Blaming Inequality On Technology: Sloppy Thinking For The Educated

The most common explanation for the sharp rise in inequality over the final four decades is technology. The sage goes that technology has increased the demand for sophisticated skills while undercutting the demand for routine manual labor.

This view has the advantage over competing explanations, like trade policy and labor market policy, that it can be seen as something that happened independent of policy. whether trade policy or labor market policy define the transfer of income from ordinary worker to shareholders and the most highly skilled, then it implies inequality was policy driven, it is the result of conscious decisions by those in power. By contrast, whether technology was the culprit, we can still feel low approximately inequality, but it was something that happened, not something we did.

That view may be comforting for the beneficiaries of rising inequality, but it doesn’t design much sense. While the development of technology may to some extent absorb its own logic, the distribution of the benefits from technology is determined by policy. Most importantly, who gets the benefits of technology depends in a very fundamental way on our policy on patents, copyrights, and other forms of mental property.

To design this point clear, consider how much money Bill Gates, the world’s richest person, would absorb whether Windows and other Microsoft software didn’t devour patent or copyright protection. This would mean that anyone anywhere in the world could install this software on their computer, and design millions of copies, without sending Bill Gates a penny. As a smart and ambitious person from a wealthy family, Bill Gates would probably still be doing fine in this world, but he would most likely not be among the super-rich. In fact, he would probably still be working for a living.

The argument for mental property is well-known. The government grants individuals and corporations monopolies for a period of time, which allow them to charge well above the free market price for the items on which they absorb a patent or copyright. This monopoly gives them an incentive to innovate and execute creative work.

Of course this is not the only way to supply this incentive. For example, the government can and does pay for much research directly. We spend over $30 billion a year on bio-medical research through the National Institutes of Health. Various government departments and agencies finance tens of billions of research each year in a wide variety of areas. In fact, it was Defense Department research that developed the Internet and also Unix, the program that was the basis for Dos, Microsoft’s original operating system.

The government also directly or indirectly supports a large amount of creative and artistic work. The National Endowment for the Arts and Humanities capture headlines as political targets for the right, but in fact much more work is supported through the tax deduction for charitable contributions, which cover 40 cents on the dollar that wealthy people donate to orchestras, theaters, art museums, and other non-profit institutions that support the arts.

It is fair to argue whether patents and copyrights are the most efficient mechanisms for supporting innovation and creative work. In my book, Rigged: How the Globalization and the Rules of the contemporary Economy Were Structured to design the Rich Richer, I argued that in the 21st century they are in fact very inefficient mechanisms for this purpose. But separate from the question of whether these are the best mechanisms, there is no real dispute that mental property redistributes money from the people who don’t own it to the people who execute. Not many people with just high school degrees own patents or copyrights; they are piece of the sage of upward redistribution.

Since mental property can be either longer and stronger or shorter and weaker, the decision approximately how much mental property we absorb is implicitly a decision approximately a trade-off between growth and inequality. (This assumes that longer and stronger IP rules lead to more growth, which is a debatable point, particularly since productivity growth has slowed to a crawl in the final decade.) whether we are concerned approximately the degree of inequality in society, one way to address it would be to shorten the duration of patents and copyrights or lessen their scope so that they are less valuable.

That would mean less money for the pharmaceutical industry, the medical equipment industry, and the software industry, as well as many other sectors that disproportionately benefit from IP. Shareholders in these industries would see a hit to their income, as would the top executives and highly educated workers they employ. The rest of the country would see a rise to their income as the price of a wide range of products would tumble sharply.

And, there is a huge amount of money at stake. We are on a path to spend more than $450 billion this year on prescription drugs alone. whether these drugs were sold in a free market without patents or other forms of protection we would nearly certainly pay less than $80 billion. (Imagine the next worthy cancer drug selling for a few hundred dollars fairly than a few hundred thousand dollars.) The incompatibility of $370 billion is nearly 2 percent of GDP. It is roughly six times as much money as was at stake in the debate over the repeal of the Affordable Care Act. whether we add in the other sectors where IP is responsible for a large portion of the price, the sum would nearly certainly be two or three times as large.

Since 1980 there absorb been a wide variety of measures that absorb strengthened and lengthened IP protections in a variety of areas. The scope of patentability has been extended to original areas such as software, commerce, trade methods, and life forms. Copyright duration was extended from 55 years to 95 years (retroactively), and it was extended to the Internet in a way that makes third parties responsible for enforcement. And strong IP rules were imposed on developing countries as a condition of access to U.S. markets in trade deals.

It is questionable how much these or other measures boosted economic growth, whether at perfect, but in not a thing of these cases was there any serious discussion of the impact on distribution. In other words, we never heard members of Congress debating whether stronger IP rules could absorb a sufficiently negative effect on distribution that would more than offset any benefits from increased growth.

As we recede forward and hear tales of robots and artificial intelligence displacing large numbers of workers, we should realize that any redistribution from workers to “owners” of these technologies is a policy choice. whether perfect the knowledge associated with original technologies were in the public domain they would be cheap. We would perfect be able to buy the most advanced robots for slight more than the cost of the materials they contained. The robots would clean our houses, cook our dinners, mow our lawns, and execute our laundry. original life saving drugs would cost slight more than generic aspirin and the most sophisticated medical scanning equipment would be available at the price of an extinct-fashioned X-Ray.

The people who developed this technology might still be well-paid for their work, but they would not stop up as rich as Bill Gates or heed Zuckerberg. In fact, whether we weakened patent and copyright protections enough, the technological geniuses of the future may execute as well as their counterparts did fifty years ago; they would be well-paid but certainly not super-rich.

It’s possible that we would pay a large price in terms of reduced innovation and productivity growth from going this route, but that is a point that has to be demonstrated, not just asserted. And, we would absorb to seek information from whether the benefits in terms of greater equality would be enough that we would be willing to sacrifice some growth.

In any case before we retort such questions, we first absorb to start asking them. This means first and foremost recognizing that technology never produces inequality; it is policy on technology that leads to inequality. Once we recognize this basic fact we can absorb a more serious debate on how best to structure technology policy going forward.

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