Economics

Harnessing Digital Information: How can new technologies address growing inequalities?

Introduction

Levels of economic inequality have hit dangerous levels. In the USA inequality is as high as it was before the great depression in 1929.  This disparity raises concerns not only in regard to morality and fairness, but also the health and stability of the economy, a fact particularly sobering considering the interconnectedness of the global economy thanks to the internet and digital technologies.  The digital marketplace has created opportunities for people around the world to share their products, services, and even labour online, creating a new economy that is transnational, yet somewhat obscure.  Keeping in mind the theme of the conference, issues around digital technology and inequality bring to mind a few questions:

  • Who creates the value when using these digital technologies?
  • Are there ways to affect inequalities using these digital technologies more positively?

Economic Security

Economic inequality, which combines both wealth inequality and income inequality, has become a popular topic in recent years.  Thomas Piketty’s recently released bestseller Capital in the 21st Century shows that for the past few decades, wealth has grown faster than the economy, which helps to explain why wealth is becoming increasingly concentrated in fewer hands.  In Canada, a recent United Way report found Toronto more unequal in distribution of income and wealth than ever before, and that it has significantly reduced economic opportunities for the working poor and geographically disadvantaged.  These rising inequalities are significant because they are symptomatic of the reduced economic opportunities and security to Torontonians, and raise the specter of social unrest and recessions affecting the city.

Global Economic Forces

Although many things have contributed to inequalities, the global reach and power of digital technologies (or Information and Communication Technologies, ICT) have made it a powerful contributor.  Digital technologies have contributed to alleviating global levels of poverty and inequality, as more people from sub-Saharan Africa benefit from information access and a connected global marketplace (Dobbs, Manyika & Woetzel, 2015).  However, in North America, many economists believe that advances in digital technologies are driving an unprecedented reallocation of wealth and income, primarily by redirecting it from the middle class (Brynjolfsson & McAfee, 2014) to the wealthiest.  The efficiency afforded by digital technologies have ensured that people can provide services from around the world at lesser costs, providing global competition to services previously done locally.  Digital information (data, goods, and services that are shared online) contributes significant value to this system, since people are able to share and reproduce digital information unlike ever before.  This will have significant effects on employment opportunities, as the skills demanded constantly change.  To curb rising inequalities, there is a need to look for additional solutions, perhaps even to look to the technologies themselves.

“We are entering into a world where what has worked before is no longer a reliable guide for what will happen next.” (Brynjolfsson & McAfee, 2014, pg 55)

Value of Digital Information

Digital information can be scaled and leveraged for incredible financial gain because it neither gets used up nor has costs associated with reproduction, which means that it can be used and shared freely.  It’s these characteristics of digital information that make it possible for some individuals to amass incredible fortunes (Facebook, Instagram, Google, etc.), but which also make it difficult to define and measure.   According to the US Bureau of Economic Analysis measurements, the information sector (which includes sales of software, media, telecommunications, and information and data processing services) contributes the equivalent amount to the economy as it did in the 1980s (Brynjolfsson & McAfee, 2014)—which seems wholly undervalued.  Current methods of evaluating the economic value of information don’t translate to digital information technologies.

Many organizations within the information sector (i.e. Google) function as distributors of digital information through the internet, often employing—pun intended—computer algorithms to automatically perform computer operations to deliver services to clients.  Using algorithms has allowed many of these organizations to become incredibly successful purveyors of information, as they increase their efficiency and reduce their costs.

Within finance, high-frequency trading (HFT) algorithms have been used to make trading more efficient for years.  However, this drive towards hyper-efficiency has created a more unfair, unequal, and unstable trading environment, where those with the best assets—the closest fibre-optical cable, best hardware, and best algorithms—gain an advantage over their competitors.  Their speed and autonomy have only increased the instability of the marketplace, allowing fewer people the opportunity for success due to the stiff competition and the high barrier for entry.  The good news is, within finance there has been growing awareness for the need to set limits to influence the capabilities of these algorithms, and create a fairer, human-centered system that works for more people.  When people realized how HFT created an unfair and unstable environment, there was recognition that a way was needed to control and curb HFT to create a more equitable trading system where more participants could enjoy an opportunity to flourish.

Quick Facts:

Sources

Brynjolfsson, E., & McAfee, A. (2014). The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. New York: W. W. Norton & Co.

Dobbs, R., Manyika, J., & Woetzel, J. (2015).  No Ordinary Disruption: The Four Global Forces Breaking All the Trends. Public Affairs.

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