The Politics of Populism: Technology and Inequality

The politics of populism is what marks the contemporary political period. In every single election, where the working class is given the opportunity to punish the establishment with a vote that goes against the ruling view, it happens. Brexit, Trump, the Italian referendum. There are elections in France and Germany this year. The authoritarian countries like Turkey, Russia or China are becoming more so. Directional liberalism becomes directional authoritarianism.

The contemporary capitalist period is marked by fragility. Global debts are bigger than before the crisis. High debts imply that means for refinancing become restricted, which can slow down investment and economic growth. Rising debt level also reflects the inequality between nations and the wealth gap between rich and poor. Oxfam says that rather than 62 people owning as much wealth as the bottom half of the world population (about 3.6 billion people), it is now only 8 people, in whose hands the wealth becomes concentrated. The rather high level of inequality predicts political instability, which then justifies some authoritarian and nationalist-protectionist sentiment on the political front.

Unemployment is stagnant at a rather elevated level, while the technological boom develops largely unhindered, eating into previously stable middle class professions. So far retail and low-skilled workers are most affected by automation, but advancements in artificial technology do not preclude that even bankers, lawyers or educators will be affected by automation. It is probably correct to make the objection that automation won’t happen quite this fast, because the institutions of the labor market, political regulations and other social norms might slow down the adoption of technology, though I doubt it will hinder such adoption.

The technological effects on inequality should not be underestimated. Let us take the 8 rich faces and see what pattern emerges:


Source: New York Times (2017)

Bill Gates is the founder of Microsoft, a tech billionaire. Amancio Ortega, founder of the Spanish fashion and design company Zara. Warren Buffett, the CEO of a financial/ investment firm. Carlos Slim, the monopoly owner of Mexican telecom. Michael Bloomberg, is the founder of a media and financial data firm. Larry Elliot, the CEO of a technical firm, Oracle. Mark Zuckerberg, the founder of the tech social network Facebook. Jeff Bezos, the founder of the online tech retailer Amazon. 4 of the top 8 in the list are clearly part of the tech industry. Bloomberg should perhaps also be considered part of the tech giant industry, because providing financial data to clients is made possible through the internet and other computer data. Buffett is the only American on the list, who does not clearly belong to the tech industry, though he is in a supporting role as his company holds 11% of its shares in technology companies (otherwise, it has a bigger portfolio in finance, e.g. Wells Fargo, and general consumer items like Walmart, Coca Cola or Kraft Foods, see Nasdaq as of 9/30/2016). The Latino billionaires (Ortega and Slim) are also clearly not in the tech sector, but in retail and telecom, though political relations granting their monopoly status matters at least just as much as global market penetration.

The technological boom has created obvious winners. If we look at the most valuable companies here, the top five are all tech firms:

  1. Apple ($appl): $570.7 billion
  2. Alphabet ($goog): $560B
  3. Microsoft ($msft): $434B
  4. Amazon ($amzn): $365B
  5. Facebook ($fb): $354B
  6. Exxon Mobile ($xom): $351B

Source: Business Insider (2016)

Why would technology have the impact of increasing inequality? The answer is not too difficult. It takes massive investments and technological know-how in order to create and develop tech products. This is definitely the case for hardware producers like Apple and Microsoft and software producers like Oracle. For the internet companies (Amazon, Facebook, Alphabet or Google), there is a massive advantage in having a large centralized network, which makes it more difficult for smaller firms to offer their services. When the internet came out, the people were celebrating the possibility for an evening out in the market sphere. Lower costs imply lower entry barriers to participate in the market when using the internet. But that is only true for the provision of personal services. My brother, for instances, regularly orders pizza online, though using a central platform (which probably makes the most money from the pizza shops and advertisements), and more pizza shops now have the opportunity to offer their pizza.

But here there is a limitation to the pizza analogy (and other services like hair dressers, accountants and so forth), because the really big tech giants provide the platform and are guaranteed to make the most money. It is their service that we all collectively use. When we watch a video on Youtube, the money flows to Alphabet. When we do a google search, the money flows to Alphabet. The traditional argument in free market capitalism is that a competitive marketplace facilitates a dynamic market, but the opposite is true for these big networked tech firms. I have recently done searches on Yahoo and found the quality of the search results much worse than in Google. The reason why Google produces “better” search results is because they have developed a more refined way to search items. They have more ad money, better engineers, better algorithms, better variety of data etc.

Similarly, we would not want people to turn away from Facebook not despite but because of the more than a billion worldwide users. While I do not think that social relations have become better because of Facebook we have benefited from being able to stay in touch with friends that we otherwise had not been able to meet for a long time. The importance of face-to-face relations, which is the most natural form of social relations in human history, is not smaller than in the past, but to the extent that Facebook is a supplement of communication it is better than not having it.

But if we really do appreciate the control and domination of our tech overlords are we not also legitimating the current capitalist system that then benefits one of these faces that we see above? Absolutely. We are trapped in a conundrum, but only because we believe in the fallacy that accepting the services of tech giants means that we automatically accept the given level of income and wealth distribution. If we are interested in maintaining social stability and economic justice, it would be only fair to massively increase taxation on these giant tech firms or at least their owners.

The argument for social stability is not so difficult to present, because the ever-growing rift between rich and poor provides the fertile resource for populist politics. Aristotle himself had argued that only a broad and vast middle class can retain overall political stability, because the middle class can serve as citizens and rule as rulers and because everyone has a stake in society. In a society, where a few people own most of the wealth, the wealthy can only rule and the poor can only serve and lack any stake in society. They are then easily susceptible to demagogues of different forms, who themselves usually want to concentrate power in their own hands. Political uncertainty then undermines the free capitalist society itself. Relatively greater economic egalitarianism also provides the purchasing power, which feeds into economic growth.

The argument for economic justice is harder to understand in ideologically more capitalist countries. Defenders of tech billionaire wealth say that if the tech owner provides services that everyone wants to buy (e.g. Microsoft products), they deserve all of the wealth. But is that really the case? It is certainly true that Bill Gates is the pivotal figure in Microsoft, because without his will to put the firm together, it would not exist, though we could imagine that someone else would have done it if it were not him. What matters, however, is that any tech company can only hope to develop its products as a result of hundreds of years of innovative capacity of many different human beings. The government had massively invested into the defense-industrial complex, which created the early forms of the internet and the computer. These tech innovations were then gradually privatized as commercial applications became available. So if we are really concerned about “just deserts”, we would have to pay off some of our dead ancestors, who developed the previous forms of innovation that served as the basis for today’s innovation, and we have to pay off the government in the form of higher taxes. The former case is harder to make, but the latter case is much more justifiable.

We should also not underestimate the importance of the contributions of current tech workers, as the graphic below of revenue per employee of leading tech firms show:

Screen Shot 2017-01-14 at 11.31.11 PM.png

Source: Statista (2015)

In four of the above listed tech companies, the revenue is more than a million dollars per year. Most people will say that because of the high productivity of these tech workers (which really reflects the higher sale value that is possible for tech products, e.g. a Youtube video can be downloaded millions of times), they receive higher than average wages anyway, which is true, and the sky-rocketing real estate prices in the Bay Area is clearly evidence of that (which pushes out low-income residents there). But I have never heard that an Apple engineer earns nearly 2 million dollars, even though productivity would justify it.

The revenues are not wages, because the company owners get to decide what happens with the revenue, so it is not surprising that the biggest beneficiaries of the revenues are the tech company owners. In a traditional Marxist account, the workers would not only get paid more than they currently do (which would make the handsome faces above much less wealthy than they currently are), but they would also control the company’s surplus. But I would claim, that even such statement is besides the point. Even if an Apple worker were paid 2 million dollars, it would still be massive theft from downstream workers (like manufacturers of Apple products, who operate in a more competitive market and have much smaller margins of profit). That illustrates that we can’t really solve the inequality problem by strengthening the case for a labor aristocracy, while the uneducated, untrained, underemployed and unemployed rabble can vote for Donald Trump and otherwise screw themselves.

The tech industry is at the heart of growing inequality, and it is inevitable that if we want to have a claim for social, political and economic justice it is necessary to renew the social contract. That would first require an expansion of social policy. The masses cannot merely be fed resentment against weaker groups that are not to be blamed for our social problems (i.e. women, minorities, immigrants etc.). They need to have social policy that actually helps them, which may include the expansion of traditional programs like a higher minimum wage, social insurance, universal health care, free higher education, free child care, generous family leave policies and higher pensions. There is a limitation to such an approach as well, because it does not do enough for people, who are pushed into unemployment. The old institutions insist on the laborist political economy, which centers on wage work as a primary means to survive. The new institutions have to sever the tie between wage work and survival. The universal basic income would help as well, but I doubt it will be enough.

Max Weber gave us the brilliant insight that history can provide us with nothing more than struggle. There is no doubt that the immediate future will be rife with struggle despite all the economic abundance that could make our life quasi stress-free.

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