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.
- feature image by Markus Spiske