Thesis #22

Digital technology fuels economic inequality

The Silicon Valley companies like to pretend that they are the new economic powerhouses of the globalised world. Facebook, for example, used to have a habit of releasing an annual report to this effect. In 2012 the report claimed that the company – which then had a global workforce of about 3,000 – had indirectly helped create 232,000 jobs in Europe in 2011 and “enabled” more than $32bn in revenues. In 2013, when Facebook had grown to 1.3 billion users, its claims became correspondingly more extravagant, asserting that the company’s “global economic impact” amounted to $227bn – which was roughly equal to the GDP of Portugal – and that Facebook accounted directly and indirectly for 4.5m jobs.

Extravagant claims like this obscure an inconvenient truth, namely that even as the tech companies have prospered mightily, inequality has continued to increase in the US, and in few places in the country is this gap as evident as it is in Silicon Valley itself. The structural reasons for this are doubtless complex, but a few things stand out. The first is that although the tech companies are huge in terms of their market capitalisations and revenues, they are incredibly concentrated geographically. The total distance from Facebook in Menlo Park to Alphabet (née Google) in Mountain View to Apple in Cupertino is just 15 miles.

Secondly they employ far fewer people than comparable corporations of the past. In its heyday, for example, General Motors employed nearly 600,000 workers. Facebook in 2016 had just over 17,000. And when the tech giants engage in manufacturing, the vast majority of the resulting jobs are in Asia (where Apple, for example, makes most of its devices).

Thirdly, as various research studies have pointed out, the increasing penetration of digital technology in the workplace tends to widen the already alarming divide between those who have relevant skills, literacy and training, and those who do not. A 2016 report by the World Bank points out that while those already well-off and educated have taken advantage of the Internet to achieve prosperity, poorer and less-educated people have seen fewer benefits, if any. 20% of the world’s population is still illiterate, for example, which makes the Internet almost entirely useless to them. In some countries, women are discouraged from going online. In some regions of the world, mobile phone ownership is disproportionately low, meaning that fewer citizens have access to the Internet. In total, 60% of the world’s population still remains offline. The rising tide of Silicon Valley wealth lifts none of those boats.

Further reading

Alexis Madrigal, “Silicon Valley’s Big Three vs. Detroit’s Golden-Age Big Three”, The Atlantic, 24 May 2017.

John Naughton, “What can we learn from Facebook’s annual Bullshit Report?”, Observer, 25 January 2015.

World Bank, World Development Report 2016: Digital Dividends, January 2016.