Inequality in the Robotic Age
By Frederick Kuo
February 18th, 2017
Economic inequality and the travails of the American middle class loomed large in the past presidential election. From Donald Trump’s bombastic attacks on unfair trade deals and the worsening fortunes of the Rust Belt, to Bernie Sanders’ critique of crony capitalism and the disenfranchisement of the working class, the grievances of the 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 unequaled wealth generation. Its billionaires, the ranks filled with the likes of Mark Zuckerberg and Elon Musk, have stormed the US’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 $144,000. San Jose and San Francisco now rank as among the wealthiest cities in the country on per capita terms, standing at $105,482 and $80,643 respectively.
Wealth and inequality in technology
However, even as the region harnesses the awesome wealth-building power of disruptive technologies, it’s society is increasingly feeling the strains of growing inequality. According to a study by the California Budget Center, San Francisco ranks as the most economically unequal region in the state, with the top 1% earning 44 times the average income of the bottom 99%. Income growth has also significantly favoured the wealthy few with the top 1% in the South Bay experiencing an explosive 248.8% growth in wealth from 1989 to 2013, while the bottom 99%, only gaining 23.2%.
Undoubtedly, with living costs skyrocketing and San Francisco median home prices hovering over $1.1 million, requiring a minimum household income of $254,000 and the requisite down payment just to be able to buy the average home, roughly 90% of the population are priced out of home ownership, a critical vehicle of wealth building. What this translates to is an increasing struggle for the middle class 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 47.7% and 48.5%.
According to a study by Redpin on the American Dream, New York and San Francisco rank as the worst cities to live the American dream, consisting of 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 minus the median income, came out to negative -$89,619.36 and -$36,470.40 accordingly. 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 lacking dynamic wealth-building industries.
As the fourth industrial revolution is revving up, accelerating the use of robotics, artificial intelligence, autonomous vehicles, big data and the internet of things in our daily lives, can the experience of high-tech regions such as the Bay Area provide insight as to how technology may impact society?
This is a question that is in dire need of an answer. As the election exposed the pain of deindustrialisation 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 revolutionise the role of technology in industry and our daily lives.
A robot revolution is set to dramatically fill tasks and jobs 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%. In the next 20 years, it is estimated that 47% of American workers are at risk of losing their jobs to a robot. The size of the robot industry is expected to reach $152 billion by 2020 with an increase of productivity of above 30% in many industries, but just with less humans earning a wage from them.
The growth of automated vehicles is expected to destroy one of the most common jobs in the US and one that provides workers with little formal education a solidly middle class average salary of $42,500, that of the truck driver. Over 1.7 million trucking jobs are expected to be eliminated in the next decade as the technology for autonomous vehicles and increasing connectedness make the position economically obsolete.
In addition to that, 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.
Opportunity and despair
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 high 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 highly amidst the lurking darkness of extreme social inequality.
Opportunity will come hand in hand with loss. As the advancement of intelligent robots wipe out entire working class professions, new ones, centring upon the creation, maintenance and logistics of this new infrastructure will be created. Service jobs requiring human judgment, ingenuity and connection will continue to thrive. However, the entry barriers for individuals to earn 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 may significantly lower the cost of housing and consumer goods. These possibilities present the 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.
Fourth industrial solutions
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 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 would 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 instilling a mindset geared towards opportunity are key. A society in a fourth industrial world possessing large populations of undereducated individuals who lack the tools to compete will inevitably face drastic social inequality and political turmoil.
Using tech cities as a bellwether, 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 has jumped to 39% at the end of 2015 compared to just 29% before. This, 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 in fostering environments where startups and entrepreneurs can succeed, however, have lagged in reforming antiquated regulations and policies that have impacted the cost of housing or the ease of transportation that are necessary in keeping the American Dream alive for the average citizen.
If there is one thing we can learn from the history of Silicon Valley is that innovation will bring about change at a speed and scale far greater than we can imagine. The world and how we understand it can change dramatically in the blink of an eye, and there will be winners and losers caught up in this whirlwind of transformation.
Tech cities should be regarded as the canaries in the coal mine, valuable testing grounds providing lessons to draw upon to create solutions which ensure that disruptive innovation is being harnessed to create healthy and prosperous societies that improve the lives of the majority of its citizens.