1. Governance
February 28, 2017updated 29 Jul 2021 2:42pm

How can we stop automation causing unprecedented inequality?

By Frederick Kuo

Economic inequality and the travails of the American middle class loomed large in the US presidential election.

From Trump’s bombastic attacks on unfair trade deals and the worsening fortunes of the ‘Rust Belt’, to Sanders’ critique of crony capitalism and the disenfranchisement of the worse-off in society, the grievances of the so-called middle class fuelled populist rage.

In the past three decades, Silicon Valley and the San Francisco Bay Area have emerged at the forefront of disruptive innovation and unequalled wealth generation. The region’s billionaires, ranks filled with the likes of Zuckerberg and Musk, have stormed America’s rich list and usurped thrones that once took generations to build.

It isn’t just billionaires being created either. The last two decades of Silicon Valley is widely considered the greatest concentration of legal wealth creation in history.

The Bay Area as a whole, now boasts over 387,000 high tech jobs with an average salary standing at £116,000. San Jose and San Francisco now rank as among the wealthiest cities in the country on per capita terms, standing at £84,973 and £64,963 respectively.

The Bay Area is the world’s start-up capital. Image: Paul.H

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Technology, disrupted

However, even as the region harnesses the awesome wealth-building power of disruptive technologies, its society is increasingly feeling the strains of inequality. According to a study by the California Budget Centre, San Francisco ranks as the most economically unequal region in the state, with the top one per cent earning 44 times the average income of the bottom 99 per cent.

Income growth has also significantly favoured the wealthy few with the top one per cent in the South Bay experiencing an explosive 248.8 per cent growth in wealth from 1989 to 2013, while the bottom 99 per cent only gaining 23.2 per cent.

Undoubtedly, with living costs skyrocketing and San Francisco’s median home prices hovering at £866,000, requiring a minimum household of income of £205,000 and the requisite deposit just to be able to buy the average home, roughly 90 per cent of the population is priced out of home ownership, a critical vehicle of wealth consolidation.

A wonderful world… if you’re rich enough. Image: Kitchen

What this translates to is an increasing struggle for the middle class, and particularly the lower-skilled, to even survive at the lowest threshold in society. San Francisco and San Jose rank as second and fourth on a list of American metros with the smallest middle class, standing at 47.4 per cent and 48.5 per cent respectively.

New York and San Francisco rank as the worst cities in which to live the American dream, according to a study by Redpin – where ‘the American dream’ consists a modest 1,480 square foot home, a car, education for your two children and a comfortable standard of living. The difference between the cost of living expenditures required to live the American dream in these two cities and the median income, came out as negative, at -£72,194.66 and -£29,379.46 respectively.

The study concluded that higher production cities on the coasts tended to harbour greater inequality, while the American Dream was far more attainable in inland cities where the cost of living was lower despite the lack of dynamic wealth building industries.

One of America’s most common jobs, under threat. Image: Americantruckgroup

The Revolution of Things

As the fourth industrial revolution is revving up, accelerating the use of robotics, artificial intelligence, autonomous vehicles, big data and the internet of things (IoT) in our daily lives, can the lessons of high tech regions such as the Bay Area teach us how technology may impact society?

This is a question that is in dire need of an answer.

As the election exposed the pain of deindustrialization and the loss of entire manufacturing industries, it is also clear that trade wars and tariffs would not only do little to bring back many of those jobs, but completely misses the trends set to revolutionize the role of technology in industry and our daily lives.

A robot revolution will dramatically replace jobs and perform tasks that humans currently do, from flipping burgers to driving trucks to caring for the elderly. While it is estimated that companies who ship jobs overseas save 65% of labour costs, the savings potential of switching to a robot workforce jumps to 90 per cent. In the next 20 years, it is estimated that 47 per cent of American workers are at risk of losing their jobs to a robot. The size of the robot industry is expected to reach £122billion by 2020 with an increase of productivity of above 30 per cent in many industries – but just with fewer people earning a wage as a result.

The growth of automated vehicles is expected to destroy one of the most common jobs in the United States, and one that provides workers with little formal education a solidly middle class average salary of £34,500 – that of the truck driver. Over 1.7million trucking jobs are likely to be eliminated in the next decade as the technology for autonomous vehicles and increasing connectivity make the position economically obsolete.

In addition, there are another 1.7 million drivers of taxis, buses and delivery vehicles who have already been hurt by sharing technologies such as Uber and Lyft, but may be made obsolete altogether by the growth of robotics and automated driving.

An elderly-care robot gets tested in Japan. Image: YouTube / Plastic Pals

It will be the best of times, it will be the worst of times

As we enter a future where lower-skilled jobs are increasingly difficult to come by, while opportunity is increased astronomically for those who possess the necessary knowledge base, can we use hi-tech regional hubs such as the Bay Area as a bellwether of the direction our society is heading towards?

If so, this proposition should fill us with both great excitement and angst, as the potential for excellence has never soared so high alongside a lurking darkness of extreme social inequality.

Opportunity will come hand in hand with loss.

As the advancement of intelligent robots wipes out entire working-class professions, new ones, focussed on the creation, maintenance and logistics of this new infrastructure will be created. Service jobs requiring human judgment, ingenuity and connection will continue to thrive. But the minimum requirements for individuals to learn a living wage in a world of robots would be far higher than they are now.

However, as technology may make life more competitive, it will also be used to dramatically raise efficiency in industries, which may translate to far lower costs of living. From the construction of homes to the cost of deliveries, the age of robotics could significantly lower the cost of housing and consumer goods.

These possibilities present opportunities to harness technology to bring about tremendous gains in the quality of life for the average person, parallel to what we’ve seen in prior industrial revolutions. The transition however, will also come with growing pains as old industries are wiped out or remade.

San Francisco must learn to ‘like’ its tech overlords. Image: LPS.1

Education, education, education 

Technological innovation is a neutral variable. It can be used to greatly benefit mankind, or it can also cause tremendous suffering. How we respond to the likely social changes caused by disruptive innovation will be crucial.

The availability and accessibility of education for all citizens will be crucial in giving not only displaced workers, but also future generations the tools to compete effectively in a world where the barriers of entry will be significantly higher than they are now. A special emphasis on the STEM subjects will be crucial.

Additionally, marked changes are necessary to shift our education system from one geared to train workers, to one that creates entrepreneurs. A painfully large number in our society lack a keen understanding of entrepreneurship and how businesses function, while such skillsets tuned to adaptability would be critical to success in societies experiencing massive technological disruption.

Education and a frame of mind geared towards opportunity is key. A society in a fourth industrial world with large populations of undereducated people who lack the wherewithal to compete will inevitably face drastic social inequality and political turmoil.

Using tech cities as a bellwether is again useful.

Ooh look, houses you can’t afford! Image: Urban

San Francisco in the past decades has witnessed increasing political tensions over housing, gentrification and class. Passionate battles have ensued over the role of tech companies such as AirBnB over housing, grumbling resentment over Google buses and gentrification, to public protests over evictions.

The percentage of Bay Area residents feeling that the region is headed in the wrong direction jumped to 39 per cent at the end of 2015 compared to just 29 per cent before – even as the region experiences unprecedented wealth creation and robust economic growth.

From the experience of the San Francisco Bay Area, we can see that disruptive technology has the potential to create immense opportunities but also cause widespread pain when the relative living standards of a substantial portion of the population fails to keep up.

The municipal governments of the region have done well to foster environments where start-ups and entrepreneurs can succeed, but have fallen behind in reforming antiquated regulations and policies that have impacted the cost of housing or the ease of transportation that are necessary to keep the American Dream alive for the average citizen.  

If there is one thing we can learn from the history of Silicon Valley it is that innovation will bring about change at a speed and scale far greater than we can imagine.

Tech cities should be regarded as the canaries in the coalmine; valuable testing grounds providing lessons in solutions that ensure disruptive innovation is being harnessed to create healthy and prosperous societies that improve the lives of the majority of its citizens. 

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