The untapped potential of digital technology to reduce inequality

April 13, 2017

New breakthroughs in technology often provide novelty and new functionality to the already digitally empowered, while neglecting underserved communities. Cathy Moscardini investigates how technology can be designed so that it reduces, rather than perpetuates, inequality. 

Does digital technology increase or reduce inequality? By digital technology I’m talking about the internet, mobile phones, and all the other tools we use to collect, store, analyse and share information digitally. There’s no doubt that with digital technology comes the potential for equitable access to communication, information, resources, trading capability and social connectedness. We’ve seen how digital technologies have transformed the world of work, social networking, national and international trade, and provided a platform for financial inclusion. Corporate Citizenship Briefing’s recent article ‘Fintech for good?’ outlined both the potential benefits and the challenges when using Fintech solutions – solutions that foster financial inclusion in developing economies by bypassing traditional financial industries.

But once we realise that 4 billion out of the world’s 7 billion people do not have access to the internet, it becomes clear that not everyone is enjoying the benefits that digital technology can provide. When digital technology is designed by the rich and for the rich, the potential for it to deliver societal benefits for low-income populations is radically diminished, and as a consequence, inequality deepens. The mere existence of technology is not enough to bridge the socioeconomic gulf that exists within our societies. To deliver the actual benefits of digital technology to the socioeconomically disadvantaged, a needs-based approach combined with a supportive ecosystem is needed. By this, I mean that new digital technologies are designed specifically to address the needs of the socioeconomically disadvantaged, and that this group is given the tools and support required to make use of digital technologies.

When we consider what drives the design of new digital technologies, and crucially who the designers have in mind when they’re developing them, we see how digital technology disproportionally benefits those at the top of the socioeconomic ladder. You only have to look at the rapid expansion of Silicon Valley to see how the tech industry perpetuates inequality. Whilst Silicon Valley celebrated 4.1 percent job growth rates and $7.3 billion in venture capital investment, the median wage for the region went down, with black Silicon Valley residents hit hardest. They saw a 20.6 percent drop in per capita income compared to 4.9 percent for the same group in the rest of the country, whilst white residents saw a 0.2 percent increase in per capita income, compared to a 4.1 percent downturn for white residents in the rest of the USA. The pronounced difference in per capita income shows that, unsurprisingly, those that helped create the technology boom are taking home most of the benefits, and more worryingly, the socioeconomically disadvantaged are in fact more impoverished than before the boom. As MIT Professor Erik Brynjolfsson noted, ‘The technology-driven economy greatly favours a small group of successful individuals by amplifying their talent and luck, and dramatically increasing their reward.’ Entrepreneurs that start digital businesses targeting high-income segments of society are rewarded with the biggest revenues. It seems to be a winning formula, so why on earth would they choose to stop ‘winning’?

The robots are taking our jobs

Job losses due to automation are often the first thing that comes to mind when investigating how digital technology perpetuates inequality. The IMF noted that technological changes have played a part in driving up the skills premium, meaning that low and unskilled jobs will be lost to automation, whilst middle skilled workers require an upgrade in skills just to keep their jobs. Machine learning will reduce the need for call centre workers, whilst the Internet of Things could take over office work, support and maintenance, only requiring network engineers and robotics coordinators to operate the system. A definite skills upgrade is required for most workers if they’re to take on these new jobs. According to the India-based digital transformation consultancy Zinnov, an estimated 94,000 jobs will be lost to the Internet of Things by 2021 in India, and only a small proportion of these workers will be upskilled for new jobs, widening the gap between high-income and low-income workers. The following table from the World Bank Digital Dividends report  shows that, so far, the benefits of digital technologies delivered to the poor are much less significant than those delivered to the nonpoor, and the potential beneficial impact of these technologies is far greater for the nonpoor than the poor.



Source: World Bank, World Investment Report – Digital Dividends, 2016

But that is not all. A massive boom in the sharing economy, driven by technological advances, too has a role to play.

The sharing economy drives income inequality

Jobs created through the sharing economy are often of poor quality. This means that the socioeconomically disadvantaged that rely on it as a primary source of income do not see the same benefits as experienced by those using it to provide an additional income. An OECD report demonstrates that the increasing share of people working part-time, on temporary contracts or who are self-employed is one important factor exacerbating inequality. Sharing, or gig economy firms such as Uber and Deliveroo have been heavily criticised for the quality of jobs they provide, with workers awarded contractor-like working conditions without being compensated for missing out on employee benefits like pensions, sick pay and guaranteed work. A JP Morgan Chase study makes it clear that those taking part in what they term the Online Platform Economy, relied on these jobs only as a secondary source of income, and those benefiting most were people who could invest and leverage their assets in the companies.

The sharing economy continues to pop up as a source of inequality, again demonstrated by Airbnb’s rise in popularity, which has also had a knock on effect on the hotel industry. A study by HVS found that 2,842 jobs were directly lost in the hotel industry in New York as a result of Airbnb’s growth, mainly because service personnel required to run hotels outnumbered the comparatively miniscule group of workers required to staff Airbnb. The indirect effect eliminated a further 1,200 jobs from local industries that relied on business generated by hotels. Whilst the sharing economy may seem the way forward for many consumers vying for convenience and cost savings, the detrimental impact on both the quantity and quality of jobs is sobering.

These examples show how digital technology perpetuates inequality on a local level, but with 60 percent of the world’s population without access to the internet, we should also consider how digital technologies will drive a wedge between developed and developing economies.

Without a supportive ecosystem, the internet is useless

Whilst providing access to the internet is critical, newcomers to the web will not feel the benefits without a supportive foundation to use it. The digital economy requires regulations to create a healthily competitive environment for businesses; institutions to enable the empowerment of citizens; and skills to help users to navigate the internet.

Many of the world’s poorest citizens lack basic literacy and numeracy skills required to use the internet effectively, let alone read English which is the web’s dominant language (and is found on 52 percent of internet pages). In Mali and Uganda, about three-quarters of third-grade children cannot read, whilst in Afghanistan and Niger, 7 out of 10 adults are illiterate. Country-wide roll-out of internet expansion must be accompanied with education ensuring citizens can make the most of the services the internet has to offer. And let’s not forget who is rolling out universal internet and why they are doing it. Facebook rolled out a free ‘limited edition’ of the internet across almost half of Africa, where users can access a select number of websites. The initiative has been heavily criticised by those who advocate net neutrality, as it knowingly creates a monopoly for a small group of companies. This is a fine example of a technology designed by the rich with a substantial benefit for the rich, who suddenly had exclusive access to a new market of 635 million users.

There is clearly significant latent potential in digital technology to help ameliorate inequality. But with a culture where the primary goal is to capture the greatest number of new users, where profit and convenience trumps all, the tremendous societal benefit of the internet will go sadly unrealised. A shared value vision of digital technology, where tech delivers social and environmental good, combined with business benefits is absolutely within reach. But a needs-based approach coupled with a supportive digital ecosystem is required if there’s to be any chance of success. The question is: does the tech industry have the imagination to redeploy its efforts to cater for people’s social needs, rather than for the richest citizens’ need for convenience and profit?

Cathy Moscardini is a Senior Researcher at Corporate Citizenship.