equality technology

How digital technology drives inequality

Last week I wrote about how the circular economy could contribute to a more inclusive and equal society. Today I wanted to contrast that opportunity with another technological shift, the digital revolution. Over the last couple of decades, digital technology has crept into every area of our lives, from the way that we work and communicate, to how we learn, or how we relax. And while there are a huge number of benefits, this shift may have contributed to growing inequality.

In their book The Second Machine Age, Erik Brynjolfsson and Andrew McAfee give three main reasons why digital technology drives inequality.

First, it rewards the educated, because those with more education are better placed to take advantage of digital technology. People with higher skills are more in demand, and can command higher wages. Those with less education can’t get a job in the digital economy, but there are fewer jobs being created in manufacturing and other lower skilled sectors at the same time. This creates a divergence. In recent decades the average earnings of graduates have risen, and the average earnings of those without degrees has fallen.

People are less important in a digital economy. Computers have streamlined tasks and allowed people to do more, but this efficiency comes at a price. When computers replace workers, it makes the company more efficient, and they can take that benefit as extra profit or pass it on to customers as lower prices. But it does mean that less money is distributed through wages. Across the country as a whole, the ‘labour share’ of the economy is eroded. Take a supermarket self-checkout for example: a big saving for the company, but the town hosting the supermarket sees less of the store’s revenues shared in the local economy.

On a related note, digital goods can be replicated without requiring extra resources or people. Consider the difference between a movie streaming service and the video or DVD market it is replacing. A movie is uploaded once and can be accessed or downloaded millions of times. It does away with the jobs involved in making, distributing and retailing the physical copies, and that’s why there’s no Blockbuster Video on the high street any more. The giant companies of the digital economy employ relatively few people for their size.

Putting these sorts of trends together, the share of the economy going to workers has been shrinking, and the OECD has discovered this trend repeated across many of the countries it has studied. It came up in the news in Australia just today, where Labor leader Bill Shorten has warned that the country is experiencing economic growth without shared prosperity.

The winner takes all. Internet algorithms being what they are, success breeds success, and popular goods and services squeeze out smaller or local alternatives. We touched on this last week with Uber – as a global brand it’s the first choice for many travelers, and local cooperatives struggle to get any attention. Likewise, the iPod and its integrated Apple Store came to dominate the whole music industry. Amazon so dominates online retail that it is on track to own 50% of the US online market by 2023. Google controls the internet’s information retrieval, and the story is repeated in plenty of other examples. In each of these cases, the lion’s share of that business sector is going to a handful of big winners, where in the past it would have been distributed among lots of other companies and their employees and supply chains. It also leads to monopolies, where one company enjoys too much power and starts to abuse it. Designers might resent the business practices of Adobe, but it’s the only software company left standing in the design industry and they will have to pay whatever the company decides.

What can be done about this? The first thing is to be aware of it. In the grand scheme of human history the internet is very new, and we’re adjusting to the effects that it is having on society. Governments and legislatures need to be alert to the impacts of digital technology and responsive to changes. Education is a useful tool, especially for those who are old enough to have come to the internet later in life and don’t take to it naturally.

Since the tech giants employ so few people and own a growing share of the global economy, it’s important to capture some of that in taxation. So it matters when companies don’t pay their taxes. We might want to make more use of antitrust measures too. And as individuals we can choose to support smaller or local alternatives wherever possible.

6 comments

  1. This focuses on production, not on consumption. Yet consumption is the point of the economy. This technological revolution has made lots of things far cheaper if not effectively free meaning that poorer people have greater access to them

    20 years ago to get the up to the minute news from around the world that I can get through my smartphone would have cost thousands of pounds for a Bloomberg feed, or several pounds a day to get the sweep of quality opinion writers in the newspapers. Today I can get it for free on a £60 Android phone wherever I am. In fact I have with blogs and Twitter an even wider range of viewpoints at my fingertips. Bill Gates might have a nicer phone but there isn’t a better billionaires’ Twitter that he can access and I can’t. So here consumption inequality has fallen, the poor have comparatively better access.

    Journalists and been hit by this with declining jobs and low salaries but the role of news media is not to put food on hacks’s tables but to inform and interest the public.

    The idea that the winner takes all is bad for the consumer is not proven. While lots of smaller companies might mean that there is less income inequality, since the profits are spread among lots of rich people rather than fewer super rich people, this doesn’t mean the consumer is getting a worse deal. Why did Google or Facebook become so dominant, beating its competitors? The reason is simply that they were so much better from the consumers’ point of view than the alternatives. I remember the day someone showed me Google and suddenly I could find what I wanted rather than spend hours on Yahoo. Now arguing for lots of little companies is arguing that some consumers should be stuck with Yahoo because… its not fair. You can use the local alternatives, I’ll have something that works.

    A big difference between old school monopolies and the modern tech ones in social media is that the modern ones exist because of consumer choices and generate huge amounts of consumer surplus. Facebook would be vastly less useful for its users if it only served Bristol and I had to go to another similar one to see cat pictures from my friends in Gdansk. The network effect is profoundly important.

    I have heard rumblings from the Corbynite left about nationalising Facebook and Twitter as they are ‘natural monopolies’ though given their global nature is part of their USP I’m not sure how that works out. And I doubt a government bureaucracy would be as focused on additional consumer value.

    1. Although I can agree the focus on labour is one-sided, your reply is just the same. For people to be consumers, they first need to have a job. It has been a fact of life for the past years that so-called ‘unskilled’ labour is increasingly getting automated. It’s hard for these people to find new jobs, because even minimum wages are too expensive for the added value these people supposedly bring (in the eyes of the company). Although consumer goods may have never been cheaper, without income it doesn’t matter how cheap they are.

  2. Hey, I’m with you on Google. I remember that moment when I discovered it, and realised the internet might actually be useful after all. You won’t find me peddling nationalisation strategies, and if I had easy answers to offer, I’d have offered them already.

    However, the same risks apply as old school monopolies. There’s resilience in diversity. If there’s only one operating system running all the worlds computers, and a virus takes it down, we’d wish we had more computers running Linux. Then there’s potential for abuse of power. If half the country is getting its political opinions from Facebook, a foreign power might try to influence an election by taking out ads on it, as Russia did recently. Or a big search engine might filter out politically unwelcome results at the request of a government, see Google in China. When sector dominance starts to erode democracy, shouldn’t we start asking questions?

    There’s no doubt that some dominance is driven by a better product, but the consumer is not well served by big winners in the long run, because they can get lazy. I’ve already mentioned Adobe, who I find particularly irksome, but there are others. Is Microsoft Word any better today than it was ten years ago? Windows seemed to be coasting for years, until Android and its open sourced platform forced it to do a proper overhaul.

    It doesn’t matter if it’s consumer driven or a government sanctioned monopoly, the effect is the same. It’s still a market failure. Competition keeps people honest and drives innovation, and avoids abuses of power.

    1. I agree that competition is the key, but we shouldn’t automatically assume that if there is only one major entity in a market that it is a monopoly or uncompetitive. The key point is contestability. That is to say, are they concerned that a competitor might successfully enter the market. If that concern keeps them focused on providing the best possible service/price then we consumers still get the benefit. In search for example Google is well aware if they get slack Bing, with all the resources of Microsoft, or someone else could replacement as quickly and easily as they replaced Yahoo.

      That said I’m not unconcerned by the potential dominant behaviour of many of these companies. The James Danmore episode exposed what I consider a worrying corporate groupthink in Google. Facebook does need to ensure that it isn’t a patsy for propaganda. The trouble is that the truly liberal regulation required relies on politicians who are truly liberal and I don’t see many of those in our increasingly polarised and censorious times.

      I think its a balance. Currently we are getting far more out of these big tech firm that it costs us (financially and in wider terms). If they stop providing that value and the market is prevented from responding then we should act a bit more firmly.

  3. There will never be a shortage of tasks that can only be done by humans eg care work, cleaning, maintenance and repairing. The trouble is that the tax system squeezes labour-intensive activities.

    That is what needs to change.

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