By Chris Benner
We are in the midst of an unfolding fundamental restructuring of the economy that we still only partially understand. The scale of this restructuring is similar to the industrial revolution, but instead of being centered on the uses of new energy technologies,
this revolution is characterized by the development and application of information technologies.
This is contributing not only to new economic production processes, but also to dramatic changes in social life, and indeed to life itself (with the ability now to genetically engineer life-forms). The so-called sharing economy of Uber, Lyft and AirBNB that has dominated many recent debates on the future of work is simply one tiny aspect of this broader restructuring. As the gathering on meta-narratives makes clear, how we think about and understand these changes has profound implications for what solutions to economic problems associated with this restructuring we can envision.
In this brief paper, I want to argue two central things. First, that large amounts of economic value in the information economy is rooted fundamentally in social processes of knowledge generation and network dynamics, rather than individualistic contributions to production processes. Second, that as a result, the labor market is a much less effective way for distributing national income than it was in the past, and thus we need to pursue more solutions rooted in social wage policies and collective wealth dividends.
Shared knowledge, shared networks and shared wealth dividends should be at the core of the future California economy.
Collective Value in the Economy
The economy is far more than simply the sum of goods and services that have a market price. A full accounting of the economy also includes all the uncounted ecosystem services and unpaid labor that meets human needs and desires. It is that process of transforming nature (including “human-modified nature, human-produced nature and human nature itself ) and society that adds value in the economy.
Knowledge and Value
In an industrial economy, it is the physical process of making products out of raw materials that drives economic growth. Thus, improving labor productivity—say the number of automobiles produced per hour of labor time—is critical for increasing overall prosperity. In an informational economy, however, the application of information and knowledge, rather than the more efficient application of labor and capital, is what drives economic growth. The value of the electronics in modern automobiles, for example, has long been of greater than the value of the raw materials, and it is new advances in battery science, hybrid-engine systems, and self-driving cars that will primarily shape the auto industry’s future.
Harnessing scientific knowledge will shape the future of everything from a myriad of digital electronics to complex pharmaceutical products to genetically modified foods and medicines.
But harnessing social information—rooted in understanding human interactions and aesthetic preferences—will also drive economic value. Social information is what is harnessed (in part) to produce everything from media of all types (e.g. movies, TV, news, youtube videos), to design features of products (e.g. Apple’s well-known sleek design, clothing fashions, building architecture), and to create pleasant service interactions in everything from child and elder care to dining experiences to customer sales. Both scientific and social knowledge is not created by individuals alone but rather by collective processes.
Consider the importance of the public sector to scientific knowledge. Annually, total government financing of research and development accounts for 30 percent ($140 billion out of $453 billion total) of total R&D expenditure in the U.S. More importantly, much of the private sector investment builds on foundational research and development conducted by the public sector. Consider, for example, the Apple iPhone. As Mariana Mazzucato documented in her path-breaking book The Entrepreneurial State, nearly every aspect of the technology in the iPhone has its origins in major public sector supported research. Integrated circuits, liquid crystal displays and multi-touch screens, lithium-ion batteries, global positioning systems and even the voice recognition system SIRI were all substantially developed with public sector funding, and often conducted by researchers at major public Universities. The Apple iPhone is an iconic example, but hardly unique in the importance of public investment in the technological developments that make the products so special.
In addition to dependence on public investment, processes of economic innovation are also highly dependent on shared knowledge and communication networks. As widespread research has shown, processes of economic innovation rarely take place within isolated research units or labs.
Rather they are rooted in complex networks of relationships that cut across company boundaries and involve high levels of ‘untraded interdependencies’, not simply market based contracts or joint ventures.
While technology is obviously important, some of the most rapidly growing industries in the U.S. are also rooted in entertainment (movies, television, music), leisure activities (restaurants, tourism) and care provision (with elder care especially growing). In these industries, technology may have an important role to play, but interactive knowledge of consumers desires, preferences, identities and interactions are also profoundly important. As increasingly intelligent algorithms and automated robots result in a decline of routine mental as well as manual labor, interactive social knowledge and interpretation becomes even more important. Some of the most important future work skills are rooted in social knowledge, including:
• Sensemaking: Ability to determine the deeper meaning or significance of what is being expressed
• Social intelligence: Ability to connect to others in a deep and direct way, to sense and stimulate reactions and desired interactions;
• Cross-cultural competency: Ability to operate in different cultural settings
• Trans-disciplinarity: Literacy and ability to understand concepts across multiple disciplines
• Virtual collaboration: Ability to work productively, drive engagement, and demonstrate presence as a member of a virtual team
The importance of social knowledge for many workers today is in striking contrast to work that of 80 years ago, where knowledge of the physical tasks involved in the assembly line, along with communication with a limited number of co-workers in the same workplace, was paramount.
Today, it is the quality of social networks and socially produced knowledge that is critical.
Networks and Value
Many of the most successful companies and industries in our contemporary economy are also rooted in creating and sustaining social networks. Increasingly economists, such as the Nobel Prize winner Jean Tirole, see platforms that enable interactions, collaborations and social connections in new and unusual ways as being the critical feature of today’s economy. Google, Facebook and Twitter are digital platforms providing search and social media, while also creating platforms for other products. Amazon, Etsy and eBay are platform marketplaces. Amazon Web Services provides infrastructure and tools that others can build on. AirBNB, Uber, Lyft bring together diverse consumers and sellers in new ways.
In all platforms, value is created not just by the creators of the platform, but also by consumers or users of the platform.
Consuming the information good or service actually adds value to the product or service. Each time you search on Google, it provides data which is analyzed to improve the service. Every time you drive with your cell phone on, it contributes real-time data on traffic conditions that adds value to the telecommunications companies (who sell the data), and various mapping services (google-maps, apple maps, waze, etc.) that use that data to provide real-time traffic updates and directional advice.
This, to a very large extent, value (wealth) in society is produced through social processes—through the social construction of knowledge and the knowledge of social constructions that power the information economy.
Sharing the Dividends
So, if a very substantial portion of economic value in our informational economy is driven not by individual labor activities, but rather by socially produced information, social interaction, and consumer contributions, what are the implications for people’s livelihoods? At the least it requires us to rethink our over-reliance on the labor market as the only meaningful source of livelihoods, and recognize that valuable solutions to issues of poverty, inequality, and social marginalization may not lie in the labor market alone.
Limits of the Labor Market
In the United States, in contrast to Europe, we attribute a much higher importance to the labor market as the primary means of ensuring livelihoods.
With limited social wage policies and a small safety net, as a society we assume that the labor market will provide adequate means of livelihoods for the vast majority of the population.
And yet there is more than ample evidence that there are serious limits of the labor market’s ability to achieve this, and the limitations seem to be growing. Just a few examples:
• While total economy productivity and average total hourly compensation tracked roughly equally from 1948 to the early 1970s, since 1978, total economy productivity has more than doubled (up 111% by 2011), while average hourly compensation has gone up only 11%.
• The total labor share of nonfarm business sector output has declined from a peak of above 67% in the early 1960s to roughly 58% today.
• Even the wage and salary share of total personal income in the country has declined from a peak of 68% to barely above 50% today, replaced by a combination of income on assets (the 2nd highest category until the great recession), personal transfer receipts (Social Security, Medicare, unemployment insurance, veteran’s benefits and others), and supplements to wages, such as health insurance.
This decline in labor market returns has coincided with dramatically growing inequality. And while much of the cause of these trends lie in labor market institutions and policies (e.g. decline in unionization rates, deteriorating value of the minimum wage, labor-unfriendly trade policies), there are also underlying structural changes and features of the labor market today that suggest real limits to addressing inequality and promoting broadly shared prosperity through the labor market alone. Consider, for example, that 8 out of the 10 lowest paying occupations in the U.S. economy are in the food system, that 1 out of 6 private sectors jobs are in the food system, and that food will remain a central part of our economy for obvious reasons. A single hamburger—or any other material product—can only be consumed by one person, but a digital product or service can by consumed simultaneously by millions, and thus the potential revenue from food production (as in many material industries) is a fraction of what is possible in information products and services. Consider, for example, that the total revenue per employee in McDonald’s is roughly $60,000, while in Facebook is it nearly $1.5 million, a full 25 times as much. Even across all companies in these sectors, the disparity is striking. The total sales per employee in the restaurant sector of this country is only $49,478, but for software publishers it is $416,485 (Economic Census 2012). Raising wages as a strategy for bridging those kinds of structural inequalities has substantial limitations.
Social Wage Options
If raising individual wages is limited, what options are available for expanding the social wage in the U.S. in ways that would address inequality and expand shared prosperity? There are certainly multiple options worth considering. These include:
• Expand free public education to 4 year Universities, which arguably is the equivalent today of what is required for a decently paying job as what a high school degree enabled a century ago
• Expand subsidies for permanently affordable rental housing by lowering the cap for home ownership subsidies (currently provided primarily through tax deductions for mortgage interest and property tax payments)
• Expand Social Security, especially by expanding the Special Minimum Benefit and Supplemental Security Income for low-income earners, funded in part by scraping the cap on taxed social security earnings
• Create a negative income tax, in which people earning below a certain threshold would receive a payment of at least a proportion of the shortfall, a policy actually proposed by conservative economist Milton Friedman and which almost made it through Congress under the Nixon administration
• Create a single-payer health care system or other truly universal system, with strong subsidies for low-income
Or perhaps more ambitiously:
• Create a ‘citizen’s knowledge dividend’, in which every citizen received an equal share of the profits from all patents and trademarks the government protects, an idea Robert Reich suggested in his 2015 Labor Day editorial. This is just one possible version of a guaranteed universal basic income, though this builds on the notion of a common ‘citizen’s dividend’ from science and technology resources, similar to the citizen’s dividend from natural resources that underpins the existing Alaska Permanent Fund (a universal income program for all residents of Alaska in place since 1976).
While it may seem far-fetched to imagine the United States ever passing a guaranteed Universal Basic Income, what is remarkable about the idea is the variety of people from different ideological perspectives who are advocating for the idea. Andy Stern and other labor activists see it as a solution for growing poverty and inequality. Charles Murray and other libertarians see it as a more efficient way of providing social welfare. Martin Ford, Paul Saffo, Y-Combinator, and others in high-tech industries see it as a possible solution to technologically linked unemployment. Feminists argue it provides a way of recognizing the unpaid labor of women in the economy. Since historically marginalized groups would disproportionately benefit from a Universal Basic Income, it has also been seen as a means of partial reparations for past wrongs. Others simply argue that guaranteeing a minimal basic livelihood for all should be considered a basic human right.
All of these social wage policy options have the benefit of building strong social solidarity, and moderating to some extent the extreme individualism in the American economy and our social norms. It also builds directly on the social nature of information and knowledge, which is at the very head of value creation in the information economy.
The vast majority of value in today’s economy is created by social processes of knowledge generation and information sharing that cut across business boundaries, includes major public sector investment, and depends on the activities of consumers and users, not just workers.
In essence, this creates a common pool of wealth, in the form of information and knowledge, that underpins economic growth today.
As a result, we should be pursuing more social wage policies that can help distribute more broadly this socially produced wealth. More than 200 years ago, Thomas Paine argued that nature should be considered a common property of all persons, and that a portion of all wealth produced from the use of natural resources should thus be returned to all citizen’s in the form of a dividend. Today, scientific knowledge and the social information produced in social media and Internet platforms of all kinds can be considered a common-pool resource. It is time to figure out ways of more broadly sharing the wealth of these network resources.
Chris Benner is the Dorothy E. Everett Chair and Director of the Everett Program on Technology for Social Change, and Professor of Environmental Studies and Sociology at UC Santa Cruz.
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