November 15, 2019

How Tech Enables Inequality

“Here is one of the great paradoxes of our time. The world is dominated by a few corporations that are among the most profitable companies in the history of capitalism. In the US (the home of these giants) and in the UK (an enthusiastic vassal state), parts of the economy are booming and employment is at record levels. And yet, in the middle of this astonishing prosperity, inequality is at levels not seen since the period before the first world war. In the US, the share of total income going to the top 1% of the population is now back to the level it was in the 1920s. And in the UK, more than 4 million people are trapped in deep poverty.

Since this catastrophic rise in inequality seems to be correlated with the rise of the tech industry, it’s tempting to see a causal link between the two. Tempting, but too simplistic. For while digital technology has been a central factor in what’s happened, it’s only a part of the story. More often, it’s been an enabler of other forces rather than a prime mover.

The biggest force reshaping our world has been globalisation. “A really good substitute for a manual labourer in the US is a manual labourer in China or Costa Rica,” says the Stanford economist Paul Oyer. But you can’t outsource complex production lines without high-bandwidth connections between the west and those distant factories. Oyer cites Apple as a canonical example of how to do it well. “The company is designing their products here, so the people who work in engineering are more and more valuable, and making more and more money, but the people who, in the old days, might have made computers here – that’s now done in China.””

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