Who Benefits from New Technology?

Our standard of living is much higher than our ancestors hundreds or thousands of years ago because of a stream of technological innovations. Some of these technological innovations had an enormous impact and affected the whole of society (such as the steam engine, electricity, internal combustion engine or the computer) others had a much more limited scope.? The large technological innovations create enormous amounts of wealth. ?How is this wealth distributed?? Is it spread widely through society or is it concentrated in a few individuals. Does it tend to increase inequality?? And what can be done to ensure its impact is benign?

Relevance today.

This is a pressing question today as we are just in the early stages of the Fourth Industrial Revolution. Many of the technologies under development – artificial intelligence, synthetic biology and robotics - can be expected to create great wealth.

The diagram below illustrates the Industrial Revolutions.? ?

In Canada, real wages have increased by a factor of seven or eight in the last hundred years, and average life expectancy has gone from about 60 years to more than 80 years.? The average work week has declined from 50-55 hours in 1925 to 35 hours in 2024. The main driver of this has been technological innovation.

However, when new technology comes along the benefits arising from it can be distributed in several different ways.

The winners of the 2024 Nobel Prize in Economics – Daron Acemoglu and Simon Johnson - give an excellent account of this in their recent book “Power and Progress”.? They provide a number of historical examples where the benefits from new technologies were captured by a small elite and never benefited the rest of the population.

·?????? The pyramids. In ancient Egypt the technology of grain production was improved by managing the annual flood of the Nile.? The huge grain surpluses arising from this were captured by the elite (perhaps 5% of the population) and used to build the pyramids. These were gigantic construction projects employing a workforce of 25,000 people for around 20 years. The pyramids provided no material value to the other 95% of the population.

·?????? Cathedrals. At the end of the eleventh century several new technologies were developed that greatly increased agricultural productivity – water powered, and wind powered mills to grind grain, the loom, better horseshoes, and the wheelbarrow. Most of the surplus was captured by the religious hierarchy, again about 5% of the population, and they used it to build cathedrals, monasteries and churches. The living standards of the rest of the population actually declined.

·?????? Cotton. In 1793 in the USA south, Eli Whitney invented an improved cotton gin that removed the seeds from upland cotton. It was said to be fifty times as efficient as the previous technology. This greatly increased the demand for cotton, and this meant an increase in demand for slave labour. Cotton production in the southern US increased from 1.5 million pounds in 1790 to 167.5 million pounds by 1820. This greatly enriched the plantation owners, but the workers were pushed more deeply into exploitation.

In each of these cases the wealth created by new technology was taken by a small elite because of their coercive power, and the rest of the population did not benefit at all.? The new technologies increased the already very high inequality in society.

As the First Industrial Revolution took hold things did not change. As another author put it : For the first 70 years of the Industrial Revolution in Great Britain, from 1770 to 1840, average wages stagnated and living standards declined, even as output per worker grew by nearly 50 percent. The gains from mass mechanization during this time were captured by tycoons, whose profit rates doubled.

By the time of the Second Industrial Revolution – around 1870 – conditions had improved significantly. But this did not happen easily. It was the result of a protracted struggle between the people working in the factories and the factory owners. Those in power realized that the new technologies were impoverishing a significant part of the population, and they wanted to head off the possibility of a revolution such as those occurring elsewhere in Europe. By the 1870’s about 75% of men in Britain had the vote, and trade unions were legalized in the UK in 1871, and in Canada in 1872, and this led to an improvement in wages and working conditions, and a wider sharing of the benefits of new technology.

The twentieth century.

The graph below shows the share of the top 1% income earners in total income. It is a rough measure of inequality, and of how widely the benefits of new technology are shared among the population.

From the 1920’s to the mid 1970’s income inequality declined steadily in both Canada and the US, largely due to high tax rates, enforcement of anti-trust laws and strong unions, indicating that the benefits of new technologies were being more widely shared in the population. Starting around 1975, inequality began increasing, as a period of lower income and capital gains taxes, less government regulation, weaker unions and less enforcement of anti-trust laws started.? This has continued in the US and looks likely to continue there. The richest people in the US are the entrepreneurs who developed the new technologies (Elon Musk, Jeff Bezos, Mark Zuckerberg, Larry Ellison, Larry Page, and Sergey Brin).? In Canada inequality declined after 2008 due to spending to offset the effects of the Great Recession, and to government re-distribution policies.

Conclusion

Through most of history the benefits of new technology have been captured by a small elite who had coercive power.? This began to change during the Second Industrial Revolution as the benefits were shared more widely. Today that trend has reversed, and the world is on a trend that less of the benefits of new technology are shared widely and more is captured by a small elite, including the entrepreneurs who develop the new technologies. Reversing that trend would require a major effort that would likely include measures such as higher taxes, more collective bargaining, and possibly a basic income.

Peter Josty

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