Inequality is from Policy, Not Technology

The disturbingly popular narrative is that the significant rise in inequality (economic and otherwise) over the last four decades is primarily due to the advancement of technology. Typically it’s claimed that technological progress has significantly raised demand for workers with sophisticated skills while concurrently reducing demand for less-skilled workers. It’s a claim made when there are no laws of nature that dictate how technology must be used.

Part of the reason this technology causing inequality narrative is pushed (overtly or not) is because it presents the view that extreme inequality was inevitable — when in truth it was preventable. Blaming inequality on the existence of technology can be a convenient excuse for those in power, but the reality is that the benefits of technology is determined by policy decisions.

This can be determined through research grants, government spending, and certain subsidies, but it’s largely connected to policy on copyrights, patents, and other forms of intellectual property.

Patents and copyrights are government interventions in markets. These interventions can be positive or negative, but they are the opposite of the theoretical free market. This is seen notably with how the U.S. government potentially has the power to arrest someone violating a patent – there aren’t many forms of government intervention more explicit than that.

The case of Bill Gates (who has long been in at least the top three of the world’s wealthiest people) provides a compelling example here. All else being equal, Gates would be much less rich if he didn’t have copyrights and patents on Windows and other Microsoft software. If that scenario was true, there would be essentially no monetary cost to downloading and sharing many copies of Microsoft software.

Patents and copyrights clearly have a major impact with regards to the massive upwards redistribution of income driving inequality. Patents in the U.S. have become increasingly expensive to acquire and they are disproportionately granted to higher-income people. It’s common sense that there aren’t as many high school dropouts and poorer people with patents as compared to the number of patents that those who have graduate degrees and high net worths possess.

By design, a mechanism such as a patent allows for charging much higher prices than would otherwise be possible, and this often comes with the consequence of higher real prices for most people. Microsoft software could be free to download, but (outside of pirating it) there’s a substantial cost to purchasing it. The revenue from this cost is then in large part transferred to Bill Gates and other major shareholders of Microsoft stock — as in, transferred to wealthy people — and this is simply one example.

Prescription drugs, which in some distant sense can also sometimes be thought of as technology, provide another example. Money is transferred upwards to the pharmaceutical corporations who possess the drug patents in the form of higher costs to consumers. The amount that Americans would save if there were no drug patent monopolies or related unjust protections is substantial, estimated at a few hundred billion dollars a year, or at a few thousand dollars per U.S. household.

There are different and more effective ways to support innovation other than using the patents and copyrights that regularly function as outdated relics of the medieval guild system. The Internet for instance was created through direct funding from the Department of Defense, and there’s a similar case with a surprisingly high number of innovations, which really shows the inefficiency that using patents and copyrights often have. New approaches — such as giving people tax credits to grant to those engaged in creative work, which could be based off of tax deductions for charitable donations — need to be tried more instead.

The narrative of blaming technology for inequality is also shown as flawed when the significant impacts of policy are shown in the case of medical doctors and manufacturing workers, standard examples of people considered high-skill and low-skill.

In the case of doctors, deliberate policy has lead to their wages in the U.S. being on average about twice those of doctors in other wealthy countries. It is illegal to practice medicine in the U.S. without otherwise having completed a U.S. residency program. The argument for maintaining a rule such as this is absurd – it’s essentially saying that doctors from places such as Canada and Germany are unqualified because they haven’t gone through a years-long U.S. residency program.

This artificially limited supply of medical doctors in the U.S. – along with the high demand that remains for them – raises the price of their wages while allowing for there to be less of them. Besides the struggling people that could use more medical assistance around the country, this amounts to added U.S. healthcare costs of around $100 billion annually, an amount about equal to $700 per U.S. household.

For manufacturing workers, policy decisions are again seen through allowing them to be so harshly put in direct competition with other low-wage workers overseas, putting downward pressure on their wages. Allowing the Chinese currency management (which could have been stopped or lessened with better U.S. negotiating) to drive the U.S. trade deficit higher also is one of the main reasons for the secular stagnation (lack of demand) in the economy that has so hurt lower- and middle-income workers.

Thus, the argument that technological advancement has lead to an increase in inequality has virtually no basis in reality. Policy effects being the real drivers of inequality are seen repeatedly, from the under-taxed financial sector, the tax loopholes for major corporations, the rigged corporate governance structure that has allowed for ridiculous CEO pay levels, the labor market policy that’s been set against achieving beneficial policies such as what’s referred to as full employment, etc.

One actual way to reduce inequality would therefore be to actually lessen the duration of intellectual property grants in order to reduce the rents received by those possessing them. If longer and stronger patents and copyrights has been associated with more inequality (with evidence finding that it hasn’t been much of a contributor to economic growth that benefits the general population), then reversing that trend should be an egalitarian development.

These points about technology really are that important and fundamental though. Much of importance on what happens with technology in the near future will be determined by policy, and it’s therefore important that there be clearer general technological understanding among the public for this. It really is an integral point in understanding the role of technology in the modern world.

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