Economics and Technology — Heavenly Match or Dangerous Duo?

Who Owns the FutureIn our post Great Recession world, it is difficult to think deeply about the future of culture without considering economics realities. While there are many ways to look at the economic disruptions of the last years, when it comes to understanding the deeper historical forces driving economic events, virtual reality pioneer Jaron Lanier’s quirky and brilliant book, Who Owns the Future, is a revelation. He has thought deeply about the cultural impact of the information economy and the rise of powerful companies like Google, Facebook and Amazon. His economic insights are original, his social analysis intriguing and even his more existential considerations are provocative (though that is mostly the subject of his previous book, You are Not a Gadget).

Lanier asks a question that also lurks behind today’s headlines and has never been far from the lips of thoughtful economists. Are middle classes natural? They are part of the lifeblood of capitalism, but are they an inevitable result of the rise of wealth that has accompanied modernism and the industrial revolution? Or are they more tenuous creations, dependent on fortuitous policies and politics, made possible by the wealth that capitalism’s creates, but still dependent on the moderating, shaping influence of human institutions? Lanier writes:

Marx argued that finance was inherently hopeless technology and that market systems will always degrade into the rut of plutocracy. A Keynesian economist would accept that ruts exist but would also add that falling into ruts can be staved off indefinitely with interventions in order to survive…Great wealth is a naturally persistent, generation to generation, as is deep poverty, but a middle-class status has not proven to be stable without a little help. All the examples of long-term stable middle classes we know of relied on Keynesian interventions as well as persistent mechanism like social safety nets to moderate market outcomes.

Lanier worries that the increasing speed of technological change could be tipping that tenuous balance, changing the fundamental equation, destroying middle class jobs in sector after sector of our economy at a rate that far exceeds new job creation.  The argument usually employed is that as certain sectors lose jobs as a result of technological change, new industries are simultaneously created. Buggy whips producers are long gone. Electric car battery factories are on the rise. The once mighty GM went bankrupt a few years ago, but Apple and Google are thriving. Creative destruction is all part of a healthy economy. To impede that process is to restrict the wealth creating mechanism that built modernity. That is all certainly true, but as Lanier points out the social consequences of “creative destruction” may be changing as technology moves forward. Google and Apple employ a small percentage of the people that GM did at its height. And there is concern that an information economy, despite its many significant positives, might not be able to easily sustain the job creation capacity that our industrial economy once did.

Who Owns the Future introduces us to new terms like the idea of a “siren server”. Lanier defines them as “elite computers…on a network…characterized by narcissism, hyperamplified risk aversion and extreme information asymmetry.” Think Amazon, Google, Facebook, Orbitz. The powerful influence of a siren server can create whole industries all built to work around the preferences of that information node. Entire companies are structured around Google’s search algorithms. Millions moderate their behavior to fit the parameters of Amazon’s preferences. Wal-Mart, he suggests, was siren server from a slightly earlier era.  Their success was driven, not just by the China price, or by small town economics, but by achieving unmatched market efficiencies driven by information asymmetry. Now Amazon is playing that exact game in a new decade, and improving it. Lanier points out that those who own or are very close to siren servers are making most of the great fortunes of our age. We can debate the pros and cons of these informational economic engines, but even the distinction, which he draws out over the course of the book, makes you think about the forces shaping our lives in new ways.

Lanier

Lanier is also suspicious of “free” economy, pointing out that as more and more services become free, we all benefit, but we also pay a hidden cost. Music is becoming free but musicians, with the exception of celebrities and stars, struggle to make a living. News is free but journalism has suffered greatly. Education looks to be headed the same way. More and more technology companies provide free services and use advertising as their primary business model. Is that sustainable over the long run? Can an information economy built on “free” provide the islands of middle class wealth that have been so essential to the stability of the developed world? Or will the fast-rising waters of massive technological disruption swamp them?

While Lanier’s concerns are many, he is far from a Luddite. The issue for him is not whether we go forward, but how we go forward. Are there ways to best shape outcomes in the information economy in ways that produce not a race to the bottom or a winner take all economy, but the bell curve—some rich, some poor, most in the middle—that is the sign of societal health.

In the developed world, it’s easy to forget that the great advances of our century—social, political and economic—have been dependent upon the health of our unprecedented middle classes. If they begin to falter, the political implications could be far-reaching. The wrath of America’s so-called “Tea Party” and Occupy Wall Street’s activism point to kind of anger that will proliferate if a winner take all system become the norm of our economy. Lanier points out that when it last looked like capitalism might destroy the middle class and create a plutocracy, we developed policies that curtailed the disparities, bolstered the labor movement and also staved off the over-reaction of a socialist revolution—all while encouraging the forward-looking growth of our economy. The information revolution for all its many wonders and opportunities presents new but related challenges to our global policymakers. How do we embrace the future being created in technological hubs around the world while actively promoting the best possible outcomes of those changes? Lanier ‘s work is indispensable in that critical conversation.