Technology and the growing economic divide

Yelp Eat24 customer-support representative Talia Jane recently wrote a heart-wrenching blog about the difficulties she faced in living on her meager salary. “So here I am, 25 years old, balancing all sorts of debt and trying to pave a life for myself that doesn’t involve crying in the bathtub every week”, she wrote.  Her situation was so dire that, on one occasion, she could not even come up with the train fare to work.  She lived on the junk food that they provide at work.

Her message was addressed to Yelp CEO Jeremy Stoppelman.

What did the company do?  It fired her on the spot.  Yes, Jane made a mistake in posting this message on Medium rather than sending an e-mail to Stoppleman. But her situation isn’t unique. She outlined the contours of a life that are familiar to many of the people working on the lowermost rungs of technology’s corporate ladder.

After a social-media backlash, Stoppleman acknowledged that the cost of living in San Francisco is too high and tweeted that there needs to be lower-cost housing.

But the problem is more complex than San Francisco’s housing costs.  The problem is the growing inequality and unfair treatment of workers.  And technology is about to make this much worse and create a cauldron of unrest.

Silicon Valley is a microcosm of the problems that lie ahead.  Sadly, some of its residents would rather brush away the poverty than face up to its ugly consequences.  This was exemplified in a letter that Justin Keller, founder of Commando.io, wrote to San Francisco mayor Ed Lee and police chief Greg Suhr.  He complained that the “homeless and riff-raff” who live in the city are wrecking his ability to have a good time.

The Valley’s moguls do not overtly treat as inconveniences to themselves the bitter life trajectories that lead to experiences such as Keller complained of; but they have largely been in denial about the effects of technology.  Other than a recent essay by Paul Graham on income inequality, there is little discussion about its negative impacts.

The fact is that automation is already decimating the global manufacturing sector, transforming a reliable mass employer providing middle-class income into a much smaller employer of people possessing higher-level educations and skills.

The growth of the “Gig Economy”—ad hoc work—is shifting businesses towards the goal of part-time, on-demand employment, with aggressive avoidance of obligations for health insurance and longer-term benefits.  And the tech industry has a winner-takes-all nature, which is why only a few giant digital companies compete with each other to dominate the global economy.

A substantial part of the value they capture is concentrated at the center and mostly benefits a few shareholders, executives, and employees.  With technology advances and convergence, we are in the middle of a gold rush which is widening inequality.

Already, in Silicon Valley, the Google bus has become a symbol of this inequity.  These ultra-luxurious, Wi-Fi–connected buses take workers from the Mission district to the GooglePlex, in Mountain View.  The Google Bus is not atypical; most major tech companies offer such transport now.  But so divisive are they that in usually liberal San Francisco, activists scream angrily about the buses using city streets and bus stops, completely ignoring the fact that they also take dozens of cars off the roads.

Teslas too have become symbols of the obnoxious techno-elite—rather than being celebrated for being environmentally game-changing electric vehicles.  In short, there’s very little logic to the emotionally charged discussions—which is the same as what we are seeing at the national level with the presidential primaries.

Intellectuals are trying to build frameworks to understand why the divide, which first opened up in the 1990s, continues to worsen.

Thomas Piketty explained in his book Capital in the Twenty-First Century that the economic inequality gap widens if the rate of return on invested capital is superior to the rate at which the whole economy grows.  His proposed response is to redistribute income via progressive taxation.

A competing theory, by an MIT graduate student, holds that much of the wealth inequality can be attributed to real estate and scarcity.  Silicon Valley has both: an explosion in wealth for investors and company founders, and a real-estate market constrained by limits on development.

We need to immediately address San Francisco’s housing crisis and raise wages for lower-skilled workers.

Both are possible, the region has enough land and the industry has enough wealth. In the longer term we will also need to develop safety nets, retrain workers, and look into the concept of a universal basic income for everyone.

It is time to start a nationwide dialogue on how we can distribute the new prosperity that we are creating with advancing technologies.

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Vivek Wadhwa is a Fellow at Arthur & Toni Rembe Rock Center for Corporate Governance, Stanford University; Director of Research at the Center for Entrepreneurship and Research Commercialization at the Pratt School of Engineering,  Duke University; and Distinguished Fellow at Singularity University. He is author of  “The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent”—which was named by The Economist as a Book of the Year of 2012, and ” Innovating Women: The Changing Face of Technology”—which documents the struggles and triumphs of women.  In 2012, the U.S. Government awarded Wadhwa distinguished recognition as an  “Outstanding American by Choice”— for his “commitment to this country and to the common civic values that unite us as Americans”. He was also named by Foreign Policy Magazine as Top 100 Global Thinker in 2012. In 2013, TIME Magazine listed him as one of The 40 Most Influential Minds in Tech.

Wadhwa oversees research at Singularity University, which educates a select group of leaders about the exponentially advancing technologies that are soon going to change our world.  These advances—in fields such as robotics, A.I., computing, synthetic biology, 3D printing, medicine, and nanomaterials—are making it possible for small teams to do what was once possible only for governments and large corporations to do: solve the grand challenges in education, water, food, shelter, health, and security.

In his roles at Stanford and  Duke, Wadhwa lectures in class on subjects such as entrepreneurship and public policy, helps prepare students for the real world, and leads groundbreaking research projects.  He is an advisor to several governments; mentors entrepreneurs; and is a regular columnist for The Washington Post, Wall Street Journal Accelerators, LinkedIn Influencers blog, Forbes, and the American Society of Engineering Education’s Prism magazine.  Prior to joining academia in 2005, Wadhwa founded two software companies.