue series incorporates
working conditions more precarious role in deploying several of the levers learnings from the first series and
for many workers3; and algorithm bias available for catalysing the move towards develops implications for governments
has the potential to become a source a more productive and inclusive new on future paths for policy-making in three
of perpetuating discrimination.4 At economy. This paper summarizes three important and interrelated areas:
the same time, competition in many emerging economic policy challenges
industries has been weakening and and identifies a range of new public- 1. The future of innovation policy:
wealth concentration growing.5 All of sector led response options. In doing so, How does innovation policy need to
this has come on top of the effects of it covers approaches at different levels evolve to ensure more productive and
globalization, which left many low-skilled of maturity from idea stage to policy inclusive economies?
workers in a precarious position by the experiments to newly implemented
time the Fourth Industrial Revolution policy measures. The aim of the paper 2. The future of labour policy: How
began to unfold. is to support leaders in integrating new must labour policy be updated for the
economic frameworks and policies new world of work?

Dialogue Series on New Economic Frontiers 01

 Introduction

3. The future of fiscal policy: At the same time, there are trade-offs: a as the spectrum of response options
How will approaches to taxation and tax on technology will have the first order generating traction in each area.
government spending have to adapt to effect of shifting tax burden from labour Response options for each area are
the transformation of labour and product onto capital, yet at the same time might displayed without an order of preference,
markets? discourage technology development and while some are mutually exclusive,
and diffusion to smaller players. An others may be considered in tandem.
The future of innovation policy is included ‘all of government approach’ will As consensus emerges around a
for policy-makers to reconfigure, with therefore be essential as policy-makers specific set of solutions or as there is
a view to accelerating innovation consider their role in managing new further experimentation with a range of
diffusion and to setting a clearer economy challenges and unleashing approaches, future work should aim to
direction for innovation outcomes. It new economy opportunities for their examine case studies globally to build
is complementary to the discussion populations. a framework of core principles and a
around competition policy in the first ‘bank’ of potential solutions to inform
dialogue series, as both are crucial in Additionally, the set of challenges decision-making. We invite readers to
safeguarding a level playing field. considered here are by no means share examples of response options for
comprehensive. Beyond identifying the the featured challenges and proposals
The labour policy dialogue builds on relevant areas where boundaries will for future topics.
insights from both the job creation and need to be redrawn, other fundamental
social protection discussions in the questions will also need to be addressed
first Dialogue Series. Moving beyond around geography and generational
strategies to increase the number of responsibility, particularly difficult in a Notes
jobs, it considers how the quality of all climate of declining trust and growing
forms of work can be improved and the populism. Finally, while globalization and 1 Bernstein and Raman, 2015, Autor and
Salomons, 2018, and Darvas and Wolff, 2017.
workforce be supported in capitalizing technological change are considered
on newly created job opportunities. here as the two key drivers of economic 2 Bernstein and Raman, 2015, and
Karabarbounis and Neiman, 2013.
and social outcomes, another important
The dialogue on the future of fiscal challenge includes fairly distributing 3 Prassl, 2018.
policy considers the new demands on responsibilities and costs in the transition 4 O’Neill, 2016, and Eubanks, 2018.
government spending surfaced in the to a more carbon-neutral economy. 5 Calligaris, et al, 2018.
debates around labour policy, innovation
and social protection, and examines The work of the Platform for Shaping the
emerging ideas for rebalancing the tax
burden and shifting spending to create
Future of the New Economy and Society
will continue to surface, raise awareness
References
greater equality of opportunity. of and offer solution paths to emerging Autor, D. and A. Salomons, Is Automation Labor
challenges for building prosperous, Share–Displacing? Productivity Growth,
Taken together, innovative thinking inclusive and equitable economies. Employment, and the Labor Share, Brookings
in these three policy areas holds the Papers on Economic Activity, Spring 2018,
https://economics.mit.edu/files/15420.
potential for achieving greater resilience The Dialogue Series draws upon the
and realizing the gains from the Bernstein, A. and A. Raman, “The Great Decoupling:
views of preeminent thought leaders in
An Interview with Erik Brynjolfsson and Andrew
ongoing transformation. Importantly, the 2018-2019 Global Future Council McAfee”, Harvard Business Review, June
the areas are closely interrelated and on the New Economic Agenda and the 2015 issue, https://hbr.org/2015/06/the-great-
success in one of the three areas is decoupling.
Global Future Council on the New Social
reliant on progress in reshaping the Contract. Each of the two Councils Calligaris, S., C. Criscuolo and L. Marcolin, “Mark-
other two. For example, a successful ups in the digital era”, OECD Science,
provides a unique lens on the selected
Technology and Industry Working Papers
strategy for innovation diffusion will topics as well as a highly essential 2018/10, OECD, 2018, http://dx.doi.
require a workforce which possesses interdisciplinary approach to proposed org/10.1787/4efe2d25-en.
the right skills to work with advanced solutions. Darvas, Z. and G. Wolff, An Anatomy of Inclusive
technologies. If access to reskilling and Growth in Europe, Bruegel Blueprint, 2016.
upskilling is indeed evenly distributed Each of the next three chapters is Eubanks, V., Automating Inequality, McMillan Books,
across the population, this will in turn organized to provide a brief overview 2018.
reduce one source of inequality, creating of the emerging challenges and
less need for redistributive policies. opportunities around each area as well

02 Dialogue Series on New Economic Frontiers

 Introduction

Karabarbounis, L. and B. Neiman, The Global

Decline of the Labor Share, NBER Working
Paper No.19136, National Bureau of Economic
Research, 2013, https://www.nber.org/papers/
w19136.

O’Neill, C., Weapons of Math Destruction: How

Big Data Increases Inequality and Threatens
Democracy, Crown Books, 2016.

Prassl, J., Humans as a Service, Oxford University

Press, 2018.

Dialogue Series on New Economic Frontiers 03

The Future of Innovation Policy

Summary accelerate the directionality of innovation

towards societal needs. In addition, it
productivity growth and a vast majority
of companies that have seen their
identifies a set of policy approaches and productivity growth stagnate (see
Innovation is a key lever of economic
instruments that have been adopted, Figure 1 on following page). This has
growth and job creation. However,
are being tested or have been proposed resulted in low productivity growth rates
globalization and, notably, accelerated
to adapt the future of innovation policy at the aggregate level that for many
technological change associated with
within these pathways. countries have remained close to zero for
the rise of digitalization, have deeply
a prolonged period of time.2 Moreover,
disrupted innovation pathways with
these dynamics also have an impact on
increased complexity, faster pace of
change, the rise of network effects and What is the Current the rise in inequality and lack of territorial
convergence, as superstar companies
enhanced uncertainty about their net
impacts on society. In addition, there is State of Play? are able to pay better salaries than those
with stagnant productivity growth rates
growing demand for innovation to be
and tend to concentrate geographically
unleashed to address both long-standing Long-term economic growth depends
in regions with high access to talent and
and emerging societal and environmental on the ability of an economy to raise
knowledge.
challenges, such as climate change, its productivity, and thus its innovation.
health, education or social inclusiveness. Forecasts predict that for both
There is also growing demand for
Against this changing backdrop, the developed and emerging economies
innovation to respond better to broader
rationale and role of governments in approximately 80% to 90% of economic
societal challenges, such as climate
supporting and managing innovation are growth in the next four decades will rely
change, health, education and social
being redefined. Governments need to on productivity growth.1 Productivity
inclusiveness. Innovation cannot only
strike the right balance between enabling growth, by extension, is driven by the
focus on boosting growth and jobs; it
innovation-led entrepreneurial activity and ability of an economy to introduce new
also needs to contribute to transforming
preventing and mitigating any potential and higher value-added products and
societies by ensuring a beneficial
negative effects that may accrue from services and more efficient production
direction of this growth. In other words,
them, such as potentially rising inequality. processes—i.e. innovation. Innovation
innovation must contribute to the
As a result, ‘tried and tested’ traditional in production, distribution and business
creation of productive, inclusive and
innovation policies, while still relevant, models can generate efficiency gains,
sustainable economies, with a human-
need to be complemented with new new or better products that create higher
centric approach at its core.
approaches and new policy experiments value-added, boosting productivity
that can support stronger innovation growth and economic prosperity. This Furthermore, the increasing
diffusion and enable innovation towards is particularly true in a context where, unpredictability of some innovations
achieving societal outcomes. This will collectively, we must maintain production has raised ethical concerns about
require stronger involvement of citizens within our planetary boundaries. potential undesired outcomes. This
in the design and implementation of has been most prominent for—but not
innovation policies. However, new dynamics have resulted
limited to—the development of Artificial
in slow innovation diffusion across and
Intelligence and the ability of machines
This chapter aggregates the latest within sectors, with large productivity
to discriminate between individuals
thinking on pathways to positive change differences between a handful of
according to certain traits, such as
in innovation policy that may enable ‘superstar companies’ in some key
gender or ethnicity, or to make value
stronger innovation diffusion and sectors that have exhibited robust
judgements in conflictual situations.

Dialogue Series on New Economic Frontiers 05

 The Future of Innovation Policy

Figure 1: Labour productivity gap: global frontier firms vs. selected other firms, longer sufficient. ‘Tried-and-tested’,
2001–2013 traditional innovation policies to support
Annual productivity growth (log value) higher investment and knowledge flows,
Manufacturing Services while still relevant, will require adaptation
Frontier firms (top 5%) or complementary approaches to
support stronger innovation diffusion in
the age of globalization and digitalization.
Frontier firms (top 5%) In addition, new policies that ensure
the orientation of innovation outcomes
towards social goals with a stronger
involvement of citizens and users
in their design and implementation
will also need to be adopted. This
chapter presents a set of novel policy
Laggards Laggards
approaches and instruments that have
been adopted, are being tested or have
been proposed, organized around these
pathways. They can serve as food for
Source: OECD, 2015.
thought for future policy development.

Note: The “global frontier” is measured by the average of log labour productivity for the top 5% of companies with
the highest productivity levels within each two-digit industry. “Laggards” capture the average log productivity Fostering faster and broader
of all the other firms. Unweighted averages across two-digit industries are shown for manufacturing and
services, normalized to 0 in the starting year. The vertical axes represent log differences from the starting diffusion of innovation
year. For instance, the frontier in manufacturing has a value of about 0.3 in the final year, which corresponds to
approximately 30% higher in productivity in 2013 compared to 2001. Boosting innovation diffusion has always
been a priority for innovation policy,
particularly as small and medium-
sized enterprises (SMEs) or young
Against this changing backdrop, the of innovation and create the necessary companies, may lack the information,
rationale and role of governments demand for desired innovation skills, resources, access or expertise
in innovation are being redefined. outcomes. that are fundamental for innovation
Traditional innovation policies aimed at development and uptake. To a large
building an enabling environment for In this new vision for innovation, extent, stronger innovation diffusion
innovation by (1) investing in fundamental governments must adopt an array of will depend on the broader framework
science and skills, investments different policies that can help shape conditions that govern economic activity
that traditionally suffer from private the appropriate new frameworks and and entrepreneurship, such as the level
underinvestment (to address ‘market attitudes towards innovation. They also of competition3, taxation4, regulation or
failure’), and (2) fostering knowledge have to balance the need between skills development.5 Much analysis has
flows through the strengthening of fostering innovation-led entrepreneurial been carried out in recent years on how
regional and national innovation systems activity and preventing and mitigating competition levels are currently stifled
(to address ‘system failure’) continue to any negative social or environmental and the related effects on innovation
be very relevant. These policies aimed effects, orientating innovation towards creation and diffusion, as well as on
at boosting the “quantity of innovation” achieving socially desirable objectives. the shortages of new skills that are
are however insufficient on their own. fundamental for innovation. Arguably,
In the new context, innovation policy first and foremost, fostering stronger
also needs to (3) ensure the orientation
or ‘quality of innovation’, so that it is
Policy Pathways diffusion will depend on adapting
those measures that can restore better
contributing more directly towards broad
societal goals such as inclusiveness or
Towards Inclusive framework conditions for innovation.

sustainability (‘orientation failure’). In this

new paradigm, governments are not
Change At the same time, new approaches to
innovation policies can also contribute
only mere enablers of innovation, but ‘Business-as-usual’ policies and to addressing some of the persistent
fundamental shapers of innovation that, traditional innovation playbooks are no bottlenecks that hinder innovation
together with citizens, set the direction

06 Dialogue Series on New Economic Frontiers

 The Future of Innovation Policy

diffusion in the digital age. In fact, many transformation. Some governments have
innovation tools aimed at innovation started to develop and adopt innovative Tech Nation Upscale
diffusion—such as the creation of instruments to identify and accelerate Programme, United
innovation vouchers allowing companies the scale-up of these initiatives by Kingdom7
to contract research from research providing advice and funding. Three
Tech Nation's Upscale Programme
institutes, or research and innovation tax initiatives are currently piloted: the
supports the next generation of
credits, grants and loans—have been European Innovation Council, for scaling
scaling digital businesses in the
part of the innovation policy portfolio for up breakthrough innovations with the
United Kingdom. Upscale provides
decades. Policies to support stronger potential to create entire new markets,
mid-stage businesses with expertise
knowledge flows between research the Tech City UK Upscale Programme
from world-class scale coaches who
institutions, universities and businesses and the Dubai Smart Cities Accelerator.
have influenced the growth of some
through cluster policies or intermediary
of the world’s most successful digital
research institutions such as technology
companies. To participate in
centres have also been heavily
Upscale, businesses must have their
promoted. The European Innovation headquarters in the United
Council (EIC), European Kingdom, be VC backed having
However, the evident slowdown in
innovation diffusion in the digital age has Union6 raised Series A round or generating
The European Innovation Council £1.5-5 mio in revenues and be
led to renewed efforts of this nature. New
(EIC) will be tasked with turning growing at a rate of approximately
or revisited approaches to some of these
Europe’s scientific discoveries into 20% month-on-month (be it in
tools have recently been adopted or are
fast-scaling businesses. The EIC revenue, headcount, users or
being piloted. Recent examples of such
has been created with two types of another key growth metric).
policy initiatives focus on (1) supporting
the scale-up of breakthrough innovation; innovators in mind: (1) technologists
(2) boosting the ability of SMEs to and researchers, who can apply to its Dubai Smart Cities
understand and assess the potential Pathfinder programme that aims at Accelerator, United Arab
of digitalization for their businesses; (3) supporting radically new technologies Emirates8
developing new intermediary knowledge emerging from collaborative research
The Dubai Smart City Accelerator
broker institutions; (4) stimulating new with funding, support for proof-
supports innovative companies in
digital clusters; (5) opening up scientific of-concept to demonstration and
the areas of Internet of things and
research by making its outcomes more commercialization activities, as
connectivity, urban automation
publicly available; and (6) developing well as coaching and mentoring
and mobility, artificial intelligence,
appropriate regulation that allows programmes; and (2) start-ups,
blockchain, open city data,
balancing predictability and flexibility entrepreneurs and SMEs, under
sustainable cities and living, smart
without hampering innovation and risk the Accelerator programme that will
government, and smart retail. It is
taking. support the development and scale-
a platform for start-ups to scale up
up of high-risk innovations by start-
their business and demonstrate their
Below are examples of policy ups and SMEs through grants and
product to leading corporates and
instruments that have been recently blended financial models.
government partners. The Accelerator
adopted or piloted in these six areas.
Currently in its pilot phase, the EIC offers a three-month programme to
1. Scaling up breakthrough will become a reality beginning in 10 selected Smart City companies
innovation: The Fourth Industrial 2021 under the next EU research with hands-on mentorship from over
Revolution is opening up a wide range and innovation programme, Horizon 100 industry experts, office space,
of new opportunities for breakthrough Europe. The Commission has seed funding and access to a global
innovations, but oftentimes promising proposed to dedicate €10 billion to network of investors and corporate
new prototypes and products fail to be the EIC under Horizon Europe. partners. The Dubai Smart Cities
scaled up and adopted across sectors Programme is a joint venture by the
due to a lack of information, contacts Dubai Silicon Oasis, Dubai Chamber,
or patient capital. This hinders stronger Smart Dubai, Visa, Orange Business
innovation diffusion throughout the Services, and Rochester Institute of
economy, as well as its economic Technology.

Dialogue Series on New Economic Frontiers 07

 The Future of Innovation Policy

2. Boosting SMEs’ ability to of implementing the concept of

take up digital activities: Small and Pilotfabrik für Industrie 4.0 in a smart factory in the country;
medium-sized enterprises (SMEs), Austria11 adopting automation, data exchange
with the exception of some members The Pilotfabrik (pilot factory) in and enhanced manufacturing
of the start-up community, have been Seestadt Aspern, Austria, is an technologies throughout the
particularly slow in taking up digital experimental factory featuring manufacturing process; and
technologies and adapting their business the latest networked production incorporating both short- and long-
models to the digital imperative. Lack of technologies. Partner firms can term technological plans. South Korea
information, expertise and, many times, learn about emerging technologies is a global manufacturing powerhouse
access to finance hinder their ability to and adapt or develop them further and ensuring a successful digital
do so. In order to bridge these gaps, to modernize their production transformation of its industry is crucial
several countries—such as Germany with processes. The factory also provides to ensure its competitiveness. To do
Industrie 4.0, Austria with the Pilotfrabrik an environment for developing so, the government, in promoting
für Industrie 4.0, Italy with the Fabbrica prototypes of new products and the roll-out of digital technologies to
Intelligente, and South Korea with the includes a training centre for students ensure the creation and conversion
Small and Mid-Size Business Smart and employees of partner companies. of its small and medium-sized
Manufacturing Strategy—have developed The Pilotfabrik programme is a public- businesses into smart factories. In
specific programmes with the objective private initiative between the Austrian 2017, the private and public sectors
of supporting the digital transformation Ministry of Innovation and Technology, agreed to expand the number of
of SMEs. While each initiative has its the Technische Universität Wien and smart factories in the country, with a
own specific parameters, all focus on several firms that are co-financing the target of transitioning at least 30,000
the provision of information, advice and project. factories thanks to the adoption
resources as core components of their of the latest digital and analytical
offer to SMEs in the manufacturing sector. technologies by 2022. Under this
Less focus seems to have been placed strategy, the government will provide
on supporting SMEs in the service sector. Frabbrica Intelligente in support to train 40,000 skilled
workers to operate fully-automated
Italy12 manufacturing sites through various
In 2012, Italy launched its Fabbrica educational programmes.
Industrie 4.0, Germany 9,10 Intelligente initiative with the objective
of developing and implementing an 3. Setting up digital clusters:
Industrie 4.0 is the name given to the
R&D-based strategy to contribute to Clusters have been widely used—and
German strategic initiative to establish
transforming and upgrading Italy’s equally loved and hated—by policy-
Germany as a lead market and
manufacturing sector in view of the makers as a means to foster stronger
provider of advanced manufacturing
opportunities and challenges opened knowledge flows across innovation
solutions in the Fourth Industrial
up by digitalization. The Fabbrica stakeholders thanks to physical
Revolution, and it’s one of 10 “Future
Intelligente cluster initiative provides proximity. While the ad-hoc creation of
Projects” identified by the German
opportunities for networking and clusters has received much criticism due
government as part of its High-Tech
sharing research infrastructures and to their ineffectiveness to create linkages
Strategy 2020. “Industrie 4.0” is a
carrying out technological foresight out of thin air when previous knowledge
national strategic initiative from the
with a special focus on SMEs. and production capacity were absent,
German government through the
Ministry of Education and Research new clusters aimed at building strong
(BMBF) and the Ministry for Economic linkages in the digital economy have
Affairs and Energy (BMWI). It aims to been created to rally and support the
drive digital manufacturing forward
Small and Mid-Size development and spread of digitally
by increasing digitalization and the Business Smart enabled innovation of emerging start-
ups, such as the Cap Digital in Paris.
interconnection of products, value Manufacturing Strategy in
chains and business models. It
also aims to support research, the
South Korea13
networking of industry partners and In June 2014, the Manufacturing
standardization, with a special focus Industry Innovation 3.0 strategy
on SMEs. was launched with the objective

08 Dialogue Series on New Economic Frontiers

 The Future of Innovation Policy

adoption of digital technologies Data61 is a single-entry point to, and

Cap Digital in Paris, France14 to make UK businesses more collaborative partner with a range
Created in 2006 in the Paris competitive and productive to grow of government and private-sector
Metropolitan Areas as a non-profit the country’s economy. Its objectives stakeholders focused on seeding
organization, Cap Digital is the are to 1) accelerate the number of and scaling new 21st century data-
biggest cluster in Europe and one of trailblazer companies working with driven platforms, business models
the largest collectives of innovators advanced digital technologies, and and projects. Data61 has built a
in the global digital ecosystem. It 2) deliver increased applied research, searchable database called Expert
is composed of more than 1,000 development and innovation in Connect, which contains profiles of
members located primarily around the advanced digital technologies. 45,000 research and engineering
Paris region, and has leveraged more experts from research organizations
than €1.6bn since its creation. With these objectives in mind, in Australia. It is continually evolving
Digital Catapult delivers three core with additional data sets such as
Cap Digital Offers a set of services technology programmes, across two global patent data provided by an
to support for R&D funding grants, industry sectors in manufacturing and agreement with IP Australia.
business coaching and acceleration, creative industries, driven by three
digital transformation and open regional centres and a national centre 5. Opening up science and
innovation models for start-ups and in London. innovation for stronger knowledge
strategic studies. flows: It is widely acknowledged that
More precisely, Digital Catapult making research results more accessible
4. Creating new intermediary promotes the development and to all stakeholders results in stronger
knowledge institutions: Intermediary early adoption of advanced digital knowledge flows that can help diffuse
knowledge institutions such as technology by providing physical and innovation. However, making research
technology centres and other research digital facilities for experimentation results publicly available can interfere
and technology organizations can play and testing for small companies; with intellectual property rights (IPR) or
a fundamental role in both generating driving stronger collaborations across privacy concerns that are fundamental
targeted knowledge that can be used innovation stakeholders; convening for providing the right incentives to
by companies, notably SMEs, as well as collaborative research; and leveraging engage in science and innovation
in brokering knowledge flows between public funding to mobilize private activities for companies. In recent years,
knowledge creators and users. These funding. some public funding organizations, such
organizations have traditionally played as the European Commission, have
an important role in regional and developed pilot programmes that can
national innovation systems for decades. improve science openness while still
Currently, in response to the new Data61- Commonwealth preserving IPR and privacy protection.
opportunities and challenges opened by
the rise of digitalization, some countries
Scientific and Industrial
have created new institutions closely Research Organisation-
focused on digitally enabled innovations CSIRO in Australia16 Open Research Data in
and their diffusion. The Digital Catapult,
as part of a broader initiative in the
Data61 is Australia’s leading data European Commission’s
innovation network and seeks
creation of a broad network of catapult to transform industries with data Research Programmes17
centres in the UK, and Data61, a network science research and technology The European Commission has
by Australia’s Commonwealth Scientific development. With more than been running a pilot programme on
and Industrial Research Organisation 1,000 employees, including 300 access to data as part of its Research
(CSIRO), are key examples. PhD students from 70 countries, and Innovation Programme, Horizon
combined with the talent embedded 2020: The Open Research Data.
in 30 partner universities, Data61 This initiative applies to making
represents one of the world’s largest publications publicly available,
Digital Catapult–UK15 data-driven digital research and while allowing grant beneficiaries to
Digital Catapult is the UK’s leading development teams. voluntarily make other datasets open.
advanced digital technology Begun in 2017, the programme covers
innovation centre. It drives the early all thematic areas of Horizon 2020.

Dialogue Series on New Economic Frontiers 09

 The Future of Innovation Policy

6. Developing future-proof Authority (LTA) and A*STAR to societal challenges, but as enablers
regulation: Regulation is crucial for provide a technical platform for of desired transformation that shape
ensuring that economic activity meets industry partners and stakeholders markets and create the demand for the
the environmental and social objectives to conduct research, development desired outcomes, with a much closer
that societies establish for themselves. and test-bedding of Autonomous involvement from users or citizens who
In an era of accelerated technological Vehicles technology, applications and will feel the effects of these innovations.
change, smart regulation that balances solutions.
the ability to spur innovation and meet 1. Transformative Innovation: So-
societal objectives can be challenging One of SAVI’s focus areas is to called ‘transformative innovation’ is in its
because of the lack of sufficient prepare technical and statutory infancy and only a handful of initiatives
information and enhanced uncertainty requirements for future deployment of and projects have started testing its
on the expected and potential outcomes Autonomous Vehicles in Singapore. application in policy-making. Many of
of many rising technologies. Early Demarcated routes in Singapore’s these initiatives have adopted a mission-
regulation can help set standards one-north business park have been oriented approach.19 The Energiewende
and potentially accelerate innovation identified by LTA and JTC to support initiative in Germany, for example,
creation and diffusion by providing legal the testing of Autonomous Vehicles by takes aim at the country’s energy
certainty. At the same time, regulation interested parties. transformation in order to curb carbon
may also stifle innovation if too restrictive, emissions. Other approaches focus on
hampering future potential avenues for Providing direction to fostering digitalization, food security and
unforeseen applications. Against this safety, like the mission-oriented research
innovation to achieve societal proposals in the European Union.
backdrop, policy-makers need to strike
the right balance at the right time and goals with stronger citizen and
also consider the adoption of regulatory user involvement
sandboxes, where specific technologies The role of innovation as a key engine
can be tested in a controlled to address societal challenges, such as Energiewende: Energy
environment with limited regulations, environment, health or inclusiveness, Transition in Germany
so that more information about the has been recognized for years. Large The “Energiewende” (in English,
specific effects of many technologies public R&D programmes have focused energy transformation) is Germany’s
can be observed and tested before on funding public research in these planned transition to a low-carbon,
wide regulation. Many countries—e.g. areas, in programmes such as the nuclear-free economy through a
Denmark, Lithuania, United Kingdom, European Commission’s Framework mission-oriented approach. The
Poland, the Netherlands, Korea, Rep. Programmes or the United States’ Grand initiative started as Germany’s answer
and Argentina—have already adopted Challenges Programme. For social to the Paris Agreement, the global
regulatory testbeds and sandboxes for inclusiveness, traditional approaches effort to reduce greenhouse gas
the Fintech industry, and their application believed that through the process of emissions to fight climate change.
for other tech-enabled innovation in the creative destruction that innovation While the initiative has raised some
areas of blockchain or cryptocurrency generates, new knowledge would concerns in terms of its complex
are also being tested in different result in higher economic growth and implementation, the Energiewende
countries. Still other countries are more and better jobs that in turn would involves a large number of sectors in
experimenting with regulatory testbeds improve inclusiveness. However, in order to trigger innovation through
outside financial markets; the Singapore recent years, a growing understanding investment and regulation beyond
Autonomous Vehicle Initiative is one that technology is not naturally neutral renewable sectors and in traditional
example. and that it can lead to a process of sectors such as the steel industry
‘destructive creation’, coupled with that would otherwise not be geared
the persistent underachievement in towards lowering carbon emissions.
addressing some of the most pressing
The Singapore Autonomous societal challenges, have called for
Vehicle Initiative (SAVI)18 new approaches to actively shape
The Singapore Autonomous Vehicle socioeconomic and environmental
Initiative is a joint partnership transitions. These new approaches
between the Land Transportation see governments not only as mere
funders of public R&D around a list of

10 Dialogue Series on New Economic Frontiers

 The Future of Innovation Policy

Other pioneering initiatives that are being criteria or health and safety. It is more
Mission-Oriented Research tested to better orientate innovation an open framework that identifies
in the European Union towards transforming societies come practices for encouraging researchers
The European Commission, in its from the Nordic countries. These include to focus on the societal context in
proposal for the next Research and Sweden’s Challenge Driven Initiative sight when undertaking their research
Innovation Framework Programme and Norway’s Responsible Research activities. This has implications for
2021–2027, Horizon Europe, has also and Innovation programme. These how institutions are governed and
proposed the adoption of a mission- initiatives are particularly interesting in the type of knowledge and skills
oriented approach based on the work providing frameworks for ensuring that that are needed, and underpins the
of economist Mariana Mazzucato at the outcomes of innovation are in sync process, with stronger involvement of
University College London. with societal values, and thus end users stakeholders, as well as the products
need to be deeply engaged throughout and enhancing legitimacy of science.
Innovation missions are instruments the process.
where the government sets the Other efforts to better direct innovation
objective of solving a certain towards transforming societies with
technological or societal problem input from innovation users or citizens
within a defined time frame that is Challenge Driven Initiative in have also been adopted in emerging
economies, such as the A Ciencia Cierta
currently out of reach and requires Sweden
significant technological advances initiative in Colombia.
VINNOVA, the Swedish Innovation
across different sectors. Rather
Agency, launched a policy initiative
than focusing on particular sectors,
in 2011 to fund projects that provide
innovation missions focus on
sustainable solutions to key societal “A Ciencia Cierta”
problem-specific societal challenges,
challenges on four key areas:
that require the collaboration of many
Future Healthcare, Sustainable and Programme in Colombia20
different sectors to solve. New types In 2013, Colciencias, the Colombia
Attractive Cities, Information Society
of collaboration between public and Science and Innovation Agency,
and Competitive Industries. The
private sectors need to be brokered to launched “A Ciencia Cierta” under
originality of this approach is that the
implement them. the National Strategy for Social
funded projects cut across multiple
thematic and sectoral areas and must Appropriation. Funded by the Inter-
According to the Jacques
identify how end users are engaged American Development Bank,
Delors Institute, some of the key
and involved throughout the three this initiative aims to engage local
characteristics of this new approach
stages of the projects. communities in identifying solutions to
are: (1) innovation missions should
social and environmental problems.
have a verifiable target as an
objective; (2) a mission should elevate In 2018, the programme granted 60m
technologies from early stages close
to market-readiness; (3) missions
Responsible Research and Colombian pesos (approximately
US$19,000) to 28 local communities
should be implemented by active Innovation Programme in that identified and selected projects
and assertive public agents; (4) Norway that would help improve local
implementing agencies should be able Responsible Research and Innovation sustainability thanks to science,
to rely on strong technical in-house (RRI) is a policy framework that guides technology and innovation.
capacities; and (5) missions require funding, research and innovation
visible and stable political backing. activities by the Norway Research 2. Broadening the innovator base:
Council. The basic assumption is that In addition to adopting new approaches
With a budget of €1.2bn per mission, to ensure a better directionality of
science and innovation results need to
the European Commission intends innovation towards societal challenges,
meet a set of social responsivity that
to work on an initial set of five key measures broadening the base of
need to be better aligned with what
missions: digitalization, health, “clean innovators to achieve more inclusive
society wants, needs and is prepared
Europe”, and food and agriculture. results can also be promoted. When
to embrace. This framework does
These missions will be defined in it comes to achieving more inclusive
not contain moral codes or checklists
close cooperation with member innovation outcomes, influencing
that already govern science and
states, stakeholders and citizens. the composition of the research
innovation with, for example, ethics

Dialogue Series on New Economic Frontiers 11

 The Future of Innovation Policy

community (i.e. ‘innovation inputs’) is when innovating. The programme 18 https://www.lta.gov.sg/content/ltaweb/en/

roads-and-motoring/managing-traffic-and-
as important as providing direction for will launch a She Innovates App and congestion/intelligent-transport-systems/savi.
innovation processes and outcomes. organize global events to connect html.
In particular, recent research has women innovators, boost visibility 19 For a thorough review of mission-oriented
shown that socioeconomic class, race through awards for women-led research and innovation, see Mazzucato,
and gender are important factors that solutions and create innovation 2018a and 2018b.
influence the ability of an individual to labs to connect women innovators 20 http://www.acienciacierta.gov.co/.
become an innovator—in particular, a with support and expertise from 21 Bell, et al, 2019.
top innovator.21 Thus, policies should be established businesses.
22 http://www.equality-of-opportunity.org/.
directed towards exposing all segments
of the population to innovation from 23 https://www.unwomen.org/en/how-we-work/
innovation-and-technology/un-women-global-
an early age. As the pool of innovators
becomes more diverse, innovations Notes innovation-coalition-for-change/she-innovates-
global-programme.
should serve the needs and preferences
1 Braconier, Nicoletti and Westmore, 2014.
of more diverse demographic groups.
This can help align incentives for 2 There is a lively debate on the reasons behind
the low aggregate productivity growth rates.
References
socially beneficial innovation, which While our current statistics may not cover
complements the external alignment value creation in an intangible economy as Bell, A.M., R. Chetty, X. Jaravel, N. Petkova and
through mission-driven innovation accurately as desired, and therefore current J. Van Reenen, Who becomes an innovator
productivity statistics may be underestimated, in America? The importance of exposure to
approaches that target outcomes more there is a broad consensus that innovation innovation, NBER Working Papers 24062,
directly. Recent research conducted mismeasurement may not be able to explain National Bureau of Economic Research, 2019.
under the Equality of Opportunity project recent productivity growth slowdown.
Braconier H., G. Nicoletti and B. Westmore, Policy
suggests that much innovative talent 3 For a review of evolving dynamics in Challenges for the Next 50 Years, OECD
goes unnoticed22; not all population competition, see World Economic Forum, 2019. Economic Policy Papers No. 9, OECD, 2014.

groups are exposed to innovative 4 For a review on the future of fiscal policy, European Commission, Enhanced European
environments from an early age. please, see page 23. Innovation Council, https://ec.europa.eu/
programmes/horizon2020/en/h2020-section/
Efforts to diversify the innovator base 5 For a review on the role of skills, please see the european-innovation-council-eic-pilot, 2019.
are therefore needed as an important, Future of Fiscal Policy on page 23.
Mazzucato, M., “Mission Oriented Innovation Policy:
decentralized mechanism for reaching 6 https://ec.europa.eu/research/eic/index.cfm. Challenges and Opportunities”, Industrial and
underserved markets and ensuring 7 https://technation.io/programmes/upscale/. Corporate Change, vol. 27, no. 5, 2018, pp.
innovations are socially beneficial. 803–815.
8 https://dubaismartcity.org/.
———, Mission Oriented Research & Innovation in the
One of the segments of the 9 https://www.plattform-i40.de/PI40/Navigation/ European Union: A problem-solving approach
EN/Home/home.html. to fuel innovation-led growth, report for the
population that has traditionally been
European Commission, 2018.
underrepresented in innovation is 10 https://ec.europa.eu/growth/tools-databases/
dem/monitor/sites/default/files/DTM_ Organisation for Economic Cooperation and
women. New initiatives, such as the UN
Industrie%204.0.pdf. Development (OECD), The Future of
She Innovates Global Programme are Productivity, 2015.
aiming at bridging that gap. 11 http://pilotfabrik.tuwien.ac.at/en/.
World Economic Forum, Dialogue Series on New
12 https://www.mise.gov.it/index.php/it/incentivi/ Economic and Social Frontiers: Shaping
impresa/bando-fabbrica-intelligente-agrifood- the New Economy in the Fourth Industrial
e-scienze-vita. Revolution, https://www.weforum.org/
whitepapers/dialogue-series-on-new-
UN She Innovates Global 13 https://www.export.gov/article?id=Korea-
Manufacturing-Technology-Smart-Factory. economic-and-social-frontiers-shaping-
Programme23 14 https://www.capdigital.com/en/.
the-new-economy-in-the-fourth-industrial-
revolution, 2019.
Launched in March 2019 under
15 https://www.digicatapult.org.uk/.
the UN Women’s Global Innovation
Coalition for Change, the “She 16 https://www.innovationpolicyplatform.
org/system/files/imce/Data61_Australia_
Innovates Global Programme” aims TIPDigitalCaseStudy2019_2.pdf.
to support women innovators across
17 https://ec.europa.eu/research/openscience/
the world. The initiative will provide index.cfm.
access to tools and resources that are
targeted at addressing some of the
biggest barriers women and girls face

12 Dialogue Series on New Economic Frontiers

The Future of Labour Policy

Summary What is the Current courseware—are providing more

workers with opportunities to re- and
As the world of work transforms rapidly, State of Play? upskill. Digital skills assessment and
micro-certification schemes have also
existing labour policies are falling out of
Across economies, policy-makers are emerged to complement and challenge
step with the nature of employment in
contending with how to develop and publicly regulated qualifications that
today’s hyper globalized and digitalized
implement labour policy relevant for a sometimes lag behind.2 In parallel, digital
labour markets. While the long-term
rapidly changing new world of work. labour platforms have lowered entry
effects of digitalization have the potential
barriers for many workers who may have
to be highly beneficial for consumers,
The window of opportunity to put in previously had difficulty accessing labour
business and workers, the short-term
place a new labour framework is short. markets. They have also opened new
disruptions created by the transition
Labour markets are being reshaped opportunities to geographically remote
could be painful for many current and
by globalization and technology. workers, enabling them to migrate
future workers, if preparations for these
The pool of talent is being altered by ‘virtually’ to urban labour markets or
disruptions are inadequate.
demographic trends such as ageing even to other continents.3
Labour policy will need to become more populations, the expansion of education New technology offers tremendous
agile and innovative. Policy-makers are access, migration and shifting values potential to enhance work quality.
being challenged to think more broadly and attitudes to work. At the same Information and communication
than the traditional focus on rights, time, work itself is being transformed technology are increasingly penetrating
responsibilities and protections linked to by technological advances, not least all aspects of work and work
full-time permanent employment. Policy high-speed mobile internet, artificial relationships, allowing more time and
attention needs to shift from jobs alone intelligence and the widespread location flexibility. Technology offers the
to work more broadly, including access adoption of big data analytics and potential of a productivity and quality
to quality work, transitions between cloud technology, which are set to step change, with automation and
employers, continuous retraining, dominate the 2019–2022 period.1 The collaborative robots—‘cobots’—taking
upskilling and lifelong learning, and consequences include job losses, on the more repetitive or physically
support during periods of inactivity. This a growing gap between the skills of challenging aspects of job roles.
chapter provides examples of existing workers and the skills needed in the Digitally enabled platform work is also
and proposed policy responses to these workplace, and a lack of adequate talent enabling workers to engage in new
challenges and opportunities, focusing in high-growth roles, especially in new and varied flexible work opportunities.
on two core labour policy objectives sectors of economic activity. Technology-enabled solutions have the
today: enhancing the quality of work and additional potential to be more effective
cultivating talent. Five major emerging trends relating to at matching talent to opportunities and
the quality of work and the cultivation of can serve to support the transition from
talent can be identified: informal to formal work arrangements.4
Digitalization is expanding access If not properly prepared for, however,
to both upskilling opportunities digitalization could reduce job roles
and work. Education technology— to discrete tasks and commodities,
including online learning technologies, undermining job quality and career
training resources and open university progression through new types of
informality and deskilling.5 Businesses

Dialogue Series on New Economic Frontiers 13

 The Future of Labour Policy

Figure 2: Job polarization in selected European countries, 1993–2010

Change in share of total employment (percentage points), 1993–2010

n 4 lowest paying occupations

n 9 middling occupations
n 8 highest-paying occupations

Source: Data from Goos, et al, 2014, Table 2.

are set to expand their use of contractors tasks is also changing the composition payroll taxes and unemployment
doing task-specialized work, engaging of employment across skill levels, benefits are relatively weaker (e.g. in
workers in a more flexible manner, resulting in job polarization (Figure 2). the United Kingdom, as opposed to
utilizing remote staffing beyond physical The least-skilled jobs which often involve Germany, Spain or Switzerland, where
offices and decentralizing operations.6 non-routine tasks (such as cleaning) the low wage sector has expanded
According to a recent report by the remain because they cannot easily less).9
European Commission, part-time and be undertaken by machines, whereas
temporary employment increased from routine work that can be automated is The impact of technology also has
12.5% to 15.8% in the European Union heavily concentrated in the middle of the consequences for worker well-being.
since 2002 and whereby 2% of adults skills distribution, leading to higher levels As the organization of labour becomes
across 14 EU member states are now of job displacement there. Digitalization, more fluid, some workers benefit from
relying on platform work as their main at the same time, augments the more flexibility and choice yet others
source of income.7 This increasing productivity of the most highly skilled are experiencing the shifts as greater
diversity in working arrangements workers and leads to a rising relative job uncertainty and involuntary job
can be attributed to both choice and demand for high-skilled workers. The displacement.10 Anxiety about job
necessity on the part of workers: 77% wage premium of high-skilled workers security has a highly negative and lasting
of European freelancers report being relative to low-skilled workers therefore impact.11 While rising incidences of stress
freelancers by choice (43% found increases, leading to growing wage and mental health issues create higher
work through online labour platforms)8; inequality. demand for welfare support, informal
however, others resort to this work due work arrangements simultaneously lead
This skills polarization has particularly
to a reduction in standard employment to missing tax contributions and reduced
profound effects in those economies
opportunities. access to employer sponsored health
lacking the institutions and policies
and wellness programmes, with potential
Automation and globalization are also to prevent or mediate this impact on
policy implications for the provision and
driving skills polarization and related inequality. Indeed, the growth of the low
funding of mental health services for the
inequality. The shift from humans to wage sector has been more pronounced
digital age.
technology for the delivery of routine in countries where labour movements,

14 Dialogue Series on New Economic Frontiers

 The Future of Labour Policy

These drivers of change are of course both high-quality and productive, and markets, it can also enable new
connected to and act upon each 2) providing individuals with up- and solutions. What follows are examples
other. While this chapter focuses reskilling opportunities so they can equip of emerging pathways that are under
on globalization and technological themselves for the future of jobs. consideration or recently applied,
disruptions in labour markets, organized into two broad categories
importantly, the scale and speed of this representing the central objectives
transformation and the impact it has on
workers will depend on the political and Policy Pathways outlined above: ‘enhancing job quality’
and ‘cultivating talent’.
economic context and the policy choices
that are made. In every economy there
Towards Inclusive Pathways towards enhancing
will be implications for future labour
policy design and implementation as
Change job quality
a result of these shifts. In both OECD 1. Broadening policy focus beyond
Globalization and technological change
and emerging economies alike, labour full-time jobs to apply to careers
affecting labour markets and skills
policy has traditionally been focused on comprising different types of work
demands is not a new phenomenon.
creating and promoting a framework for arrangements. Traditionally, policy
However, the speed of the current
a ‘gold standard’ of full-time permanent has been focused overwhelmingly on
transformation requires timely,
employment with associated social legislating to protect and promote full-
responsive and bold policy to ensure
benefits and protections. Yet policy- time permanent jobs. In high-income
that the benefits are widely distributed.
makers now need to move beyond economies the focus has been to protect
attempting to simply capture 20th this status even as non-standard work
To guide policy-makers in responding
century rights for workers in the Fourth increases without recourse to similar
to current labour market changes the
Industrial Revolution. benefits and protections; in low- and
OECD has devised a set of principles
middle-income economies it has been
to underpin reforms: i) Promoting an
As noted in our first Dialogue Series to promote formal work, formalizing
environment in which high-quality jobs
White Paper, Shaping the New Economy employment in line with development
can thrive; ii) Preventing labour market
in the Fourth Industrial Revolution, it is objectives. Today however, we need
exclusion and protecting individuals
crucial to adapt for the changing nature a change of policy mindset. A policy
against labour market risks; iii) Preparing
of work and to focus on the quality of programme looking holistically at the
for future opportunities and challenges in
jobs being reshaped and created to protections and support individuals
a rapidly changing economy and labour
both stimulate productivity and promote need throughout their working lives
market.12 The European Commission
social cohesion and equality. The regardless of their status is likely to be
has outlined what it believes are the
current challenge for policy-makers is more effective in the current context. As
three main policy levers for adapting
to guarantee standards on different globalization and digitalization continue
and reforming labour markets in light of
dimensions of work quality across to reshape work, policy-makers are
technological transformation: funding;
a growing number of contractual challenged to facilitate more flexible work
regulation, at both the national and
arrangements. While there is currently no relationships and job transitions without
regional levels; and revived collective
consensus definition of work quality, pay, sacrificing rights. Such a move away
action and dialogue with labour
working hours and work environment from policy promoting job security in
movements to ensure a more equal
are important factors. Beyond ensuring isolation towards dynamic work security
distribution of gains from digitalization.13
that the long-term effects of openness is necessary to support the resilience of
Most recently, the ILO’s Report by the
and digitalization on labour markets are workers and labour markets.15
Global Commission on the Future of
positive for businesses and workers, Work outlines key policy pillars to enable
cushioning the short-term disruptions Previous attempts to liberalize labour
a fair transition, including a lifelong
created by the transition is equally markets to increase opportunities for
learning entitlement.14
important and becoming more urgent. freelance work have often kept the
legal status of standard jobs largely
New policy responses being proposed
Two central objectives for policy-makers unchanged. This can create an incentive
and implemented are highlighting that
seeking to facilitate the transition and for employers towards offering more
innovation and adaptability are essential
to shape this new landscape are thus ‘atypical’ work and has widened the
ingredients for achieving positive
discussed below: 1) anchoring standards gap in rights and social support offered
outcomes; and, just as technology is
to make work in the new economy between those in full-time standard
a central driver of change in labour

Dialogue Series on New Economic Frontiers 15

 The Future of Labour Policy

employment and the rest. Similarly, The directive also limits the length of collaborative approach, bringing in
policy targeted at specific categories of probationary periods, bans exclusivity initiatives from other areas of policy,
jobs, for example legislating to restrict clauses and contains anti-abuse including education, social protection
the operation of digital labour platforms legislation for zero-hour contracts. It and public services.
or to create a new status of worker, may further sets out the right of all workers
also prove to be time-limited as work to receive mandatory training from the
continues to transform and can entrench employer free of cost.17
a detrimental delineation of this sector The European Pillar of
and its workers. Previous labour market Social Rights
disruptions offer valuable lessons; for
The European Pillar of Social Rights
example, the regulation of agency work Co-Sourcing and Pooling was introduced in November 2017
represented a shift towards introducing Schemes18 and confers new and more effective
quality and transferable rights that
Current policy efforts aimed at rights to citizens regarding access
followed the individual in and out of
providing support to employees in to the labour market, fair working
contracts.16
navigating increasingly fragmented conditions and social protection.
work opportunities include co- It has begun to set out what rights
sourcing and pooling schemes. An could underpin new approaches to
extension of agency work, co- supporting labour market transitions.
EU Directive on Transparent sourcing schemes allow employees For example, it states that everyone
and Predictable Working to work for several employers has the right to timely and tailor-made
Conditions simultaneously, while keeping assistance to improve employment
The recently adopted EU Directive on the benefit of a formal, unified or self-employment prospects.
Transparent and Predictable Working employment contract. In a similar This includes the right to receive
Conditions applies to all workers vein, several countries, including support for job search, training
in all types of work and thereby Austria, France, Germany and the and re-qualification and the right to
fills important gaps in protecting US, have implemented employee transfer social protection and training
workers doing zero-hour contracts pooling as a legal framework. Service entitlements during professional
(employment contracts with no providers exist who coordinate the transitions.20
guaranteed hours), domestic work, actual tasks under one contract and
voucher-based work or platform ensure that protection of employees is
work. It builds on the proclamation of seamless in such an arrangement.
the European Pillar of Social Rights Career Accounts21
2. Facilitating effective transitions Several European countries are
and was adopted by the European
into and within changing labour currently exploring the concept
Parliament in April 2019 and by the
markets will be a major determinant of career accounts as a tool to
Council in June 2019. It will now
of an economy and society’s success. facilitate labour market transitions
need to be transposed into national
One recent estimate suggests that 75 and to increase the fluidity of social
legislation in all EU member states
million people worldwide will need to protection. Career accounts rest
by 2022. The directive is intended
switch occupations by 2030 in selected on the three-way collaboration
to make contracts and working
developed and emerging markets.19 between governments, employers
conditions more transparent and
In addition, there is an ongoing and employees. Yet rather than
predictable for all types of work
need to integrate workers following relying on the collective tax system,
and in particular on-demand or
periods of inactivity (such as long- they are partly personalized and
part time work. For instance, it
term care responsibilities, protracted allow employees to save both money
states that workers with variable
unemployment or migration). Enabling and time for later use on training,
working schedules determined by
positive transitions should become a education, reduced working hours
the employer (i.e. on-demand work)
significant short-term mission of labour and periods of inactivity. Different
should know in advance when they
policy, essential for inclusion and for financing mixes are possible.
can be requested to work. Outside
meeting changing demands for talent. Governments can also contribute to
the agreed working time, they retain
Meeting this challenge will require labour career accounts, earmarking funds
full rights to refuse calls and have
policy that takes account of the broader for expenditures in line with policy
protection against unfair treatment.
mission and adopts a cross-domain,

16 Dialogue Series on New Economic Frontiers

 The Future of Labour Policy

objectives or even using the accounts making, whereby public responsibility and should lead businesses to increase
for the purpose of wage insurance, for learning and training policy sits training investments by 8.5%. The
family or social policy measures. predominantly with education ministries, tax credit is directly targeted at
together with public investments in providing greater opportunity to low-
education technology, can help deliver and middle-income workers and is not
talent development that is lifelong and available to high income earners.27
Fostering Social Dialogue blended with careers. The cultivation
and “Social Digilogue” of ‘hybrid skills’—a mixture of basic
technical knowledge, cognitive skills and
Productive dialogue between
social partners can also smooth
personal attitudes—will support workers Three Skilling Investment
to engage positively with technology and Proposals
transitions for workers. The European
transition with it.
Commission encourages the use The Adecco Group proposes that
of moderated online spaces for Examples of policies and new encouraging companies to rethink
workers to raise and discuss issues, approaches introduced or proposed to how they invest in re- and upskilling
in addition to a broader ongoing and treat those activities as an
empower individuals to upskill include
exchange with unions, employers, investment rather than a cost could
the following:
as well as platform operators for lead to increased provision of skilling
improved collective outcomes.22 A opportunities for workers. Adecco
number of so-called “social digilogue” Personal Training Accounts proposes multiple models to deliver
groups have already self-organized this skilling, including: a Training
The French government has
in this vein and have been able to Fund model, in which employers
introduced a Personal Training
influence different gig economy set up a foundation exclusively for
Account, financed through
disputes across Europe.23 re- or upskilling, financed through
contributions by employers.25 Each
a percentage of payroll costs; an
employee is required to have an
Pathways towards cultivating account from entry into the labour
Employability Account, in which
individuals are allocated a personal,
talent force until retirement, accumulating
portable and transferable training
Supporting the development of talent funds to be spent on personal
account, out of which they can pay
should become a core focus of labour development and training of their
for re-/upskilling related training, paid
policy. The evolving division of labour choice. From 2020 employers will
for using money that would otherwise
between workers and machines is credit up to €500 (with a maximum of
be used for severance costs; and
transforming current job profiles and €5000) to employees if they work at
an amortization model in which
shifting the skills required to perform least half of the contractual working
employers pay for an employee’s
them. Global average skills stability— time per year. The policy was
re- or upskilling, capitalizing it as
the proportion of core skills required to designed with a view to ensuring
an asset, after which he or she is
perform a job that will remain the same— gender parity in terms of uptake.
required to stay for a set number of
is expected to be about 58%, meaning years, reflecting the amortization
an average shift of 42% in required Similarly, in Singapore a Skills Future
Credit is granted to all citizens above period of the asset.28
workforce skills over the 2018–2022
period.24 the age of 25, paid as income
Efforts are also being made to improve
support reserved for this use.26
both policy-maker and employee
Talent development—the continual knowledge of skills changes and
process of learning and upskilling— demands:
should become an integral part of Worker Training Tax Credit
employment relationships, with new The Aspen Institute’s Future of Work
actors, financing and delivery models Initiative proposes that Federal and
brought to bear. Ensuring workers have state policy-makers consider using
the opportunity and right to upskill tax incentives to encourage additional
throughout their careers will be essential workforce training investments. The
to meet future skills demands and to Worker Training Tax Credit they
prevent workers falling out of the labour envisage is estimated to cost roughly
market. Moving past siloed policy- $146.5 million over 10 years

Dialogue Series on New Economic Frontiers 17

 The Future of Labour Policy

2017–21 National Skills Strategy, 25 https://www.moncompteactivite.gouv.fr/cpa-

Understanding Skills which rests on a binding agreement
public/.

Demand by the government, industry, 26 https://www.skillsfuture.sg/.

MIT’s Skillscape applies big data and employees, civil society organizations 27 Fitzpayne, et el, 2018.
machine learning techniques to better and Parliament, and is designed 28 Adecco, 2018.
inform individual workers about their to support on-the-job learning,
29 http://skillscape.mit.edu/#/landing.
specific skill set, help them find jobs skills-matching, and developing the
that better match those skills and help skills of adults outside the active 30 https://www.kompetansenorge.no/English/
About-Skills-Norway/.
employers find workers that better labour market.30 The institution
fit their skill requirements, thereby actively contributes to future skills
reducing skill gaps. MIT employs a
completely data-driven approach
policy development by sharing its
knowledge and learnings with relevant References
using high-resolution occupational government agencies.
Adecco Group, Bridging the Skills Gap: Rethinking
skill surveys carried out by the US workforce investment, 2018, https://future-
Department of Labor. The tool has the skilling.adeccogroup.com/downloads/Adecco_

Notes
bridging_the_skills_gap_report-(WEB)v4.pdf.
potential to inform worker retraining
programmes and urban policy Ashford, S. J., B.B. Caza and E.M. Reid, “From
surviving to thriving in the gig economy: A
aimed at maintaining employment research agenda for individuals in the new
1 World Economic Forum, 2018.
opportunities in an increasingly world of work” in Research in Organizational
2 European Commission, 2018.
competitive economy.29 Behavior, 2018.
3 Ibid. Berg, J., et al, Digital labour platforms and the future
A focus on measuring and driving up 4 Chacaltana, et al, 2019. of work: Towards decent work in the online
activity rates can promote the inclusion world, International Labour Organization, 2018,
5 On the risk of new types of informality and https://www.ilo.org/global/publications/books/
of hard-to-reach and/or non-active deskilling, see Berg, et al, 2018, and ILO, 2018. WCMS_645337/lang--en/index.htm.
groups in the labour market. Factors
6 World Economic Forum, 2018. Biagi, F., E. Fernandez Macias, I. G. Vazquez, A.
including levels of education and skills, Pesole and M.C.U. Brancati, Platform Workers
gender, age, geographic region and 7 European Commission, 2018. in Europe: Evidence from the COLLEEM
sector will all influence how profoundly 8 Malt and EFIP, 2019. Survey, European Commission, 2018, https://
ec.europa.eu/jrc/en/publication/eur-scientific-
technological change impacts an 9 European Commission, 2018. and-technical-research-reports/platform-
individual’s opportunities. Existing labour workers-europe-evidence-colleem-survey.
10 Ibid.
market age and gender gaps could Chacaltana, J. and V. Leung, Transitioning to the
widen without preventative measures 11 McKinsey, 2018. formal economy through technology: The
in place. An appropriate combination of 12 OECD, 2018. trends towards e-formality, International Labor
Organization, 2019, https://www.ilo.org/
guidance, training, work flexibility and 13 European Commission, 2018. employment/about/news/WCMS_699006/
accessibility to jobs and professions will lang--en/index.htm.
14 ILO, 2019a and 2019b.
be required to narrow gaps in access to De Vos, M., Work 4.0 and the Future of Labour Law,
work and to support the reactivation. 15 DeVos, 2018. 2018, https://papers.ssrn.com/sol3/papers.
16 Ibid. cfm?abstract_id=3217834.

17 https://ec.europa.eu/social/main. Deloitte and Timewise, A Manifesto for Change: A

jsp?catId=1313&langId=en. Modern Workplace for a Flexible Workforce,

Activating and Skilling 18 Ibid.

2018.

European Commission, Final Report of the High-

Marginal Groups 19 McKinsey, 2018. Level Expert Group: The Impact of Digital
Skills Norway is the country’s Transformation on EU Labour Markets, 2018,
20 https://ec.europa.eu/commission/priorities/ https://ec.europa.eu/digital-single-market/en/
agency for lifelong learning, deeper-and-fairer-economic-and-monetary- news/final-report-high-level-expert-group-
housed in Norway’s Ministry of union/european-pillar-social-rights_en. impact-digital-transformation-eu-labour-
Education and Research. It offers 21 De Vos, 2018. markets.

individually adapted online training 22 European Commission, 2018. Fitzpayne, A. and E. Pollack, Worker Training Tax
in literacy, numeracy, ICT and Credit: Promoting Employer Investments in the
23 https://www.oii.ox.ac.uk/blog/a-new-social- Workforce, Aspen Institute, 2018, https://www.
oral communication for adults; in contract-an-expert-report-on-digitalization-of- aspeninstitute.org/publications/worker-training-
particular, those currently inactive. Its labour-markets/. tax-credit-update-august-2018/
activities are embedded in Norway’s 24 World Economic Forum, 2018.

18 Dialogue Series on New Economic Frontiers

 The Future of Labour Policy

Goos, M., A. Manning and A. Salomons, “Explaining

Job Polarization: Routine-Biased Technological
Change and Off-Shoring”, American Economic
Review, vol. 104, no. 8, 2014, pp. 2509–2526.

International Labour Organization (ILO), Job quality

in the platform economy, Issue Brief #5,
prepared for the 2nd Meeting of the ILO
Global Commission on the Future of Work,
15–17 February 2018, https://www.ilo.org/
wcmsp5/groups/public/---dgreports/---cabinet/
documents/publication/wcms_618167.pdf.

———, Global Commission on the Future of Work:

Work for a brighter future, 2019, https://www.
ilo.org/wcmsp5/groups/public/---dgreports/---
cabinet/documents/publication/wcms_662410.
pdf.

———, ILO Centenary Declaration for the Future

of Work, 108th (Centenary) Session of the
International Labour Conference, 2019, https://
www.ilo.org/ilc/ILCSessions/108/reports/texts-
adopted/WCMS_711674/lang--en/index.htm.

Lehdonvirta, V., “Flexibility in the gig economy:

managing time on three online piecework
platforms”, New Technology, Work and
Employment, vol. 33, no. 1, 2018, pp. 13–29.

Malt and European Forum of Independent

Professionals (EFIP), Freelancing in Europe,
2019, https://news.malt.com/wp-content/
uploads/2019/02/FREELANCING-IN-
EUROPE-2-1.pdf.

McKinsey & Company, Tech For Good: Using

Technology to Smooth Disruption and Improve
Well-Being, 2018, https://www.mckinsey.com/
featured-insights/future-of-work/tech-for-good-
using-technology-to-smooth-disruption-and-
improve-well-being.

Moran, G., “The Website That’s Helping Workers

Across Industries Organize”, Fast Company,
3 November 2015, https://www.fastcompany.
com/3052939/the-website-thats-helping-
workers-across-industries-organize.

OECD, Good Jobs for All in a Changing World of

Work: The OECD Jobs Strategy, 2018.

Wood, A. J., M. Graham, V. Lehdonvirta and I.

Hjorth, “Good gig, bad gig: autonomy and
algorithmic control in the global gig economy”,
Work, Employment and Society, vol. 33, no. 1,
2019, pp. 56–75.

World Economic Forum, Future of Jobs Report 2018,

2018.

Dialogue Series on New Economic Frontiers 19

The Future of Fiscal Policy

Summary What is the Current Exacerbating these distributional

dynamics, the tax burden in many
As globalization has progressed, State of Play? countries has shifted in ways that have
reinforced these polarizing effects rather
the tax burden in many high-income
Technological progress and globalization than offset them. When globalization
countries has shifted in ways that have
have brought unprecedented gathered pace in the 1990s, it was
compounded some of the polarizing
improvements in living standards, thought that growing gains from trade
effects of globalization. In particular,
yet have left them, for the most part, could be used in part to compensate
the relative burden on middle-income
unevenly distributed. Indeed, greater those whose livelihoods were disrupted.
earners has increased while the burden
socio-economic polarization and Recent evidence suggests the opposite
on high-income earners as well as
profound social instabilities stand out in may have happened. Research by Peter
on capital has fallen. The effects of
the 2019 global risks landscape as two Egger, Sergey Nigai and Nora Strecker
automation in the labour market are
with the highest potential impact.1 The for a group of 65 emerging markets
introducing additional polarizing forces.
economic and social transformation still and high-income countries finds that
These have created new demands for
needed to create an inclusive economy as globalization progressed, the middle
government spending to facilitate the
out of current opportunities is immense. class saw their labour income tax burden
transition to an inclusive digital economy.
increase, while it dropped steadily for
At the same time, the tax base available
This current economic polarization has the top 1% of earners. This has been
to governments is shifting, particularly
many faces: technological change, true particularly for OECD countries. At
due to new digital business models.
which is hollowing out the middle class the same time, corporate tax rates have
and benefitting mainly the highly skilled2; been on a steady downward trajectory
The key tension to resolve will be
a ‘great decoupling’ of output from (Figure 3 on next page).8 The number of
enabling technology adoption and
pay, which has meant that productivity OECD countries collecting a wealth tax
innovation on the one hand while at the
gains have not translated into higher has dropped from 12 in 1990 to 3 today.
same time ensuring a fair transition to
the new world of work and the creation wages for the vast majority of workers3;
and precarious working conditions Beyond driving distributional dynamics,
of an inclusive economy. Building more
and greater volatility of career paths the twin forces of globalization and
inclusive economies will also require
for certain types of gig work4; but also technological change are also affecting
finding the right balance between new
emerging evidence of algorithm bias as the sum total of tax revenues and thus
government spending, including both
a new form of automated discrimination, governments’ room to manoeuvre in
pre-market measures (such as reskilling,
which may be exacerbating the situation important ways.
upskilling and technology diffusion)
and social protection, and an updated of historically disadvantaged groups.5
While many government budgets
tax architecture that will require policy- At the same time, competition in
remain overstretched from the shock
makers to rethink relative burdens across many industries has been weakening,
of the financial crisis a decade ago,
income, wealth and corporate taxes. which has been linked to a greater
national tax bases are also shifting
concentration of wealth as margins in
due to a range of evolving trends. To
technology-driven sectors are growing6,
the extent that globalization has made
all the while dividends and profits remain
high-income earners and capital more
concentrated in the hands of a few.7
mobile internationally, it is also making
them more difficult to tax.9 In particular,
some multinational corporations have

Dialogue Series on New Economic Frontiers 21

 The Future of Fiscal Policy

Figure 3: Average corporate and labour weakening buy-in to national social of reskilling 1.3 million US workers who
income tax rates across 65 selected contracts where they previously existed. will likely be displaced and transitioned in
economies, 1980–2007 the next decade has been estimated at
Corporate and Funding the fiscal needs of the future $34 billion—an average of $24,000 per
top 1% Median and continuing the drive towards more displaced worker—to be split between
income tax rates income tax rate
inclusive economies will require fresh businesses and governments.13 At
thinking on tax bases and public budget the same time, various approaches to
compositions against a backdrop of reinforcing social safety nets have been
Corporate tax rate limited fiscal space in many economies. proposed, involving different levels of
coverage and thus potential government
To some extent, these dynamics might expenditure. The International Trade
be mitigated by new considerations Union Congress’ “just transition” to a
on the limits of government debt. low-carbon, high-tech economy is one
Median income In contexts where interest rates on
Top 1%
tax rate
of the most comprehensive proposals
income tax rate safe assets are lower than the rate and would involve guaranteed pensions
of economic growth—as is currently for older workers, income support,
the case in the United States—it has redeployment support and continuous
been suggested that governments access to retraining and lifelong learning.
may be able to issue more public debt Universal basic income is another
without subsequent tax increases.11 proposed option. If each American adult
Meanwhile, some propose taking received a yearly stipend of $10,000,
Source: Egger et al, 2019.
advantage of the low inflation/low the cost of the program would be close
Note: Selected economies include the OECD interest rate environment to fund to three times the current level of US
economies Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Great Britain, expansive new government programs welfare spending.14 Beyond reskilling,
Greece, Hungary, Iceland, Ireland, Italy, Japan, through Central Bank balance sheets. upskilling and reinforcing social safety
Mexico, Netherlands, New Zealand, Norway, Portugal,
Spain, South Korea, Sweden, Switzerland, Turkey This new paradigm has come to be nets, there have also been calls for
and the United States; and the non-OECD economies known as Modern Monetary Theory governments to take larger stakes in
Argentina, Bangladesh, Barbados, Bolivia, Cameroon,
Chile, China, Colombia, Costa Rica, Cyprus, Ecuador, (MMT). Critics of MMT, however, warn mission-driven innovation and a more
Fiji, Ghana, Guatemala, Honduras, India, Indonesia, that current favourable conditions active role in co-shaping resulting new
Israel, Jamaica, Jordan, Kenya, Kuwait, Malaysia,
Malta, Mauritius, Morocco, Nepal, Pakistan, Peru, cannot be assumed to last forever and markets, which can yield substantial
Philippines, Senegal, Singapore, South Africa, Sri that following a path of high deficits future gains but will require additional
Lanka, Thailand, Trinidad, Tunisia, Uruguay and
Venezuela. could push an economy into a new era government funding in the short term.15
of higher inflation. Governments would
also face more difficult trade-offs in
fighting a financial crisis, responding to a
been increasingly able to shift profits to
the lowest tax jurisdictions. Additionally, large-scale natural disaster or pandemic, Policy Pathways
digital business models are adding
complications for existing corporate tax
or mobilizing for a conflict, all with
negative effects on long-term growth.12 Towards Inclusive
structures for several reasons: (i) there
is now less need for physical presence
In addition these mechanisms do not
apply in countries that rely on raising
Change
to do business; (ii) in some business debt in foreign currencies. For many
Two complementary pathways are
models, companies collect data scenarios therefore the old rules of debt
available to governments to shape
from customers in place of a financial sustainability still apply.
how the gains of open markets and
transaction that would otherwise be technological progress can be shared
taxed; (iii) companies hold an increasing Important areas that have been identified
for additional government spending are more broadly—namely through: (i)
amount of intangible assets, which spending to achieve greater equality
are difficult to value for tax purposes.10 reskilling and upskilling efforts as well
as the expansion of social safety nets of opportunity to participate in the new
Finally, there is a generalized, less economy nd guarantee social protection;
tangible trend of eroding empathy to ease transitions to the new economy.
First estimates of the costs are broad (ii) improving the progressivity of the
and trust which has accompanied the existing tax system. Both elements
digital revolution and is contributing to brush yet can give an indication of orders
of magnitude. For example, the total cost will need to be part of any new policy
the unravelling of the social fabric and approach.

22 Dialogue Series on New Economic Frontiers

 The Future of Fiscal Policy

Pre-distributive policies—such as of options has been proposed which rethinking the 1) rate of taxation as well
stepping up efforts to create a level are discussed in the Future of Labour as 2) the ways in which to tackle the
playing field for workers in the face of Policy chapter in this Dialogue Series double challenge of base erosion and
accelerated technological change, (page 13). profit shifting (BEPS). As far as BEPS
facilitating labour market transitions measures are concerned, the range
through re- and up-skilling and fostering 2. Addressing bottlenecks to of reform proposals currently on the
innovation diffusion—are included only technology diffusion: One important table is comprehensively laid out by the
briefly here since they are discussed in source of wage polarization has been IMF.16 While the negotiations are mainly
detail under the Future of Labour Policy a gap in technology adoption that has channelled through the OECD’s BEPS
and Future of Innovation Policy chapters opened up between a handful of frontier intergovernmental initiative (which has
in this Dialogue Series. firms and small- and medium-sized broad country coverage), additional
enterprises. Emerging policy responses proposals have been put forward in
Several measures are currently being such as government-sponsored pilot other fora. One proposal, the sales-
explored by the international community factories where smaller companies can based profit tax, aimed at reducing
and national policy-makers to address learn about the application of the latest profit-shifting, is discussed below.
the challenges posed to governments technologies are discussed under the
in how they tax and offset different Future of Innovation Policy chapter in this While this paper focuses on redressing
dimensions of inequality. The level of Dialogue Series (page 05). inequalities that have been driven by the
maturity of these proposals varies; while forces of globalization and technological
some are currently being designed 3. Rethinking social protection: change, it is worth keeping in mind that
and implemented, others remain There is also a strong case for many tax systems perpetuate historical
experimental or even at the ideas stage. re‑imagining social protection in order inequalities, for example by taxing
The discussion includes ideas along to adequately support those who are the second income in a household in
the entire spectrum of maturity. It is experiencing greater employment a way that discourages labour force
worth noting that as opposed to other volatility and spells of unemployment participation of the second earner—most
policy areas, taxation is less amenable due to the transition to the new world of often women. While not detailed here,
to experiments and pilots, not least for work. Emerging policy responses such other important avenues for building
reasons of international coordination. as portability of social benefits, universal more inclusive economies by reforming
basic services, conditional and universal the tax system are thus available to
New ways for creating greater basic income are discussed in more policy-makers and must form part of a
detail under the Reimagining Social comprehensive tax strategy.
equality of opportunity
Protection in the 4IR chapter under the
Even before market forces come 1. Top marginal income tax rates:
first Dialogue Series.
into play, government spending can Since the late 1970s there has been a
support broad-based participation in general trend in high-income countries to
the economy by supporting transitions Rethinking the composition of cut top marginal income tax rates. Two
into the new world of work and providing the tax system countries that saw the largest drops were
the right incentives for investment, Several pathways for broadening the tax the US and the UK. In the UK, top rates
innovation and technology diffusion. base and shifting tax burdens, including fell from 83% in 1979 to 40% in 198817; in
Such approaches include:. for income, corporate and wealth taxes, the US, the top rate fell from 70% in 1981
are currently under discussion. It is to 28% in 1988.18 In 2018 they stood at
1. Measures to support labour worth noting that most of the proposals 45% (UK) and 37% (US) respectively.19,20
market transitions: These are policies discussed have been made out of and Based on a model of the relationship
directly targeted at those who are at for the US or European context, which between tax rates and government
risk of being left behind by the digital have seen some of the most rapid revenue known as the Laffer curve, it
transformation: emerging up- and globalization- and technology-driven was argued that such cuts would not
re-skilling policies such as France’s polarization of incomes, wealth and necessarily lead to revenue loss for
Personal Training Accounts and industry structures. governments. Indeed, lower tax rates can
Singapore’s Skills Future credit are increase government revenues if a lower
examples for measures targeted at Reform proposals for expanding both rate encourages more economic activity.
supporting workers in their transition the corporate and wealth tax base have
into the new world of work. A range two components: policy-makers are

Dialogue Series on New Economic Frontiers 23

 The Future of Fiscal Policy

Individual countries such as France online marketplace). The tax will apply
Rethinking Top Marginal and the United Kingdom, have begun only to businesses that generate more
Tax Rates experimenting with a variation of than £500mio in revenue globally and
Peter Diamond of MIT and Emmanuel such a tax, specifically targeted at more than £25mio in the UK.
Saez of the University of California digital activity. However, rather than
Berkeley show theoretically and based apportioning profits according to the After the conclusion of a public
on recent data for the US that there proportion of sales, they propose to consultation, the DST will be legislated
is a policy-relevant case that “very tax revenues directly. Aiming to achieve for in the 2019/2020 Finance Bill. The
high earners should be subject to greater global coordination, the G20 UK government’s long-term objective
high and rising marginal tax rates on finance ministers are working on a is an internationally coordinated
earnings.” They argue for the US that new set of rules to take effect in 2020, reform of the global tax system
the equity case for such increases which would make digital companies through the EU, G20 and OECD.
has become more urgent given the pay tax regardless of physical presence Once a global solution is in place, the
extreme rises in income at the top of or measured profits in a country. DST will be discontinued.24
the distribution, and also given that Deliberations are also under way at the
OECD and the European Commission, France: The French government
there is no convincing evidence that
where parties are exploring a digital has taken steps to implement a
economic activity drops as a result
tax on social media platforms, internet digital services tax and plans to
of higher top marginal rates.21 This
marketplaces and search engines. implement it unilaterally unless an
thinking has recently been picked up
international solution can be found.
by US politicians, who have argued for
The tax has two objectives: to raise
higher top marginal income tax rates
revenue from company’s use of data
similar to what the US had up to the
early 1980s. Digital Services Tax (DST) in order to create more budget space
United Kingdom: The UK is one of for financing public services and
2. Sales-based (profit) tax: the first countries in which political to ensure a fairer tax environment
Traditionally, the relevant location for leadership has emerged around in France. Currently, the tax rate
levying corporate taxes was determined a more targeted taxation of digital faced by small and medium-sized
by the location of profits. Yet globally, companies based on the rationale enterprises (SMEs) is on average 14
40% of multinational profits are shifted that the corporate tax system percentage points higher than that for
to tax havens every year, and the US, should be fair and sustainable large digital platforms.
for example, loses 15% of its corporate across different types of firms and
The new law envisions a 3% turnover
tax revenue to such shifts.22 More reflect the value companies derive
tax targeting digital platforms that
open capital markets and the fact that from UK users. The country is,
provide services to French users.
the volume of digital economic activity therefore, planning to implement a
It affects revenues generated
is growing has contributed to these digital services tax on UK-generated
from online advertising, including
dynamics. sales from April 2020 with revenues
ad targeting activities and resale
expected to reach £1.5 billion over the
A recent proposal by economist Gabriel of personal data for advertising
next four years.
Zucman at the University of California purposes but excluding online sellers
Berkeley aims to address this concern.23 A 2% tax will be levied on the which sell their own products.
Zucman proposes to calculate the revenues of specific digital business
The size threshold for companies
amount of tax owed by apportioning models, including search engines,
subject to the tax is a global turnover
the global, consolidated profits of firms social media platforms and online
on their digital activities of 750 million or
based on where they make their sales marketplaces, where revenues are
more euros and a turnover of over €25
(e.g. if a company makes 20% of its linked to the participation of UK users.
million in France, effectively applying to
sales in Country A, the base of corporate The tax will apply only to revenues
around 30 companies.25 The unilateral
taxation levied by Country A will be 20% earned from intermediating online
move by France comes partly as a
of the company’s global, consolidated sales, not from the sale itself, and
consequence of slow progress on
profits). Since the amount of tax owed will apply to online advertising only to
a coordinated approach at both the
is calculated based on the location of the extent that a business model in
international and EU levels. France has
sales, the target cannot be easily shifted question is within scope (i.e. a search
agreed to revoke the tax, should an
across borders. engine, social media platform or
international agreement be reached.26

24 Dialogue Series on New Economic Frontiers

 The Future of Fiscal Policy

3. Wealth tax: While twelve OECD estimates suggest that, similar to in practice since a precise enough
countries had wealth taxes in 1990, Switzerland, the wealth tax should raise definition of ‘robot’ is under debate,
this number has shrunk to three today 1% of GDP, compared to approximately several options have been explored
(Norway, Switzerland and Spain), with 0.2% in France and Spain. theoretically.29
France phasing out its wealth tax in
2017. However, a dynamic of growing 4. Online advertising tax: The A robot tax may require granting a
accumulation of wealth by a shrinking economist and Nobel Laureate Paul legal personality and eventually a tax
group of individuals has put them back Romer proposes a tax on online personality to robots and would legally
in the spotlight. The new momentum advertising designed to induce a shift presuppose an electronic ability to
gained more visibility and traction in in business models away from being pay. There is currently, however, no
2014 when economist Thomas Piketty ad-based to being subscription-based. consensus on the definition of a robot,
revived the idea. Piketty argues that Maximizing profits from advertising only some convergence around the
wealth should be more evenly distributed income has led some businesses to idea that it should involve the use of AI
but does not discourage wealth creation. favour extreme content guaranteeing as well as a certain level of autonomy
clicks yet the concomitant spread of as main characteristics that distinguish
More recently, economists Emmanuel hate speech and misinformation has robots from machines. To the extent
Saez and Gabriel Zucman have outlined been severely eroding social fabrics. that robots can perform activities that
the pros and cons of introducing a The tax would provide a starting point were previously carried out by workers,
progressive wealth tax.27 In response to restoring the global commons of trust it has been argued that there is a
to concerns about tax avoidance by discouraging ad-based business rationale for imposing an income tax on
and evasion, they propose ways for models and the destructive growth of the an imputed robot salary and potentially
addressing these through an exhaustive attention economy.28 even subjecting such income to social
definition of the tax base, as well as security contributions. Other rationales
more comprehensive data collection, that have been put forward include
sanctions for suppliers of tax evasion imposing VAT based on transactions
services and better resources for Online Advertising Tax carried out by robots, an “objective” tax,
auditing. They argue that a wealth tax A tax on online advertisement comparable to taxes on cars, or a fee for
would have a significant positive real revenues would be an additional the use of state infrastructure (such as a
economy effect in terms of reducing source of revenue for governments (at road toll).30
wealth inequality; in order for the tax to least temporarily) while also tackling
be overall beneficial, these would need to trust erosion. Romer (2019) proposes However, the idea is yet to gain traction
be larger than negative effects on capital to add it as a surcharge to corporate in policy circles. Apart from the difficulty
stock, entrepreneurial innovation and top income tax at the federal level or as a of agreeing on a precise enough
talent migration. In their view, such a tax sales tax on ad revenue at the state definition of robot, it has been pointed
could have a positive impact in terms of level and suggests that it could be out that such a tax could hurt the
making investments in innovative start- made progressive with respect to competitiveness and growth of countries
ups relatively more attractive than the company size. This idea has emerged as it would discourage new investments
purchase of luxury items. alongside proposals for taking an anti- in this area.
trust approach to tackling the market
power of digital platforms and thus its
harmful side effects.
Rethinking Wealth Taxes Robot Tax
A proposal to impose a 2% wealth 5. Robot tax: The idea of a robot tax Political leadership on implementing
tax on individuals who hold more than was put forward most prominently by this type of tax has emerged in
$50 million in assets and 3% on net Bill Gates in an attempt to disincentivize Korea, where the first robot tax was
worths of more than $1 billion has been socially suboptimal levels of automation passed by parliament in August 2017.
put forward in the context of the 2020 and redistribute some of the gains A modification that makes the tax
US presidential campaign. Saez and from technological change from capital more easily implementable is that the
Zucman estimate that this tax will apply owners to workers—in particular law shifts incentives by reducing tax
to approximately 75,000 individuals those who are being left behind by breaks that were previously awarded
and raise $2.75 trillion over 10 years. technological progress. While the to investments into robotics rather
In terms of percentage of GDP, their approach has been difficult to apply than implementing a new tax.

Dialogue Series on New Economic Frontiers 25

 The Future of Fiscal Policy

Notes 21 For the US, Diamond and Saez, 2011, find:

“The share of total income going to the top 1
percent of income earners (those with annual
Calligaris, S., C. Criscuolo and L. Marcolin, “Mark-
ups in the digital era”, OECD Science,
Technology and Industry Working Papers
income above about $400,000 in 2007) has 2018/10, OECD, 2018, http://dx.doi.
1 World Economic Forum, 2019a.
increased dramatically from 9 percent in org/10.1787/4efe2d25-en.
2 Bernstein and Raman, 2015, Autor and 1970 to 23.5 percent in 2007, the highest
level on record since 1928 and much higher Darvas, Z. and G. Wolff, An Anatomy of Inclusive
Salomons, 2018, and Darvas and Wolff, 2017.
than in European countries or Japan today Growth in Europe, Bruegel Blueprint, 2016.
3 Bernstein and Raman, 2015. […] The top percentile paid 40.4 percent of Diamond, P. and E. Saez, “The Case for a
total federal individual income taxes in 2007 Progressive Tax: From Basic Research to Policy
4 Prassl, 2018.
(IRS, 2009a). Therefore, the taxation of very Recommendations”, Journal of Economic
5 O’Neill, 2016, and Eubanks, 2018. high earners is a central aspect of the tax Perspectives, vol.25, no.4, 2011, pp. 165–190.
policy debate not only for equity reasons but
6 Calligaris, et al, 2018. also for revenue raising. For example, setting Econfip, Economics for an Inclusive Prosperity,
aside behavioral responses for a moment, 2018, https://econfip.org/wp-content/
7 World Inequality Lab, 2018.
increasing the average federal income tax rate uploads/2019/02/Economics-for-Inclusive-
8 Egger, et al, 2019, and Zucman, 2018. on the top percentile from 22.4 percent (as Prosperity.pdf.
of 2007) to 29.4 percent would raise revenue
9 Egger, et al, 2019. by 1 percentage point of GDP. Indeed, even Egger, P., S. Nigai and N. Strecker, “The Taxing
increasing the average federal income tax Deed of Globalization”, American Economic
10 IMF, 2019. Review, vol. 109, no. 2, 2019, pp. 353-390,
rate of the top percentile to 43.5 percent,
which would be sufficient to raise revenue by https://pubs.aeaweb.org/doi/pdfplus/10.1257/
11 Blanchard, 2019.
3 percentage points of GDP, would still leave aer.20160600.
12 Rogoff, 2019. the after-tax income share of the top percentile Eubanks, V., Automating Inequality, McMillan Books,
more than twice as high as in 1970.” 2018.
13 World Economic Forum, 2019c.
22 Zucman, 2018. International Monetary Fund (IMF), Corporate
14 World Economic Forum, 2019b.
23 Ibid. Taxation in the Global Economy, IMF Policy
15 Kattel, et al, 2018, Mazzucato, 2013, and Paper No. 19/007, 2019.
Mazzucato, 2016. 24 https://assets.publishing.service.gov.uk/
government/uploads/system/uploads/ Karabarbounis, L. and B. Neiman, The Global
16 IMF, 2019. Decline of the Labor Share, NBER Working
attachment_data/file/752172/DST_web.pdf.
Paper No.19136, National Bureau of Economic
17 https://www.ifs.org.uk/ff/fiscalfacts2000.xls.
25 https://www.gouvernement.fr/en/taxation-the- Research, 2013, https://www.nber.org/papers/
18 https://taxfoundation.org/us-federal-individual- outlines-of-the-gafa-tax-revealed. w19136.
income-tax-rates-history-1913-2013-nominal-
26 https://www.euronews.com/2019/08/26/here- Kattel, R., M. Mazzucato, J. Ryan-Collins and S.
and-inflation-adjusted-brackets/.
s-what-you-need-to-remember-from-the-g7- Sharpe, The economics of change: Policy
19 https://www.gov.uk/government/publications/ summit-in-biarritz. appraisal for missions, market shaping and
rates-and-allowances-income-tax/income-tax- public purpose, UCL Institute for Innovation and
27 Saez and Zucman, 2019. Public Purpose, Working Paper Series, (IIPP
rates-and-allowances-current-and-past.
28 Romer, 2019. WP 2018-06), 2018, https://www.ucl.ac.uk/
20 https://taxfoundation.org/us-federal-individual- bartlett/public-purpose/wp2018-06.
income-tax-rates-history-1913-2013-nominal- 29 Oberson, 2017.
and-inflation-adjusted-brackets/. Mazzucato, M., The Entrepreneurial State: Debunking
30 Ibid. the Public vs Private Myths in Risk and
Innovation, Anthem Press, 2013.

———, “From Market Fixing to Market-Creating: A

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———, “Warren’s wealth tax explained”, Vox, 24

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Dialogue Series on New Economic Frontiers 27

Acknowledgements

The World Economic Forum would like to thank the Global Future Council on the New Economic Agenda and the
Global Future Council on the New Social Contract for their thought leadership and guidance of the Second
Dialogue Series on New Economic Frontiers. We would equally like to express our gratitude to subject matter
experts for generously contributing to the Dialogue Series with their time and expert insight. Finally, we also thank
the members of our broader core community for their ongoing commitment and support to the Platform for
Shaping the Future of the New Economy and Society and for contributing to addressing challenges discussed in
this series globally.
We are also grateful to our colleagues at the Platform for helpful comments and to Michael Fisher for his excellent
copyediting work and Neil Weinberg for his superb graphic design and layout.
The views expressed in this white paper do not necessarily represent the views of the World Economic Forum or its
Members and Partners. White papers are contributions to the World Economic Forum’s insight and interaction
activities and are published to elicit comments and further debate.

Members of the Global Future Council on the New Economic Agenda

Council Co-Chairs
Mariana Mazzucato Professor in the Economics of Innovation and Public Value, and Director, Institute
for Innovation & Public Purpose (IIPP), University College London, UK
Andrew McAfee Co-Founder and Co-Director, MIT Initiative on the Digital Economy, Massachusetts Institute of Technology, USA

Council Members
Fatoumata Ba Founder and CEO, Janngo, Côte d’Ivoire
Li Bin Deputy Director General, National Development and Reform Commission, China
Erik Brynjolfsson Co-Founder and Co-Director, MIT Initiative on the Digital Economy, Massachusetts Institute of Technology, USA
Diane Coyle Bennett Professor of Public Policy, University of Cambridge, UK
Diana Farrell CEO and President, JP Morgan Chase Institute, USA
Jerome Haegeli Chief Economist, Swiss Re, Switzerland
Jonathan Hall Chief Economist, Uber, USA
Natalie Jabangwe CEO, Ecocash, Zimbabwe
Frannie Léautier COO/Executive Director Asset Management, Trade and Development Bank, Kenya
Keun Lee Professor of Economics, Seoul National Universtiy, Korea
Abdulla Nasser Loota Director General, The Federal Competitiveness and Statistics Authority, United Arab Emirates
Illah Nourbakhsh K&L Gates Professor of Ethics and Computational Technologies, Carnegie Mellon University, USA
Alejandra Palacios Prieto President, COFECE Mexican Anti-Trust Commission, Mexico
Nagla Rizk Professor of Economics, American University Cairo, Egypt
Paul Sheard Senior Fellow of the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School, USA
Arun Sundararajan Robert and Dale Atkins Rosen Professor of Business, Stern School of Business, New York University, USA
Yuan Yang Beijing Correspondent, Financial Times, China
Zhu Ning Professor, PBC School of Finance, Associate Dean, National Institute of Financial Research, Tsinghua University, China

Council Fellow
Sarah Lebovitz PhD Candidate in Information Systems, NYU Stern School of Business, USA

Dialogue Series on New Economic Frontiers 29

 Acknowledgements

Members of the Global Future Council on the New Social Contract

Council Co-Chairs
Stephane Kasriel Chief Executive Officer, Upwork, USA
Minouche Shafik Director, London School of Economics and Political Science, UK

Council Members
Anant Agarwal Chief Executive Officer, edX, USA
Umran Beba Chief Human Resources Officer, Human Capital Management, PepsiCo, USA
Girinde Beeharry Director of Global Education, Bill & Melinda Gates Foundation, USA
Esteban Bullrich Senator for Buenos Aires, National Congress of Argentina, Argentina
Hilary Cottam Founding Director, Centre for the Fourth Social Revolution, UK
Lynda Gratton Professor of Management Practice, London Business School, UK
Annie Koh Vice-President, Office of Business Development, Singapore Management University, Singapore
Sangheon Lee Director, Employment Policy Department, International Labour Organization, Switzerland
Susan Lund Partner, McKinsey Global Institute, USA
Leena Nair Chief Human Resources Officer, Unilever, United Kingdom
Mamokgethi Phakeng Vice-Chancellor, University of Cape Town, South Africa
Jeremias Prassl Associate Professor of Law, University of Oxford, UK
Bettina Schaller Head, Group Public Affairs, Adecco Group, Switzerland
Anne-Marie Slaughter President and Chief Executive Officer, New America, USA
Prasad Swaminathan Senior Vice-President; Global Head, Talent and Learning, ABB, Switzerland
Xianghong Shirley Wang Professor, Renmin University of China, China
Judith Wiese SVP People and Organization; CHRO, Royal DSM, Germany

Council Fellow
Greetje Corporaal Postdoctoral Researcher, Oxford Internet Institute, UK

World Economic Forum

Silja Baller Insight Lead, Frontier Insights, Centre for the New Economy and Society
Susan Wilkinson Insight Lead, Frontier Insights, Centre for the New Economy and Society
Beñat Bilbao-Osorio Head, Frontier Insights, Centre for the New Economy and Society
Saadia Zahidi Managing Director and Head, Centre for the New Economy and Society, Member of the Managing Board

30 Dialogue Series on New Economic Frontiers

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