Increase in Economic Inequality: Does the Power of the Internet go Deeper?

“An imbalance between rich and poor is the oldest and most fatal ailment of all republics,” 

 -Plutarch, 1st-century Greek philosopher (Plutarch, 2018)

The gap between the rich and the poor, more commonly known as economic inequality, is one of the oldest and most significant issues faced by the society, as identified by Plutarch in the quote above. Economic inequality is an inevitable phenomenon that cannot be completely eliminated from society. However, when this economic inequality increases and surpasses a certain limit, it can start creating problems for the society. (Ingraham, 2018)

Economic Inequality

The issue, however, that we are going to discuss in this article is whether the Internet—a technology that has revolutionized everything, from access to information to communication; the labor market to the distribution channels for goods—can affect the economic inequality in different countries.

There are several types of economic inequalities, which include but are not limited to: wealth; income; consumption, and opportunity. For simplicity, we will be referring to all of them as economic inequality in this article. Moreover, in this article, we will be discussing contrasting viewpoints on whether the Internet is widening the economic inequality or not, which I will then analyze to justify my stance on this matter.

Economic Impact of the Internet 

In his article, ‘Is technology contributing to increased inequality?’, Christoffer O. Hernæs, chief digital officer at Sbanken, Norway’s first digital-only bank, claims that the Internet widens economic inequality in high and middle-income countries more than it does in the developing world. He justifies this by arguing that in developing countries the Internet reduces poverty by increasing financial inclusion, causing a socio-economic uplift of a large number of people, and since more percentage of the population is poor, this uplift outweighs the concentration of wealth among the aristocrats, who are fewer in number. Therefore overall the impact of the Internet, according to him, is positive in such cases. However, in developed countries, the Internet and other technologies, as he claims, reduce many jobs, even where it may seem that platforms like Uber are creating new income opportunities. In reality, they are creating a ‘hyper-competitive environment’, that the author claims are, ‘not so different from vassals in the feudal system’. This, he uses to justify his claim that the Internet and other technologies are causing an increase in economic inequality in developed countries. (Hernæs, 2017)

Likewise, Bill Davidow, an adviser to Mohr Davidow Venture, in his article ‘The Internet Is the Greatest Legal Facilitator of Inequality in Human History’, published on ‘The Atlantic’, claims that the Internet has increased income inequality by allowing Internet-based companies like Google, that have sales worth a lot, create job opportunities for only a select few. While their applications replace several clerical jobs in offices, usually done by large groups of workers belonging to the middle-income class. He believes this is responsible for fueling economic inequality, which is further increased in developed countries like the United States, when several other middle-income jobs – previously done by workers in the same country – are outsourced to Asia and East European countries, due to greater connectivity, as a result of the Internet. (Davidow, 2014)

On the other hand, author Michael Mandel, Chief Economic Strategist Progressive Policy Institute, in his paper titled ‘How Ecommerce Creates Jobs And Reduces Income Inequality’, (Mandel, 2017) argues that e-commerce, that exists courtesy of the Internet, has created 400,000 new jobs in fulfillment centers and e-commerce companies, between December 2007 and June 2017, whereas it has reduced only 140,000 brick-and-mortar retail jobs. According to his estimate based on county-by-county analysis, ‘fulfillment center jobs pay 31% more than brick-and-mortar retail jobs in the same area’, therefore the Internet, according to him, plays a huge role in reducing income inequality. Mandel uses statistics from different sources like the U.S. Bureau of Labor and U.S. Bureau of Economic Analysis, that can be considered reliable to back up his arguments. This paper was published by Progressive Policy Institute that is a non-profit, in the United States, although this adds to the credibility of the source, it also means that the arguments are more applicable for the United States only, which reduces their generalizability. But the fact that the author is himself Chief Economic Strategist at this institute, means that he is well-informed and an expert in this area.

While Michael Mandel has made a very strong argument in support of the Internet’s role in reducing income inequality using its application in e-commerce, supported by evidence in the form of facts, that too from sources that can be considered credible. Hernæs and Davidow have also presented very valid arguments, highlighting the deleterious effects of the internet on economic inequality, under certain circumstances that are not very uncommon in the developed countries.

Therefore considering both sides of the argument, I conclude that the Internet in certain situations can exacerbate inequality. Consequently, if authorities stay oblivious to such situations, it would do more harm than good. Nevertheless, a few simple steps by the authorities, such as placing restrictions on the number of jobs that can be outsourced, or organizing workshops to train employees to aid them in adapting to the technological changes, can counterbalance the adverse effects of the Internet. Hence, making it a more sustainable technology. Moreover, the Covid 19 pandemic has made the global economy more digitized, providing governments with an opportunity to bridge the technological gap, alleviate poverty and make their societies more inclusive and uniform.

Bibliography

Plutarch. (2018). Politics and Political Economy. Stanford Center on Poverty and Inequality. Retrieved 10 29, 2020, from https://inequality.stanford.edu/publications/quote/plutarch

Kirby, M. (1999). Theories of class inequality. In Stratification and Differentiation (pp. 47-79). Palgrave, London. https://doi.org/10.1007/978-1-349-14233-0_4

Ingraham, C. (2018). How rising inequality hurts everyone, even the rich. The Washington Post. https://www.washingtonpost.com/news/wonk/wp/2018/02/06/how-rising-inequality-hurts-everyone-even-the-rich/

Hernæs, C. (2017). Is technology contributing to increased inequality? techcrunch. Retrieved November 1, 2020, from https://techcrunch.com/2017/03/29/is-technology-contributing-to-increased-inequality/

Davidow, B. (2014). The Internet Is the Greatest Legal Facilitator of Inequality in Human History It doesn’t have to be. The Atlantic. https://www.theatlantic.com/business/archive/2014/01/the-internet-is-the-greatest-legal-facilitator-of-inequality-in-human-history/283422/

Mandel, M. (2017). How Ecommerce Creates Jobs And Reduces Income Inequality’. Progressive Policy Institute, 1-27. https://www.progressivepolicy.org/wp-content/uploads/2017/09/PPI_ECommerceInequality-final.pdf