Wealth-generating productivity gains are not fairly shared. And never will be. Life’s a bitch.
5 February 2022 (Zurich, Switzerland) – Among all the other familiar disruptions in our daily lives, the COVID crisis of the last two years has accelerated the structural shift to an economy in which intelligent machines are on track to displace gainful employment even as productivity growth generates ever greater wealth for those who “own the robots.” In short, the pandemic has exposed a dynamic of inequality endemic to the digital age.
Several recent studies show the clear markers of the trajectory ahead:
– A recent study by MIT’s Daron Acemoglu and Pascual Restrepo reports that each new robot employed in industrial production between 1993 and 2007 eliminated 3.3 jobs on average and that 50-70% of the decline in wages of workers performing routine tasks was due to automation.
– In her remarks at the (virtual) Davos conclave in late January, U.S. Treasury Secretary Janet Yellen noted that the gains from “pandemic-induced telework” will “ultimately raise U.S. productivity by 2.7%.” But, she added, “technological advancement that boosts productivity growth may exacerbate, rather than mitigate, inequality.” It has mostly benefitted “upper-income” professionals, not to speak of huge profits flowing to the tech giants who own the platforms, while leaving the less educated and less skilled behind: “the power of technology has no end”.
These developments confirm a study last year by the McKinsey Global Institute that found that since the 1990s, productivity in the OECD countries has grown by 25% while wages grew by only 11%, a reflection of the core dynamic of digital capitalism. In the same period, capital income of the richest grew to the point where the top 10% own 89% of all equity in the U.S., a digital economy reaping those productivity gains. Even that stunning leap has been further accelerated during the pandemic. As Oxfam reported in a study released in January, the top 10 billionaires – including the founders of Amazon, Alphabet/Google and Microsoft – doubled their collective wealth during the last two years of the pandemic from $700 billion to $1.5 trillion.
What this acceleration toward ever greater inequality reveals is that the industrial-era paradigm that productivity growth would assuredly lift all boats through commensurate wage increases while progressive taxation would curtail excessive wealth concentration applies less and less in the digital age. Any effective policy response to the endemic inequality of the digital economy would focus on “pre-distribution” – enhancing the skills and assets of the less well-off in the first place – instead of only redistributing the income of others with greater opportunity in the hopes of approximating a fair society.
In terms of skills, that means expanding access and affordability to public higher education for those in the workforce who lack college degrees (about 60% in the American case) as well as bolstering the digital-era skills of the non-college bound. As Yellen touted:
“The Biden administration aims to boost labor productivity in ways that will help to address the disparities in wage growth. The focus is on enhancing the skills of workers — and particularly those with low incomes — to be able to take advantage of new technologies. To do this, we are proposing wide-ranging investments in human capital — from early childhood education to community college, apprenticeships and worker training”.
In terms of assets, pre-distribution means fostering an ownership share for all in the wealth generated by those intelligent machines that are displacing gainful employment. Nathan Gardels and Nicolas Berggruen in their 2019 book “Renovating Democracy: Governing in the Age of Globalization and Digital Capitalism” which they call “universal basic capital.” The idea is not just to break up concentration of wealth at the top, but to build it up from the bottom.
Call it the neoliberal blues
The idea of “universal basic capital” is a bit pie-in-the-sky thinking but the book is, nonetheless, a good read because it lays out the worst fear of America’s Founders – that democracy would empower demagogues – was realized in the 2016 US presidential election, when the ballot box unleashed some of the darkest forces in the body politic. Similarly, they lay out how in Europe an anti-establishment political awakening of both populism and right-wing neonationalism consigned the mainstream centrist political parties that once dominated the post–World War II political order to the margins.
But as I have written before: these are merely symptoms of the decay of democratic institutions across the West that, captured by the organized special interests of an insider establishment, have failed to address the dislocations of globalization and the disruptions of rapid technological change. To add danger to decay, the fevered partisans of populism are throwing out the baby with the bathwater, assaulting the very integrity of institutional checks and balances that guarantee the enduring survival of republics. The revolt against a moribund political class has transmuted into a revolt against governance itself. The paradox of the political economy in the age of digital capitalism is that the more dynamic a perpetually innovating knowledge-driven economy is, the more robust a redefined safety net and opportunity web must be to cope with the steady disruption and gaps in wealth and power that will result.
But change is just not going to happen. While labor income remains the most important for the majority of people, capital income is a bigger and bigger part of where the value if going. Digital capitalism is simply not structured to ever be able to produce a fair share of the wealth across society through wages and salaries alone. You’d need it supplemented by capital income … and only a revolution can create that.
Thanks to platforms like Facebook and Twitter, there is more participation in society than ever before but this engagement has come in the form of problematic information silos and propagated misinformation, which has fragmented mass society into diverse tribes. The splintered public goes on to make bad choices. To deal with the fake news bots and echo chambers, Nathan Gardels and Nicolas Berggruenthe essentially suggest that Mark Zuckerberg et al should work against their own profit motives. If not, these mechanisms must be regulated by a government.
Alas, digital capitalism doesn’t quite work that way. And by that I do not mean the digitization of finance (which is by far the largest share of the global economy and has proved crisis prone time and again) but the rapidly growing gig economy elements of the tech industry: businesses like Uber, Lyft, and Airbnb. Advances in these domains have already disenfranchised millions of American workers.
The authors promise a vision to renovate democratic institutions and even out the tilting economy. No doubt we need an imaginative vision of the future, as in Antoine de Saint-Exupéry’s admonition that, “If you want to build a ship, don’t drum up people to collect wood […] but rather teach them to long for the endless immensity of the sea.” Gardels and Berggruen do not show us the sea, but instead a set of tame prescriptions.
The authors share James Madison’s “Federalist No. 10” (1787) which concerns direct democracy: the voting population is too susceptible to brute passion for its own good. The argument is the basis for representative democracy. The authors extend the “Founding Fathers” republican arguments to protect against the social-media-fueled “dumb mob” (a phrase used often). Is it even empirically true that people are dumber than they were in the late 18th century? Perhaps I have too rosy a view of the capacity of people to learn about their choices. That fact that the Trump crime syndicate is still resplendent among half of the voting U.S. population speaks volumes.
But is the “Federalist No. 10” really the one to choose? It argues that the “first object of government” was to protect individuals’ rights to accrue property. As Arthur MacEwan has noted in many of this writings, the Constitution of the United States was designed to limit threats to the propertied classes – to maintain factions who could not coalesce against the wealthy. Students of U.S. history will well remember that scholars as far back as Charles Beard in 1913 suggested that the Constitution was drawn so as to protect the Founders’ own wealth. Rampant capitalism was embedded.
So that’s why digital capitalism should not be any surprise. It has divorced productivity and wealth creation from employment and income. But these divorces were described as early as 1821 by the economist David Ricardo. Indeed, Karl Marx and Friedrich Engels quipped over 100 years ago that if productivity and wealth had gone hand in hand, capitalists “ought long ago to have gone to the dogs […] for those of its members who work, acquire nothing, and those who acquire anything, do not work.”
It is commendable to analyze what “knowledge-driven economy” technologies mean for the already deep chasm between the classes with ownership and those with little more than their labor power. But redrawing the social contract and the Democratic Party ethos? Dead-on-arrival. The call for a more robust and redefined safety net and opportunity web to cope falls on deaf ears (the ones holding political power in America).
Up to now, American-designed globalization – including trade and finance regimes – has overwhelmingly favored the United States, but the benefits go to those who own the firms – not the citizens. Oh, to a few, those holding the stock of those companies. The enduring issues is that the disenfranchised – the proletariat and ever-growing “precariat” anywhere – will simply never get what they need. The wealthy elites have driven the dislocation. The American governance dreams described in the Gardels and Berggruen book (and many, many others) simply will never challenge that power. That power is insulated by the short-term horizon of partisan election cycles and special interests – now institutionalized.
Yes, societies have encountered big businesses before, and have long-standing protections for consumers, competition, the environment and more. But, in addition to their traditional commercial power, the tech giants can be said to be powerful in new ways: they have power that derives from their mastery of digital technology and which societies do not yet have measures to contain. This digital power can be divided into three spheres: economic power, technological power, and political power – although these overlap and interact. It is only now that the majority are (slowly) realising how that digital power has been wielded to the detriment of society. There is no limit to the ambition and hubris of big tech firms.
More to come.