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Tech innovation widens the wealth gap

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Tech innovation widens the wealth gap

Indian school children sit outdoors and eat lunch at a government school in Hyderabad, India, Tuesday, Oct. 28, 2014. (Mahesh Kumar A.)

Just in time for the start of this year’s World Economic Forum in Switzerland, Oxfam has released another report on income equality in the world. According to the report (“An Economy for the 1%”), the top 1 percent of the world’s population now owns more than the next 99 percent combined.

Even more distressingly, the 62 wealthiest people on the planet own the same amount of wealth as 50 percent of humanity.

If you take a look at the Oxfam data showing the distribution of wealth in the world, it’s clear that something very profound is happening. Since the turn of the century, the pace of income inequality has actually accelerated rather than stabilized.

During that time period, the wealth of the bottom half of humanity fell by more than a trillion dollars, a decline of 41 percent. That’s because the poorest half of the world’s population has received just 1 percent of the total increase in global wealth since 2000, while half of that increase has gone to the top 1 percent.

Wasn’t technological innovation supposed to prevent this from happening? Despite the appearance of new exponential technologies, growing rates of Internet penetration in the developing world, and attempts by technologists to bring new educational approaches to the poorest parts of humanity, it appears that technology has had little or no impact on addressing income inequality.

In fact, based on the Oxfam report, it’s even possible to make the case that technology, while it has helped lift many people out of extreme poverty, has somehow made income inequality worse.

Of course, correlation does not imply causality. This glaring income inequality could be caused by any number of factors. In the Oxfam report, for example, the primary culprits are wealthy individuals who don’t pay their fair share of taxes, clever wealth management consultants and offshore tax havens. The reason the wealthy are getting wealthier, implies Oxfam, is because they’re stashing their money where tax collectors can’t get to it.

However, there’s at least one aspect of the Oxfam report that should be troubling for technologists — and that’s the relationship between capital and labor.

“One of the key trends underlying this huge concentration of wealth and incomes is the increasing return to capital versus labor,” says the report. “In almost all rich countries and in most developing countries, the share of national income going to workers has been falling. This means workers are capturing less and less of the gains from growth.”

For technologists, this means that owners of capital — the venture capitalists, the angel investors, the founders of a company, and the employees who own equity in the company — are always going to do better than the traditional 9-to-5 office worker who’s paid hourly. Put another way, the chances of you becoming a millionaire are much higher if you hit it big with a start-up than if you work your whole life for the same company grinding out paychecks. (And it doesn’t help, says Oxfam, that the pay gap between company executives and frontline workers is also widening.)

Another aspect of the report that’s relevant for technologists is the discussion of how intellectual property works in the modern world. According to Oxfam, “Inequality is also compounded by the power of companies to use monopoly and intellectual property to skew the market in their favor, forcing out competitors and driving up prices for ordinary people.” The main example cited here is the pharmaceutical industry, where pharmaceutical companies spent more than $228 million in 2014 on lobbying in Washington.

Even if you don’t buy into the whole Oxfam argument and are turned off by the “politics of envy,” it does appear that the rapid pace of technological innovation in the world is playing a role in who becomes wealthy and why. WEF founder Klaus Schwab, in an Associated Press interview in Davos, said that the “fourth industrial revolution” brought about by new exponential technologies could widen the gap between rich and poor.

“It’s my biggest concern, because the fourth industrial revolution will even increase the inequality which we have,” Schwab said. “Those who are entrepreneurs, who have talents, will push innovation — will gain from the revolution — and those who are on the other side, particularly in service positions, will lose.”

But wasn’t technology supposed to level the playing field between someone in Bangalore, India and Bangor, Maine? To some extent, that’s true. There has been a massive rising of people out of poverty, something that even Oxfam concedes. The number of people living below the extreme poverty line between 1990 and 2010, the report notes, was cut in half. And, over a very long-term time horizon, the impact of technology on society has been remarkable.

The problem is that the wealth is now highly concentrated at the top. When not enough wealth trickles down below, that has a very real impact on how people view the world. “It is simply unacceptable that the poorest half of the world’s population owns no more than a few dozen super-rich people who could fit onto one bus,” Winnie Byanyima, Oxfam International Executive Director, told the AP.

Even within the U.S. it is possible to observe the potential impact of technology on income equality. Think about robotics and automation, where technology is eliminating some jobs, while boosting the return on capital of the people owning those factories.

Does technological innovation really have a 1 percent problem? To prove that technology is part of the solution and not part of the problem, Silicon Valley’s leaders need to be able to show that they are helping to address the world’s growing income inequality and bringing abundance to the world, not just colonizing new overseas markets.

If, as the leaders at Davos suggest, we’re headed toward a “Fourth Industrial Revolution,” we need to be sure that everyone will profit from this revolution, not just the 62 wealthiest individuals in the world.

Dominic Basulto is a “futuris” and founding member of, one of the first blog media companies. This column was first published by The Washington Post.

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