Social Europe

politics, economy and employment & labour

  • Themes
    • Global cities
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter
  • Membership

Inequality By The Click

Adair Turner 15th January 2014

Adair Turner

Adair Turner

Pope Francis warned in November that “ideologies which defend the absolute autonomy of the marketplace” are driving rapid growth in inequality. Is he right?

In one sense, Francis was clearly wrong: in many cases, inequality between countries is decreasing. The average Chinese household, for example, is now catching up with the average American household (though still with a long way to go).

But such examples do not negate the importance of rising inequality within countries. Both China and the United States are dramatically unequal societies – and are becoming more so.

In the US, the statistics are striking at both ends of the income distribution. The bottom quarter of US households have received almost no increase in real (inflation-adjusted) income for the last 25 years. They are no longer sharing the fruits of their country’s growth. The top 1% of Americans, however, have seen their real incomes almost triple during this period, with their share of national income reaching 20%, a figure not seen since the 1920’s.

In many emerging countries, rapid economic growth has raised living standards to at least some degree for almost everyone, but the share of the rich and ultra-rich is increasing dramatically. Once these countries approach the average income levels of developed economies, and their growth slows to typical rich-country rates, their future may look like America today.

Globalization explains some of the bottom-quarter income stagnation in the US and other developed economies. Competition from lower-paid Chinese workers has driven down US wages. But technological change may be a more fundamental factor – and one with consequences for all countries.

Technological change is the essence of economic growth. We get richer because we figure out how to maintain or increase output with fewer employees, and because innovation creates new products and services. Successful new technologies always cause job losses in some sectors, which are offset by new jobs elsewhere. Tractors destroyed millions of agricultural jobs, for example, but tractor, truck, and car manufacturers created millions of new ones.

But new technologies come in subtly different forms, with inherently different economic consequences. Today’s new technologies may have far more troubling distributional effects than those of the electromechanical age.

Imagine that 30 years ago, someone had discovered a set of magic words enabling us to speak to any friend anywhere in the world – “abracadabra John” and you were talking to John, wherever he was. Provided she secured intellectual-property rights, the inventor would have become the richest person in the world; and her lawyers and those who provided her with luxury goods and services would have become pretty rich, too. But, beyond that, no new jobs would have been created.

Information and communication technology is not costless magic; but it is closer to it than were the innovations of the electromechanical age. The cost of computing hardware collapses over time in line with Moore’s law of relentlessly increasing processing power. And once software has been developed, the marginal cost of copying it is effectively zero.

The consumer benefits of this technology are large relative to its price: the cost of each year’s latest computer, tablet, or smartphone is trivial compared to the cost of a new car in 1950. But the number of jobs created is trivial, too.

The Inequality Of Technological Progress

In 1979, General Motors employed 850,000 workers. Today, Microsoft employs only 100,000 people worldwide, Google employs 50,000, and Facebook employs just 5,000. These are mere drops in the ocean of the global labor market, replacing very few of the jobs that information technology has automated away.

But increased unemployment is not inevitable. There is no limit to the number of service jobs that we can create in retail, restaurants and catering, hotels, and an enormous variety of personal services. Walmart, for example, employs two million people, and the US Bureau of Labor Statistics forecasts that more than one million additional jobs will be created in America’s leisure and hospitality sector in the next decade.

But the wages that the market will set for these jobs may result in yet greater inequality. And there is no reason to believe that politicians’ all-purpose answer to the problem – “increase workforce skills” – will offset this tendency. However many people learn superior IT skills, Facebook will never need more than a few thousand employees. And access to high-paid jobs is likely to be determined not by absolute skill level, but by relative skill in a winner-take-all world.

At least, however, IT products and services are very cheap, so even the relatively poor can afford them. That might make very unequal societies more stable than many fear. In his recent book Average is Over, the economist Tyler Cowen makes the deliberately provocative argument that while new technology will produce extreme inequality, the relative losers, satiated by computer games and Internet entertainment, and provided with the basics of a minimally acceptable life, will be too docile to revolt.

Cowen may be right; the poor may not rebel. But extreme inequality should still concern us. Beyond a certain point, unequal outcomes inevitably fuel greater inequality of opportunity; and extreme inequality of either outcomes or opportunity can undermine the idea that we should all be equal as citizens, if not in material standard of living.

So Pope Francis was right: despite capitalism’s undoubted success as a system for generating economic growth, we cannot rely on market forces alone to generate desirable social outcomes. All new technologies create opportunities, but free markets will distribute the fruits of some new technologies in dramatically unequal ways. Offsetting such outcomes will be a greater challenge today than it has been in the past.

 © Project Syndicate

Adair Turner

Adair Turner, a former Chairman of the United Kingdom's Financial Services Authority, is a member of the UK's Financial Policy Committee and the House of Lords. He is also Chairman of INET.

You are here: Home / Economy / Inequality By The Click

Most Popular Posts

Russia,information war Russia is winning the information warAiste Merfeldaite
Nanterre,police Nanterre and the suburbs: the lid comes offJoseph Downing
Russia,nuclear Russia’s dangerous nuclear consensusAna Palacio
Belarus,Lithuania A tale of two countries: Belarus and LithuaniaThorvaldur Gylfason and Eduard Hochreiter
retirement,Finland,ageing,pension,reform Late retirement: possible for many, not for allKati Kuitto

Most Recent Posts

OECD,inflation,monetary The OECD and the Great Monetary RestrictionRonald Janssen
prostitution,Europe,abolition Prostitution is not a free choice for womenLina Gálvez Muñoz
Abuse,work,workplace,violence Abuse at work: who bears the brunt?Agnès Parent-Thirion and Viginta Ivaskaite-Tamosiune
Ukraine,fatigue Ukraine’s cause: momentum is diminishingStefan Wolff and Tetyana Malyarenko
Vienna,social housing Vienna social-housing model: celebrated but misusedGabu Heindl

Other Social Europe Publications

strategic autonomy Strategic autonomy
Bildschirmfoto 2023 05 08 um 21.36.25 scaled 1 RE No. 13: Failed Market Approaches to Long-Term Care
front cover Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship

Hans Böckler Stiftung Advertisement

WSI European Collective Bargaining Report 2022 / 2023

With real wages falling by 4 per cent in 2022, workers in the European Union suffered an unprecedented loss in purchasing power. The reason for this was the rapid increase in consumer prices, behind which nominal wage growth fell significantly. Meanwhile, inflation is no longer driven by energy import prices, but by domestic factors. The increased profit margins of companies are a major reason for persistent inflation. In this difficult environment, trade unions are faced with the challenge of securing real wages—and companies have the responsibility of making their contribution to returning to the path of political stability by reducing excess profits.


DOWNLOAD HERE

ETUI advertisement

The future of remote work

The 12 chapters collected in this volume provide a multidisciplinary perspective on the impact and the future trajectories of remote work, from the nexus between the location from where work is performed and how it is performed to how remote locations may affect the way work is managed and organised, as well as the applicability of existing legislation. Additional questions concern remote work’s environmental and social impact and the rapidly changing nature of the relationship between work and life.


AVAILABLE HERE

Eurofound advertisement

Eurofound Talks: does Europe have the skills it needs for a changing economy?

In this episode of the Eurofound Talks podcast, Mary McCaughey speaks with Eurofound’s research manager, Tina Weber, its senior research manager, Gijs van Houten, and Giovanni Russo, senior expert at CEDEFOP (The European Centre for the Development of Vocational Training), about Europe’s skills challenges and what can be done to help workers and businesses adapt to future skills demands.

Listen where you get your podcasts, or for free, by clicking on the link below


LISTEN HERE

Foundation for European Progressive Studies Advertisement

The summer issue of the Progressive Post magazine by FEPS is out!

The Special Coverage of this new edition is dedicated to the importance of biodiversity, not only as a good in itself but also for the very existence of humankind. We need a paradigm change in the mostly utilitarian relation humans have with nature.

In this issue, we also look at the hazards of unregulated artificial intelligence, explore the shortcomings of the EU's approach to migration and asylum management, and analyse the social downside of the EU's current ethnically-focused Roma policy.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube