Home Technology Inequality in Technology. Who lags behind in accelerating the digital economy?

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Inequality in Technology. Who lags behind in accelerating the digital economy?

by ace
Inequality in Technology. Who lags behind in accelerating the digital economy?

The Covid-19 pandemic has displayed the importance that digital can have in our lives, and signaled its disruptive character. However, this disruption did not begin in 2020 nor is it historically unheard of. In the last 250 years industrial revolutions have always had a disruptive impact on production conditions, changing the combination of factors and, in all of them, extending the supply curve – that is, creating more production, yield and wealth. It should be recalled that income is the result of production, that is, the ability to incorporate into products or services – tangible or intangible – a value that depends on the combination of a set of inputs. What markets do is nothing more than seek to use available resources – raw materials, technologies, machinery, knowledge, manpower, financial capital – to, by making different combinations, maximise production potential and offer tradable goods and services. It is in these transactions that wealth is created, by meeting the needs of concrete people, and the income that is then distributed to those who participate in production is generated. Since the beginning of this millennium we have seen a change in production conditions, by incorporating new technologies, expressed in cyber-physical automation systems, new peripherals, artificial intelligence, and increased capacity to process and store data, which by their disruptive characteristics translate a new industrial revolution and which are the transformational pillar of what is considered to be the new Digital Economy.

It is precisely in the distribution of the result of this production, the balance of which is being called into question by the new disruptive combinations, that much of the current debate is focused. The generality of developed societies aspires to reduce inequalities or at least to promote a minimum level of income that anyone should be able to access. Hence, in the media, political and even academic mainstream, positions and studies correlate an increase in income allocation inequality, growing social and political discontent, the rise of populist and nationalist sentiment, to major technological changes led by the digital revolution. To what extent these megatrends are effectively correlated or are instrumentalized to support political narratives of regulatory strengthening, fiscal capture, or limitation of economic freedom, is an egg and chicken dilemma. In fact, the discussion surrounding the idea of inequality, being politically and ideologically motivated, significantly biases the debate and the language itself used, conditioning the conclusions. It is therefore more interesting to reflect on who will be the winners and who may be falling behind in this new way of organising production in an increasingly digital-based economy.

Digital technologies are significantly affecting the factors that integrate production chains, putting the contribution of work under strain and increasing the increasing polarization between the value of different jobs or profiles, depending on qualifications. From the outset, by strengthening automation. But also the knowledge associated with work itself has been changing significantly, since innovation and an economic environment that favors disruption require constant functional adaptation. An important part of the population today reports an incompatibility between their skills and those requested by the labor market, and here is relevant the role of aging in professional obsolescence. This change is affirmed in a transversal way throughout the production process – and that, in its combination, translates a new intangible dimension that was not so (re)known or creased in previous industrial revolutions.

The dissemination and adoption of the technology, however, has been asymmetric. Suffice it to think that productivity increases have been concentrated in larger companies’ nuclei with greater investment capacity, or those that have been created more recently, already with working methods adapted to the new times. The strong productivity growth in leading companies positioned on the technological frontier operates, paradoxically, in a context where aggregate productivity growth has been declining.

There will certainly be multiple causes that explain productivity declines, not just technology, or even despite technology. But, of course, the weakening of competition is one of the most important determinants for the affirmation of this adverse dynamic. There is empirical evidence showing that in traditional sectors less exposed to competition, technological innovation and diffusion are weaker, productivity divergence between companies is wider and aggregate productivity growth is slower. In another sense, there is a phenomenon of concentration, in the style of the winner takes it all, which encourages the convergence of investments in dominant companies that maximize the advantages and gains of scale enhanced by technology, especially in business models where this facilitates access to markets around the world.

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