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Technology and Inequality

Radical policies will be required in order to alleviate technology-driven inequality, argues Douglas McWilliams.

The gap between Wayne Rooney’s pay and that of an average professional footballer today is 53 times greater than the gap between Sir Bobby Charlton’s pay and that of the average footballer of his time.

Is Wayne Rooney a 53 times better player than Sir Bobby? I doubt it, but what has of course changed is that globalisation and technology have massively boosted the incomes of the top football clubs while if anything reducing the incomes of the poorer clubs. The higher income for the richest clubs has coincided with higher incomes for the richest players.

In the same way, Adidas has just opened factories for the first time in many years in Atlanta in the US and Ansbach in Germany. Both essentially are 3-D printing factories for trainers although manual labour is still required for lacing the shoes!

Both globalisation and now increasingly technology are dramatically changing the supply and demand for labour at different points of the skill spectrum. In general they are helping the skilled at the expense of the unskilled, especially in the west. Autonomous vehicles will affect the demand for semi-skilled workers like lorry and van drivers and eventually taxi drivers. Passive investing and bots are changing the demand even for workers in the highly paid (and possibly highly skilled) financial service sector as well as improving compliance by being easier to regulate…

Most of this unfortunately is widening the gaps between rich and poor in the distribution of income in the west. One of the consequences in the US (though not yet in most of Europe) is falling life expectancy amongst white working class males as many turn to drink and drugs and lose hope in a better future. Many of these became the Trump voters last year.

And commentators like Thomas Piketty are suggesting that the solution is ultra high tax rates, taxes on robots and taxes on financial flows.

I doubt if these will work although they are starting to attract a lot of interest. But I suspect that despite their dubious practicality they may attract electoral support if those in well paid jobs and who benefit from capitalism do not start to find ways of spreading wealth and income better.

My forthcoming book ‘The Inequality Paradox’ suggests improvements of which perhaps the most important are: aggressive pro-competition policy, particularly for the tech giants and in finance; reforming planning law and rent controls to reduce property costs; encouraging voluntary redistribution of wealth – backing this with honours and public acclaim; rebalancing educational spend to boost the education of those from underprivileged backgrounds (and possibly even banning private schools).

Perhaps the most radical idea is that eventually, if the marginal products of those at the bottom end of the skill spectrum fall further to below the levels that could support a decent level of income, we may need to introduce a universal basic income while abolishing minimum wages. This could enable people to do low productivity but high satisfaction creative or caring jobs while maintaining a reasonable standard of living. The sums do not add up now but should in time as the productivity driven by technology raises tax takes.

It will be hard to stop technology without a return to autarchy and the abolition of trade which in practice will not happen. So it is important to think about the implications of technology for society and particularly for inequality. If sensible people do not solve the problem there are plenty others with solutions to offer….

Douglas McWilliams is the Deputy Chairman and Founder of the Centre for Economics and Business Research (CEBR)