Inequality is rising within developed and emerging economies, and it is rising on several dimensions, according to Lord Adair Turner, a member of the UK’s Financial Policy Committee and former chair of the UK Financial Services Committee. Lord Turner has noted that the drivers of this inequality are “imperfectly understood,” but he has also suggested that part of the cause might be today’s vast and ever-changing technology and communication developments.
In January, Lord Turner published an article on Project Syndicate that examined the ways that today’s new information technologies, while surely shining indicators of economic growth, also have a dark side effect. The consumer benefits of technology are large relative to their price, but they have brought dramatic shifts in the distribution of wealth for producers.
We are able to view, research, comment upon, and purchase articles and goods by the millions via the internet. And the technology enabling this activity involves relatively low resource cost. “The cost of computing hardware collapses over time in line with Moore’s law of relentlessly increasing processing power,” observed Lord Turner, “And once software has been developed, the marginal cost of copying it is effectively zero.” As a result, the number of jobs created by this activity is relatively trivial. According to Lord Turner, information technology has automated away an increasing number of jobs, while creating few to replace them.
Consider that Microsoft employs approximately 128,000 people worldwide today. Google employs 40,000-50,000, and Facebook a little more than 7,000. Meanwhile, who among the billions of technology savvy consumers has not used Microsoft, Google, or Facebook? In contrast, General Motors employed over 219,000 people in 2013,more than the combined total of all three of these technology giants. Lord Turner noted that technology jobs are “mere drops in the ocean of the global labor market, replacing very few of the jobs that information technology has automated away.”
While information technology reduces the number of jobs required to generate income, that income is also distributed to producers with greater inequality. In his article, “The High-Tech, High-Touch Economy,” Lord Turner states that as the wealthy become wealthier, much of their rising income will not be spent on technology intensive goods and services — there is a limit to how many computers, smartphones, and tablets you can use at any one time. Instead, Lord Turner argues that higher-income consumer preferences will shift as the increasing share of their expenditure will be devoted to buying goods and services that are rich in fashion, design, and subjective brand values. Again, products for which the overall resource cost is small relative to the value demanded and delivered.
In the high-tech, high-touch economy of the future — a world of robots and apps, but also of fashion, design, and face-to-face services — Lord Turner expects that service positions will grow, especially those which cannot be automated away, such as healthcare workers, and hotel, restaurant, and catering employees. Assets like real estate, which cannot be created, will see dramatic increases in value.
Lord Turner already sees some of the high-tech, high-touch economy’s forces at work driving up the prices of London real estate, and he has warned that excessive credit creation to fund purchases of real assets are posing a threat to financial stability. At the European Investment Conference in London, he will discuss the new approach required to address these threats and ensure financial and economic stability.
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