Is the World Bank – the institution that once championed the Washington Consensus – really breaking with the tech optimism of so many of the world’s companies and economic leaders? Not exactly.
The report released on 14 January is an internally conflicted document – at times recognizing the severe limits on competition in networked industries and calling for regulation and open access requirements in telecommunications, at times calling for bank deregulation or cheerleading for Uber as a way of giving opportunities for occasional drivers to supplement their livelihood, with little recognition of the disruptions this contingent work model imposes on full-time drivers.
It has really important insights that anyone who cares about inequality, both globally and in the United States and other wealthy countries, should take in; but it also offers an ameliorative, rather than genuinely critical view of how the internet contributes to economic inequality.
The framework that the report adopts is skills-biased technical change (SBTC): technology has made skilled people more productive and less skilled people redundant. Income inequality reflects these productivity differentials. Not surprisingly, the report’s core recommendations with regard to inequality are for countries to invest heavily in education, leverage the internet through massively open online courses (MOOCS) or Kahn Academy courses to improve skills. One problem is that the theory has largely fallen apart in the past couple of years.
When originally developed in the early 1990s it was brilliant and fit the US data from the 1980s well. Since then, it needed ingenious adaptations every decade to make the theory fit the data that stubbornly refused to fit the predictions of its prior iteration.
To understand what the theory misses at its core, though, think of the story Mary Gray recently told, of a 32-year-old Indian entrepreneur who opened a business training neighbors and organized them to bid on Amazon Mechanical Turk jobs and complete them in time. Here was a poster child for skillful use of the internet by an Indian entrepreneur. One day his account and those of his neighbors were disabled for breaching Amazon’s MTurk terms of service (probably by being super skilled and automating some of the worker functions or transforming them into a multi-employee business). No explanation. No recourse.
Employers’ power has decreased, while workers’ power has declined
And here is a side of the internet and inequality that the World Bank report misses. It’s not about skills and productivity, it’s about power. Over the past 40 years, employers’ power has increased. For middle-income workers, union decline, weaker labor regulations, offshoring, federal policy focused on lowering inflation rather than unemployment – all these contributed to middle-class wage stagnation. Contingent work too was a central factor in increasing inequality throughout the OECD. By contrast, CEO compensation, financialization and low marginal tax rates were the primary drivers of the top 1%, 0.1%, and 0.01% takeoff.
Instead of the monolithic firms around which the Treaty of Detroit settlement could stabilize, we saw the rise of post-Fordist networked organizations. This is old news. It’s 20 years since Manuel Castells tied this decomposition to the Rise of Networked Society, and a quarter century since Woody Powell identified the rise of networks as alternatives to markets and hierarchies. Both insights just preceded the adoption of the internet as a pervasive infrastructure. The internet has made that power shift pervasive.
By lowering transaction costs, the internet disrupted organizational boundaries. It created exhilarating freedoms. Free and open-source software and Wikipedia showed us that volunteers networked together could outcompete established firms. Flexible organizations were able to form and reform creation nets, increasing their creativity and innovation, squeezing efficiencies where none existed before, and cooperating across firm boundaries.
With this flexibility came dispersion of power. Culturally, it meant new voices could compete with mass media. Economically, it meant marginal firms from diverse places could innovate and thrive. These were the bright sides of “democratization” so many of us celebrated. But it also meant that the primary sources of labor power and income stability in the most developed economies were disrupted, and to these disruptions we haven’t yet seen an alternative.
Flexible employment mean citizens need more generous social insurance support
In a small part of the World Bank report there is recognition of this deep dismantling of the organizational basis for stable work. It explicitly recognizes that making work more flexible using the internet undermines the basis of social insurance in many countries, and recommends delinking social insurance from employment.
But there is no question that tying social insurance to employers simply ignores the fact that “employers”, or firms more generally, are being replaced by loosely coupled networks that can’t form a stable basis for lifelong employment, on-the-job training, and reliable income. The most ambitious proposals in this vein are those for a universal basic income, one that every citizen could claim by virtue of being a citizen, and that would basically separate access to the basic economic necessities from engaging in market-based work.
In the US, where efforts to create universal health coverage evoke a political Armageddon, this seems like a big ask. But whatever the details, we will need to adopt a much more generous social insurance system to allow us to deal with the turbulent work environment if we are to avoid disruption on a scale that will simply overwhelm our political systems. We are already seeing the shadows of that instability in both US electoral rhetoric and the resurgence of ethno-nationalism in Europe.
But we won’t be able to solve everything with better taxes and social insurance. We will also need to design technologies and supporting institutions that will leverage the new social affordances of the net to equalize the power imbalance that platforms like Uber and MTurk have come to embody. What does that look like?
The solution? A mix of tax for the rich, social insurance and rebuilding the architecture itself
Think of Waze. As currently designed, users can input whenever they see a problem on the road, including police cars. As designed, and as permitted under current law in the US, the application diffuses power to users vis-a-vis the police. But this affordance could be prohibited. Indeed, law could require that mobile phones become universal traffic enforcers, providing an audit trail of our speeding and lane violations. Where the power is will not be determined technologically, but institutionally. So too with labor and income.
Just as the internet has made economic organizations more fluid and networked, so too it has done for social relations and empowered individuals. One of the most exciting new ideas in this vein is platform cooperativism: the idea that the people who work and use networked platforms should own them.
Other ideas, coming from the venture capital side, would require platforms to open their data so that individuals can access information that pertains to them and force platforms to compete for the workers, instead of the other way around. Or they could make sure that workers and users can use data and computation to compare offers and use automation to bargain more effectively.
I don’t know the exact mix of global tax reform for the top 1%, universal social insurance separated from employment, and rebuilding power relations into the architecture of production itself is best; I don’t think anyone does.
But we will need to do something like this in order to adapt to this new, turbulent and uncertain economy, and we won’t get there simply by adopting ameliorative measures built on the ideology that markets distribute income and wealth based on marginal productivity.
Power is everywhere, in markets as in states. Only building counterpower, political, legal, social, and technical, will lead to a more egalitarian distribution of wealth and income.
This article was amended on 15 January to clarify a misleading subheading.