How technology is driving inequality

Inequality is one of the major political topics of our times. Rather like a Shakespearean tragedy, the current splits in the high command of the Conservative Party have many themes. But an important one, and the ostensible reason for Iain Duncan Smith’s resignation, is the treatment of the working poor, a concept which until fairly recently seemed to have been banished forever.

Like sending ten year olds up chimneys, the idea that people in work would not really have enough money to cope belonged to the distant past – well, to the depression years of the 1930s rather than the child labour of Dickensian times, but it was all a very long time ago.

Increasingly, this is no longer the case. A snippet from the arts world illustrates the point. The famous actor Robert Lindsay is president of the Royal Theatrical Fund, a charity which helps struggling actors. In the Sunday Times, he is quoted as saying that “there are household names who are now earning so little, people stop them in the street and ask for their autographs, but the spotlight has gone out for them”.

A survey of nearly 1,800 British actors by Casting Call Pro in 2014 found that no less than 75 per cent of them had earned less than £5,000 during the previous year. Only 2 per cent had earned more than £20,000, a figure which itself is only approximately what someone on the Living Wage in London and working 40 hours a week would make.

A key driver of rising inequality is technology. Fears abound that robots and artificial intelligence will destroy up to half of all existing jobs, but history suggests they will be replaced by completely different ones. The problem is more subtle. The stupendous proliferation of data and information in cyber society is changing fundamentally the way in which people make choices.

In more mature markets, such as the fast-moving products in supermarkets, consumers are still able to operate in ways described in the economic textbooks. They are familiar with the different brands and their various qualities and are able to compare prices. So they make choices essentially on the features of each of the various alternatives on offer, as “rational” choice theory says they should.

But in other contexts, people are bombarded with so much information that it is literally impossible to process it in this way. Eric Beinhocker of the Institute for New Economic Thinking estimated that, in New York City alone, consumers are presented with a potential 10bn different choices every day. They have to find some different way in which to navigate the maze. A good rule of behaviour is just to choose something which is already popular: you think other people have done the work for you, and have decided it is a good choice.

This self-reinforcing behaviour drives highly unequal outcomes. Things become popular simply because they are popular. Footballers, actors, film directors who are thought to be good get a bigger and bigger share of the pie. In cyber society, everyone loves a winner.

Paul Ormerod

As published in CITY AM on Wednesday 23rd March 2016

Image: Scales of Justice by James Cridland licensed under CC BY 2.0

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