Disruption Is A Brave New World – For 10% At Least

Evidence mounts that technology drives inequality

Income Inequality

I remember several years ago, sitting in a conference being held by Microsoft. They were pushing forward their plan to put laptops in the hands of basically every single person on the planet, starting with underprivileged nations. I began to feel uncomfortable and almost blurted out the question, “With great power comes great responsibility. Petroleum for example, can be a great service to humanity, but it can also cause great harm. How does Microsoft plan to protect the recipients of its technology from the potential harm?”

The reps’s answer? “We’ve got software for that”. Little did I know that this exchange was a harbinger of grave news for our world today.

Beware The Ides Of March

Way back in 2008, a paper was published by the International Monetary Fund that stated, “The observed rise in inequality across both developed and developing countries over the past two decades is largely attributable to the impact of technological change.” Was anybody listening?

Fast forward to 2014, where, as we discussed previously there has been a blowback. In Silicon Valley they are protesting against Google and accusing the tech industry of causing evictions of elderly San Franciscans on fixed incomes. Got an app for that?

Rising Inequality

Since the recession of 2008, most of the wealthy have recovered, however the poor have yet to start recovering according to a study by the University of California at Berkeley. The study points out that the richest 10% in the USA received more than half the income, or just a bit over 50%. This is the largest share since such record-keeping began in 1917.

And how are things going in Silicon Valley? Great, if you make over $100K because your salary is climbing. For the rest of the Valley though, incomes have decreased.

Robotic Revolution

As technology advances ever more rapidly, those who are in charge find it ever more attractive to replace humans with tech. Robots are on pace to replace everything from pharmacists, lawyers, store clerks, soldiers, drivers and even sportswriters and journalists. Are the jobs created by Facebook, Google, Airbnb and the like going to keep pace? A major leap in technology, of which we have now become accustomed to seeing, could in fact lead to massive unemployment. The rapid development of 3D printing could put the entire logistics and trucking industry on its head – or on the dole.

Welfare State

One of the results of the industrial revolution was an immense amount of new opportunities and new types of work. But this came only with time, great effort and the intervention of government. Another by-product of the industrial revolution was government subsidies. Suddenly there appeared a permanent sector of society that was supported by the rest. According to The Economist:

The “reservation wage”—the wage below which a worker will not accept a job—is now high in historical terms. If governments refuse to allow jobless workers to fall too far below the average standard of living, then this reservation wage will rise steadily, and ever more workers may find work unattractive. And the higher it rises, the greater the incentive to invest in capital that replaces labour.”

As we can see, this sets the stage for tough choices to be made. On one hand, societal stability must be maintained, but on the other there must be an incentive to create jobs. Will the government end up being the biggest source of money to corporations staffed by armies of robots owned by the ultra-rich?

Many point towards how much technology and tech companies have helped solidarity and philanthropic causes. Also, how crowdfunding platforms like Kickstarter help get innovative projects off the ground. Although these efforts are genuine and real, the reality is that the number of jobs being replaced is just too great for these innovations to make a real difference.

Just Like Oil

The reality is that the tech giants are just like any other industrial sized giant. Once you get so big, you have to fight hard – or even a bit dirty – to stay on top.

According to the New Republic, tech giants like Apple, Google and Facebook were lobbying congress to expand the number of H-1B visas in order to import foreign (read: cheap) software engineers. The argument was that there weren’t enough home grown techies to supply the growing demand. Then The New York Times reported:

A mile and a half from Apple’s Cupertino headquarters is De Anza College, a community college that Steve Wozniak, one of Apple’s founders, attended from 1969 to 1974. Because of California’s state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008. ”I just don’t understand it,” he said in an interview. ”I’ll bet every person at Apple has a connection to De Anza. Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete’s sake. ”But then they do everything they can to pay as few taxes as possible.

The Times further reported that Apple’s accountants have found legal ways to allocate about 70 percent of its profits overseas, where tax rates are often much lower, according to corporate filings.

Why is it that the CEO of Google says that education is one of the keys to reducing inequality, but when it comes to chipping in for the cause these giants don’t want to pony up? When we see stories like these we wonder if tech really is to blame or maybe it is just the age old problem of greed.

What About The Third World?

In Africa and other developing areas, malaria kills 655,000 people a year. Technology is on the verge of thwarting this pestilence with laser technology which can kill mosquitoes in mid-flight – and only the biting females. Also technology allows for the rapid dissemination of health care, logistics and emergency information which means saved lives.

The rapid access to education is a huge benefit, and all of this is changing the face of third world. While these changes are impressive, according to Nancy Birdsall, in her address to the Carnegie Endowment for International Peace:

“For developing countries, any risk of increasing inequality associated with active participation in the global economy is even greater, if only because of the greater inherent institutional weaknesses associated with being poor.”

Unseen Future

If tech was supposed to change the world, what went wrong along the way? It appears, at least for the time being, that the rise of tech is destroying, or displacing, jobs faster than it is creating them. Remember all the disruptors we have been talking about? Well, many of them have led to a displacement of jobs. In the long term this might create more opportunities, but in the short term it could cause significant social upheaval.

According to TechCrunch, Facebook investor Peter Thiel said that technology has relieved the beleaguered middle-class with services in health, education and leisure that were once the exclusive domain of the wealthy In a certain measure, this is equalizing, but does it create jobs?

If there is one thing certain about those who live in Silicon Valley, it is that they are innovators… and optimists. Many believe that time, government guidance and continued innovation will see us out of this murky situation.

The question is: What will come first, the tipping point or the breaking point?

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