Monday, February 07, 2011

Technology, Public Policy, and the Middle Class

-- Posted by Neil H. Buchanan

This past Friday, I posted some thoughts on the relationship between technological change and social prosperity. In particular, I noted that many of the technological breakthroughs of the 20th Century seem to have been fully exploited; and I noted with approval a recent New York Times op-ed by Tyler Cowen, in which he discussed how this technological plateau seems to have some relationship (perhaps causal) with the slowing of GDP growth -- and the stagnation of incomes for all but the wealthiest in this country and elsewhere.

The first three comments on my post (one of them by some guy named Michael C. Dorf. who runs a blog or something) raised some important questions that I will address below.

(Before turning to those questions, however, I should comment on two related administrative matters: First, even though Mike and I agreed last week that he would henceforth post on M-Tu-W, and I would post on Th-F, we agreed to switch Monday and Thursday this week. As one reader asked awhile back: "There's a schedule?!" Second, I typically do not engage heavily with readers' comments. Sometimes not at all. For Friday's post, there were 35 comments at last count. I perused the first dozen or so; and it looks as if there was a spirited debate among some readers. I do not claim to be responding to the remainder of the messages. Even if I had read them all, as a general practice I find it better to let the comments section follow its own path.)

The major point that Professor Dorf (echoed by Paul Scott) raised in reaction to my Friday post was that I was taking too narrow a view of the impact that one class of technology could have on others. For those readers who have studied a bit of antitrust law, the claim is that I made the logical equivalent of the error that the Supreme Court made in the famous du Pont "cellophane case," focusing not on the broader market for "wrapping products" but only on du Pont's domination of the market for cellophane.

Similarly, these commenters argued, the market for air travel is not just a market for air travel, but rather a market to provide services that allow people to do the things that air travel allows them to accomplish. Thus, video-conferencing services make some air travel unnecessary. Similarly, the limits of travel by automobile are in part overcome by telecommuting. While I think that such claims are sometimes (though not in those comments) overstated as a quantitative matter, leaving me wondering why so many people still fly and drive to do things that apparently no longer require flying or driving, I readily concede the point that my concerns about the limits of particular technologies were skewed by taking too limited a view of technologies' effects. Having conceded that point, the interesting question is whether a broader view significantly affects the other points in my post.

I focused special attention in my post on the Facebook phenomenon -- a modern technology that made its founder roughly as wealthy (relatively) as some earlier technologies made their inventors. I took a particular shot at the whole idea that Facebook is important: "Zuckerberg made it possible to know whether the hottie down the hall is in a committed relationship." Before I discuss a broader point, let me point out that my argument actually was, in part, meant to be narrowly construed. While I know that Facebook is part of the broader wave of information technology that has changed people's lives in obvious ways, part of my objection is to the idea that Facebook qua Facebook is a big deal. Facebook is not a new idea. It is MySpace and Friendster, with some updates. My "hotties" comment was very specifically aimed at one of the only Facebook enhancements that is obvious to non-techies.

In other words, Zuckerberg's marginal contribution strikes me as vastly out of proportion to the personal wealth that it spawned. Even staying within the relatively modern tech world, consider Steve Jobs' wealth and what it was based on, compared to Mr. Z. (Bill Gates is an entirely different case, better left out of this discussion, given the fierce controversy over whether he actually did anything innovative at all.) The iconic image of a brilliant innovator, standing astride the modern world, driving its economic prosperity with his genius and thus justifying his vast personal fortune, just does not add up with Facebook.

As I mentioned above, however, there are people whose economic and technological innovations stand up a bit better to such an analysis. I do view the info-tech revolution as being oversold, more (as I said in my previous post) a matter of providing things that are arguably utility-enhancing but not revolutionary. I love my iPhone, and my life is different because of it; but had it never been invented -- or, for that matter, had answering machines never been invented -- the different lives we would be leading strike me as qualitatively less different than if it still took a month to cross the Atlantic. (On a related note, Frank Rich's column yesterday described the ridiculous over-hyping of the role of Twitter and Facebook in the various uprisings in the Middle East over the past few years. This is not even a dependence/use distinction. Most people in those countries are not even using those technologies.)

My fundamental point, however, is not really about any particular businessperson's wealth or social contributions. My snarky comment about hotties on Facebook was preceded by these two sentences: "What [Facebook] has not done, Cowen points out, is make anyone but Mr. Z wealthy. Ford, Packard, Olds, and all the other lions of the auto industry spawned the Great American Middle Class." The point that I (along with, I think, Cowen) am ultimately making is that the big technological breakthroughs after 1970 or so have not raised real incomes across the board in the way that the pre-1970 technologies did. It is not about Zuckerberg or whether he "deserves" his money, but rather a simple observation that Facebook and other breakthroughs (no matter one's opinion of their social usefulness or importance) are not correlating with broad-based increases in prosperity.

As George H's comment on my post pointed out, of course, my claim is not literally true. He mentions that there are approximately 2,000 employees of Facebook. I am sure that all of them are glad to have any job right now; and these jobs are presumably fairly well paid. There are surely people working in ancillary jobs at other companies, jobs that would not exist without Facebook. If we extend my point -- appropriately, in this context -- beyond Facebook itself, there must be millions of people who work in tech-related companies today. None may work for a too-big-to-fail company like GM, but that is irrelevant to whether the tech sector is economically important in providing large numbers of jobs.

It is George H's further comment, however, that provides the key to my larger point: "[I]t's unfair to credit Ford et al with the Great Middle Class while looking only at Facebook's direct contributions." Indeed, I will readily admit that it is not only unfair as a comparative matter, but entirely inaccurate, to give Ford and the others credit for the Great Middle Class. My invocation of them was, in the context of that post, entirely an effort to contrast the broad-based economic prosperity of the mid-20th Century with the top-heavy growth of the ensuing decades. If -- and I should have stressed this with great clarity -- and only if we are going to simplistically attribute great social progress to the technological titans of an era, then Ford and Packard and Boeing have it all over Jobs and Gates and Zuckerberg. This, then, is an example of the dangers of offering analysis arguendo.

Where I suspect that I differ with Cowen's analysis is that he appears to be stumped by the disconnect between modern types of technological breakthroughs and broad-based economic prosperity. To me, there is no real mystery about the great post-1970's divergence in incomes. Public policy used to be aimed at creating and nurturing the Great Middle Class. Ford gets credit for paying his workers what we would now call a living wage -- enough, famously, to allow them to buy the products that they helped to make -- but he did not do so out of the goodness of his heart (or even as a purely business-related decision, received wisdom notwithstanding). Everything that workers gained, they gained through struggle (and frequently in the teeth of violent reaction). Ultimately, that struggle led to public policies that changed this into a middle-class country: labor laws that allowed unions to organize and bargain, the expansion of public universities, a universal retirement plan, civil rights gains, single-payer medical care for retirees, improvements in public health, and so on.

All of those advances have been under attack since the 1970's. With the intensifying assault on the last remaining large group of unionized workers (teachers and other government employees), along with calls to cut Social Security and all the rest, there is little reason to expect that any technological breakthroughs -- as great as they might be for other reasons -- will correlate with a return to broad-based gains in incomes. Technology is only part of the picture. A society can decide to be more or less economically stratified. For about forty years, we chose to be less so. For the last thirty-plus years, we have changed course. And it shows.


LateDeco said...

I half agree about the usage of twitter or new media on the middle east.

Frank Rich touched on this: New media is relevant to the situation there, not in the perception of people experiencing it, but in our own perception of it. It seems important for this reason.

Four things on modern technological breakthroughs:

It takes a while for them to take hold and influence society. As knowledge becomes more specialized, this time can become more pronounced.

We are biased towards older breakthroughs.

Or biased towards ones originating somewhere familiar.

Lastly, it doesn't make sense to compare a span of 40 years to all of history.

A lot that is being worked on and has been worked on post 70s hasn't reached the public at large yet. The fact that more recent breakthroughs haven't influenced society has nothing to do with their merits, but the time it took to develop them, and the time it took or will take, to make them more practical.

Then there is the tricky question of how we perceive breakthroughs. Hash functions have been around since the 50s, but for different reasons were not used for widespread and accessible cryptography until more recently. I use cryptography as an example because it has been important in internet and cipher activism characterized by Wikileaks.

This bias of going back to when breakthroughs were named, or previous breakthroughs that made the modern iteration applications possible also skews perception to earlier inventions having more clout, even if lesser known and frequently more difficult (Because of the constantly increasing specialization of knowledge) breakthroughs were just as instrumental in making modern applications possible.

This is suppressed in the case of the automobile for a similar reason that Facebook is seen as important to people in Egypt (Not that word of mouth is more widespread of a form of communication in areas with less technology, mitigating a lot of those concerns about the spread of ideas, rather than their origin. The January 25th protests originated from a Facebook group. I doubt that kind of initial impetus would of been generated without it). Ford's automobile was centuries in the making, but it wasn't until an American came along and popularized it that it became the genesis of it's modern iteration here. In much the same way Napoleon is frequently credited for tactical breakthroughs when he came to most battles out-numbering his foes; Ford's actual breakthroughs were more logistical than technological. He didn't come up with the concept of interchangeable parts, which itself is more a philosophy. Ford was more concerned with the order of manufacturing. Logistics can be just as important, but it's not the same. Neither is a philosophy that people approached manufacturing with.

Thank you for the thought provoking post, it gave me a lot to consider. As to the question of more democracy in the workplace and emphasis on civic involvement; I support those, but for different reasons.

Crispian said...

I agree with you about the failure of technological advances to enhance social prosperity. The fact that technology hasn't supplanted travel to a greater extent is evidence of its failure.

I remember a report that people thought technology would reduce paper usage (one can look at a monitor, email documents to those who need it, and only print when necessary) but instead paper usage greatly increased. This makes sense because it is so easy to print and many more people have access to the document. If anything, technology increased inefficiency in that regard.

Twitter and Facebook suffer from a similar kind of inefficiency. They allows national and international crises to be popularized with powerful exhortations by armchair protesters. They allow people to give deeply personal accounts of their lives. And like the multiple and unnecessary printings of documents, these armchair protesters and exhibitionists actually don't add anything to social prosperity and are not enhanced by it.

Why doesn't the promise of efficient long-distance communication outweigh the cost of traveling? I'm not convinced it's mere reluctance to adopt new technology. People prefer tangible experiences - whether on paper or in-person meetings and oversight of employees.

As I sit here, responding to a (albeit interesting) blog, rather than working on my job search, social prosperity is not enhanced.

Public policy alone cannot greatly diminish economic stratification. There must be an economic base to support the policies in question. And this has been the contention of conservatives - that we can't afford those policies, however noble, and money would be better spent in the private sector to revitalize our economy.

You recognize that current innovations don't greatly enrich economic prosperity. Thus it doesn't make sense to take money from modern innovators to support society as it existed when innovations made a difference and employed more people. I don't think the social/economic policies and the state of innovation can be divorced from one another.

The question is how can we recreate our economy to be as competitive and innovative as it once was. You're right that technology is only part of the picture, but it is a big part. I don't think a strong economy will erupt from maintaining the policies of the past.

Doug said...

Computers will make paper obsolete - and for those of us who use multiple monitors there is a large reduction in paper use. So much printed material is used so that you can refer to one document while you create or edit another - with two (or more) monitors you can do that without paper. For those of you with iPhones/GPSs when was the last time you used a paper map or printed directions to somewhere?

Facebook has also made Farmville and game companies rich, has saved time and/or increased users for companies that use facebook IDs as logins, has saved costs of interacting with customers for companies and some governments, and has generated wealth for advertisers that use it. Making facebook does make it easier to keep in touch with family members. Yes, it didn't have to be facebook (and in other countries it's not - Orkut in Brazil, Renren in China, etc.) but it does create wealth even in a a narrow cash-only sense.

The other broader point is that technologies enrich lives even when this is not measured in the GDP. Being able to save time by using a microwave is a huge boon but the direct GDP impact is small; cell phones allow even the poorest to faster more mobile communications than the absolute richest could 50 years ago.

The argument that wealth is being concentrated in socially dangerous ways is spot-on (which is why the inheritance tax was created - if it didn't exist already it would be politically impossible today to enact it in the US).

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