Inequality, Automation, Globalization and Scale

Growing inequality is a feature of the world today and is often raised as a concern on many fora. It is near-indisputable that richest have gotten even richer and there are more billionaires today than any time in history. In the book “The Great Convergence”, Richard Baldwin describes 2 primary reasons for the growing inequality — automation and globalization.

Capitalism prioritizes efficiency and produces the most/best quality goods for the cheapest prices. One way this is achieved is through automation. Since the dawn of industrialization, automation has been used as a tool to get more output in companies. As routine tasks are automated, the value of labour reduces. This leads to higher output for the capitalists and lower wages for the workers and hence increases inequality. In a similar vein, due to globalization, the availability of cheaper labour from other parts of the world lowered costs for capitalists and led to lower wages for workers in the developed world. This in turn increased the gap between the rich and the poor. In addition to automation and globalization, another contributing factor to the growing inequality in the technological world around us is “scale”.

Jobs in general tend to have varying degrees of scale. On one end of spectrum, there exists jobs which are prefixed on physical presence and have low scalability. Electricians, plumbers, nurses, doctors, cab drivers and educators in classrooms fall under this bracket. On the other end, we have professions which are scalable. Software engineering, running large corporations, making films, podcasting etc fall under this. The more you can scale, the more you can earn. With a more global economy and greater technological advancements, those in scalable professions have been earning more and more. This has in turn caused greater inequality.

In view of this, it stands to reason that we could expect greater inequality in wealth in time as the world shrinks further and as we have greater technology advancements. Ideally, one would look at these problems at a policy level and figure out mechanisms to mitigate the effects.