April 3, 2017    3 minute read

Is Technology Increasing Inequality?

A Growing Concern

Is Technology Increasing Inequality?

“Robots Are Replacing Humans at All These Wall Street Firms”. This was the title of a Fortune article, almost ten days ago. The article referred to BlackRock’s announcement they would replace human managers with artificial intelligence-powered algorithms.

According to PwC, automation may substitute 38% of all American jobs, a tendency that is particularly evident in financial sectors, where by 2025 almost 10% of the human workforce will be replaced by computers.

The Main Questions

Technological progress has always created wealth and new jobs. Recently, machine learning, automation, developments in robotics and artificial intelligence have been disrupting the entire economic paradigm, to the point that experts are talking about a fourth industrial revolution.

Society is changing, and it is easy to see that technology has made life easier. However, like in any transition, there is a lot of uncertainty. So it is natural to wonder: does technological progress treat social stability? Is technology increasing inequality?

As economist Michael Baxter and entrepreneur John Straw stated, there are two potential factors that increase inequality when one considers emerging technologies: patents and goods/content offered online for free.

Patents

The patents issue is not new. Take the pharmaceutical industry. Enforcing the patent system is necessary to stimulate innovation. Without patents, there would not be any incentive to invest in R&D. In fact, while the manufacturing process is generally cheap, the process of research and development costs significantly more.

But according to the Commission on Health Research for Development, less than 10% of resources devoted to health research were allotted to low and middle-income countries, where over 90% of all preventable deaths worldwide occurred.

Free Content

The second agent mentioned by the two authors is free online content. Revenues coming from online advertising have promoted the so-called “winner-takes-all dynamics”, the rise of the two monopolists Google and Facebook and the creation of big competition issues.

In fact, according to Brian Nowak, a Morgan Stanley analyst, 85 cents of every new dollar spent in online advertising will go to Google or Facebook.

Nowadays, with the growth of software-based businesses, the positive impact of growth is concentrated in a few hands. As the recent Snapchat IPO demonstrates, it is possible to create a multi-billion dollar company with less than 400 employees.

Who Does It Serve?

That is not wrong if the share price increases and stakeholders’ power rises too. People in Sub-Saharan Africa have more access to a mobile network than clean water. By taking a different view of one’s responsibilities, the tech world could easily improve the condition of these vulnerable areas.

But there is no need to go all the way to Africa to discover inequality. The gap between rich and poor is getting larger in the United States where the richest 1% of the population has 34% of the accumulated wealth. In Silicon Valley, the cradle of innovation, the disparity between tech multibillionaires and the rest of the region is becoming larger.

Conclusion

The problem is not the technological progress. Technology is not the cause of inequality and there are many potential benefits coming from innovation: productivity is higher, daily life is easier and more wealth is created.

The main problem is how these benefits are distributed. So far, this has been a controversial subject. What one can do is re-train people in order to make them able to deal with new technologies in the best way possible.

Get articles like this straight to your inbox each morning with our Breakfast Briefing. Sign up by clicking here!

Log in with your details

or    

Forgot your details?

Create Account

Send this to friend