The GED team has been trying hard to get their heads around the effects of digitalization and globalization. We have been trying to trace how these interesting bedfellows have worked hard to drag down equality in the developed world.
We’re planning on a closer look at these phenomena in the coming month. In this first post we want to capture the status quo. Where do we stand today? Consider this: For at least 30 years now, most developed nations have been experiencing an increase in income disparity. Prize question: How did this happen?
For starters, digitalization has led to a fast and furious drop in the overall cost of transportation and communication. Indeed, digitalization has been the most important precondition for globalization to speed up in the first place – for global economic interconnectedness to increase on the scale we see today.
Secondly, digital telecommunication and fully automated means of production have caused productivity to go through the roof. Meaning that the amount of goods and services an economy can possibly produce and provide have starkly risen. Digitalization has therefore caused economic growth, which in turn has upped overall material prosperity. However, the drop in cost of communication and transportation has made it all the more attractive to move production to countries, where manual labor is cheaper. This outsourcing has in turn taken its toll on demand for low skilled labor in the advanced economies, so much so that the gap between well paid high skilled jobs and low skilled poorly paid jobs has increased.
Ergo: Digitalization and globalization have proven themselves to be behind an increase in income disparity. Can there be a happy end to this story? Our next post, soon to follow, will elaborate on what we can expect this dynamic duo to get up to in the future. Will these two carry on having a negative impact on the equality of income or turn into factors with a net positive effect on the matter?