As the world’s rich and powerful meet in Davos for the World Economic Forum this week, Oxfam have re-released the shock statistics that richest 62 people own the same wealth as half of the world.
For a Labour party that long ago focused on equality of opportunity, perhaps this should not be of as much concern as the strength of the economy. After all, isn’t everyone better off when the economy is growing? Even if you are not persuaded by data showing the costs to everyone from such rising inequality (like The Spirit Level), evidence is growing that something has fundamentally changed in our economy that means that the recent growing inequality is increasingly unfair but also economically and electorally problematic. Some time in the 1990s, the link between productivity and wages was broken. A growing economy no longer means growing pay packets for most people in the United Kingdom – and around the world.
And anyone who campaigned for Labour in the last few elections will have heard first hand how people have been experiencing this – the woman in Hammersmith who told me in 2005 that, if the economy was growing, it was not helping her. The man in Thurrock in 2015 who could not imagine things getting better, ever. My own friends at home in Bridgend who are working two jobs to afford ‘little luxuries’ like clothes and a car. They might not consider themselves to be poor or traditional victims of inequality, but they are the ‘many’ we stand up for in the Labour party, and the people whose support we need to ever win power again. And they are clear – growth is not enough if they do not benefit.
So what has caused this change? Of course, the reasons are complex and include changes in tax policy and capital markets, globalisation and greater international competition. But a key driver of this growing inequality comes from a surprising source – from innovations in technology, and, as MIT economists Erik Brynjolfsson and Andrew McAfee argue, from digital technology in particular. At its simplest, more men work in IT and therefore have greater gains from growth and high wages in these areas; digital goods can be sold anywhere, so online companies can dodge unfavourable tax regimes by changing the address on their letterhead; automation of routine tasks reduces demand and wages for less educated workers; most importantly, the ease of scaling digital technologies which means that it is almost as cheap to sell 10 million iTunes tracks as to sell 10 also means that a greater share of the revenue goes to fewer people.
The idea that the benefits of technologies are unevenly spread throughout society is not new – just think of the changes (many good) that have been created by the internet or the advent of cars, for instance. But what is new about digital technologies is the scale of the changes and the central role that these technologies are set to play in our economy – and lives – in the future. Indeed the World Economic Forum website claims that we are on the edge of the ‘fourth industrial revolution’, in which ‘innovation will also lead to a supply-side miracle’.
So, in a world facing climate change and a growing and an aging population, how can we continue to harness the power of science and technology to transform our lives and solve the problems we face, without creating an economy that rewards only the very richest? The answer is unlikely to be less technology and innovation. Instead we need to be ready. Ready to regulate – on an international level – where necessary. But also ready to capture the gains by investing in education to make sure that the Britain becomes the generator not just the consumer of the digital revolution. Because it is more than the economy, it is prosperity that is at stake.
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Melanie Smallman is deputy director of the Responsible Research and Innovation Hub at UCL and a former fellow of the Science, Technology and Society Programme at the Harvard Kennedy School of Government. She tweets @MelanieSmallman
This piece forms part of today’s guest-edit of the Progress site by Stephen Kinnock MP, covering the discussions at Davos on the economy, business and the World Economic Forum’s central theme this year of ‘The Fourth Industrial Revolution’. Follow the guest-edit today here
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Photo: yourdoku