The most popular explanation for the steep rise in inequality over the last four decades is developments in technology. As the story goes, technology increased demand for sophisticated skills while diminishing the need for manual labor.
This explanation has the advantage over competing views — like those blaming trade policy or labor market policy — since it can be boxed off as something that happened independent of policy. But if trade policy or labor market policy are behind the redistribution of wealth from ordinary workers to shareholders and the most highly skilled, then we must face the inevitability that inequality is policy driven — in short, the result of conscious decisions by those in power. Technology gets those power-players off the hook. If it’s the culprit, we may still feel bad about inequality, but it’s just something that happened, not something we did.
That view is certainly convenient to the beneficiaries of rising inequality. The problem is, it doesn’t make much sense. While the technological development may have its own logic to a certain extent, the distribution of benefits from technology is clearly determined by policy. Most importantly, who benefits from technology depends on a country’s policy on patents, copyrights, and other intellectual property matters.
To illustrate this point, consider how much money Bill Gates, the world’s richest person, would need if Windows and other Microsoft software didn’t have copyright protection. It would allow anyone anywhere in the world to install Microsoft’s software on their computers, and even make millions of copies, without paying a cent to Bill Gates. An intelligent and ambitious person from a wealthy family, Bill Gates still be doing just fine, but he most certainly would NOT be among the wealthiest people in the world. In fact, he’d probably still have a job like the rest of us.
The argument in favor of intellectual property is familiar. Governments grant individuals and corporations monopolies over a certain period of time, allowing them to charge well above the market rate for items with patent or copyright protection. This monopoly provides incentive to innovate and do creative work.
But of course this isn’t the only form of incentive. For instance, governments can and do fund a good deal of research directly. In the US, 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 every year across many 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 gets a lot of bad press from the right, but the fact is, significantly 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 reasonable to argue whether patents and copyrights are the most efficient mechanisms for supporting innovation and creative work. In Dean Baker’s book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, he argues that in the 21st century they are very inefficient mechanisms for this purpose. But separate from the question of whether these are the best ways to achieve the goal, there isn’t much dispute that intellectual property redistributes money from the people who don’t own it to those who do. Very few folks with only high school degrees own patents or copyrights. In short, it’s a story of upward redistribution.
As Dean Baker argues: “Since intellectual property can be either longer and stronger or shorter and weaker, the decision about how much intellectual property we have is implicitly a decision about a trade-off between growth and inequality. (This assumes that longer and stronger IP rules lead to more growth, which is a debatable point, especially since productivity growth has slowed to a crawl in the last decade.) If we are concerned about 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.”
Of course that would mean less money for the pharmaceutical industry, the medical equipment industry, the software industry, and a number of other sectors that disproportionately benefit from IP. Shareholders in these industries would suffer a hit to their income, as would top executives. The rest of the country, however, would experience a boost in their income as the price of a wide range of products would fall sharply (just think of the annual cost of prescription meds and healthcare).
There really is a tremendous amount of money at stake. We’re on track to spend over $450 billion this year on prescription drugs alone. If these drugs were sold in a free market without patents or other forms of protection, we would certainly pay less than $80 billion. (Imagine the next great cancer drug selling for a few hundred dollars instead of a few hundred thousand dollars.) The difference of $370 billion is almost 2 percent of GDP. It is roughly six times as much money as was at stake in debates to repeal of the Affordable Care Act.
As we increasingly hear projections about robots and artificial intelligence stealing jobs from a large number of workers, we should recognize that any redistribution from workers to “owners” of these technologies is a policy choice. If all the knowledge invested in those new technologies was part of the public domain, they would be cheap. Most all of us would be able to purchase the most advanced robots for little more than the cost of the materials they contained. Those robots could clean our houses, mow our lawns, and do our laundry. New life saving drugs would cost little more than aspirin and the most sophisticated medical scanning equipment would be available at the price of an old-fashioned X-Ray.
The people who developed this technology could still be fairly and handsomely rewarded for their work, but they wouldn’t end up in the stratospheric levels of Bill Gates or Mark Zuckerberg. In fact, if we weakened patent and copyright protections enough, the technological geniuses of the future may do as well as their counterparts did fifty years ago; they’d be wealthy but not mega-rich.
There’s always the chance, as naysayers warn, that we’d pay a large price in terms of reduced innovation and productivity growth if we moved in this direction, but that remains a point that has to be demonstrated, not just asserted. Moreover, we would have to ask whether the benefits of greater equality would be important enough to justify the sacrifice of some growth.
Whatever the outcome, before we can answer such questions, we first have to ask them. First, we must recognize that technology itself does not produce inequality; it is policy on technology that leads to inequality. Once we acknowledge this basic fact, we can move on to a more serious debate over how best to structure technology policy in the years to come.