In the third post in our series on why technology is outpacing society, we look at the economics of the exponential age.
Most of us who are paid wages for the work we do are experiencing a fall in living standards, while the GDP of the country we live in continues to grow. It makes you wonder where this increased wealth is going.
The Three Mechanisms of Inequality
Max Tegmark, in his book Life 3.0, argued that technology drives inequality in three ways. These are:
- Replacing old jobs with ones requiring more skills. Pay for graduates has increased by 25% since the mid-1970s, while for those without degrees in the same period it has fallen by 30%.
- Since 2000, a larger share of corporate income has gone to the owners rather than the workers. This is likely to increase even further with automation, and is especially true for companies operating in the digital economy.
- The digital economy often benefits a few superstars over everyone else, an example of this is Google, which dominates web search.
Between 1979 and 2020, productivity in the USA grew by 61.8%, while wages only grew by 17.5%. And this isn’t the first time this has happened.
In the UK between 1790 and 1840, during the Industrial Revolution, the country’s GDP increased quickly while wages didn’t, with most of the wealth going to the owners of the machines. This pause in wage growth was called Engels pause.
The Job Displacement
According to a report published in 2023 by Goldman Sachs, 300 million full-time jobs in America and Europe could be lost to AI.
While a PricewaterhouseCoopers (PwC) report published in 2017 suggested that the automation of jobs would cause the job market in 2030 to have shrunk by:
- 38% USA
- 35% Germany
- 30% United Kingdom
- 21% Japan
Now I’m not sure how accurate these predictions are going to be, but there will be some job losses. As anyone who follows my blog knows, I use AI quite frequently. And it has sped up my publishing routine. Something that used to take me two or three hours on a Sunday morning now takes me about 30 minutes.
I would even go as far as saying that the SEO and social media posts are better than what I would have done on my own.
I don’t normally write too much about my job as I like to keep it separate from my writing, but I have been given access to a licensed tier of Microsoft Copilot.
It can see everything that I have access to in the Microsoft Office 365 stack, and probably across the wider Microsoft stack, giving it a lot of context on what I’m working on. If and when Copilot gets its equivalent to Claude Cowork, it could make a skilled worker a lot more productive. Unless the work available increases, people will lose their jobs.
And it will likely be the knowledge workers who are at the greatest risk. The very people we thought would be protected from automation.
Winner-Take-All and Monopoly Formation
One of the questions I noted down after reading Azeem Azhar’s Exponential was whether the exponential age will create companies that, to all intents and purposes, become monopolies.
I think that there is some evidence that this has happened and is continuing to do so. Current examples are Microsoft, Apple, Amazon, Google and Meta.
Microsoft dominates enterprise software and operating systems, as they took full advantage of the disruption caused by the development of personal computers during the last two decades of the 20th century.
Google dominates Internet search and also the mobile phone market due to its ownership of the Android operating system. Both of these help drive revenue via advertising, much of which is targeted based on your current interests.
Apple dominates hardware and the software ecosystem that runs on that hardware. Take the mobile phone market, for example. It has 30% of the market and it pretty much controls the ecosystem on its hardware, such as the app store.
Amazon dominates online retailing and cloud computing, which it built up while building the online infrastructure for its own online store.
Meta dominates social media through services such as Facebook and Instagram. Like Google, they make money through targeted advertising.
It is highly likely that Anthropic or OpenAI will join this list of examples in the future, assuming that generative AI continues to grow exponentially. And some of the companies could lose out during the technological disruption they cause.
Conclusion
The economic gap, which we explored in this post, is only one consequence of the exponential gap. Another is how the gap will impact our cognitive abilities, and for me it is the one I’m most scared of, but also most helpful. As we each have some control on what we let into our mind.
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Further reading
- Azeem Azhar, Exponential
- Max Tegmark, Life 3.0
- cnbc.com, Why American Wages Haven’t Grown Despite Increases in Productivity
- AI could replace equivalent of 300 million jobs – report
- Amir Husain: The Sentient Machine