Digital Tech + Exclusive Ownership: the Hidden Source of Inequality and Instability

Introduction

Today I want to talk to you about the hidden cause of growing inequality.

I want to start with a story. It’s the story of Mr Frisbee, a real man despite his wonderful name.

Frisbee was born in 1963 in Florida. When he was 15 years old he left school and went to work in an agricultural machinery business just south of Tampa.

And he worked there for the next 30 years and then one day he took the savings he'd made and he started his own business which was a scrap yard and metalworking workshop. And it was called American Dream welding and fabrication.

And, if you like, he himself is symbolizing that.

Because his world, his version of the american dream, is breaking apart during his lifetime. The world he grew up, the jobs he grew up in, the blue-collar industrial sector are all disappearing.

When the recession comes in 2009 he is really struggling. He goes from six employees to just two: just him and his step son. His partner who works at a daycare centre gets fired. He starts to get angry. He starts to resent other people's success. Why are they doing okay?

Because his world is not working.

And then we come in 2016. He's angry, he's dispossessed, the government make him put up some stupid fence round his business. He's still struggling and he's someone who's going to vote for Donald Trump. He's going to vote at least for someone who is giving him some kind of answer, however true or not it is.

And the thing I want to look at is that he epitomizes the growing inequality of United States. He may seem one man, but he represents millions. The bottom 60 percent of Americans, that’s 180 million people, have barely seen their real income rise since 1970 – they have roughly the same wages they had nearly fifty years.

Even more dramatically, that same 60 percent of Americans, that same 180 million people have seen their real wages drop since 1999. They're actually poorer in 2015 than they were in 1999. And that’s never happened before in the history of the United States.

Meanwhile the share of the richest people, the top 1 percent, the top 5 percent have risen dramatically. And that's what makes it so tough for people like Mr Frisbee. If everyone were having a hard time you could maybe understand. But when you watch a few people at the top getting rich and you're struggling then you get angry. And the thing is it's no longer just Mr Frisbee, the blue collar guy, it's people in the middle classes who are really struggling who worry about job security, worry if their job will get outsourced offshore and whether they will still be needed.

And so there's a direct connection between that growing inequality and the political instability we are seeing today.

And this isn’t just about the US, this growing inequality is happening all over the world right now.

So we need to ask ourselves: what’s causing this growing inequality? What’s behind this? And what can we do about it?

Because it is something systematic. Inequality is growing everywhere. And we’ve been missing the real source of it.

But today we will discover the hidden source together.

The hidden cause: digital tech + exclusive ownership

What we will see is that there is a direct connection between the rise of digital technology and this growing inequality.

This may sound surprising. After all, digital technology has brought incredible innovation and progress.

And it isn’t digital technology on its own that is causing growing inequality. Rather it is the combination of digital technology’s costless copying with the mistaken and inappropriate use of old rules of exclusive ownership in the form of patents and copyrights that is causing growing inequality and political instability.

To understand what is happening let’s take a step back and think about what is going on for Mr Frisbee.

We talked about how Mr Frisbee’s lifetime coincides with the decline of traditional US industry. How he sees his kinds of jobs disappear and how he becomes one of the dispossessed. And at the same time, during his lifetime, starting in the 70s we see the rise of modern information economy. Intel is founded in 1968 when Frisbee was five, when he is twelve Bill Gates drops out of Harvard to start Microsoft, the following year Jobs and Wozniak would start Apple in a garage in Silicon Valley.

Now, you might sit there and say, "Well there's always been change. Horses got replaced by motor cars. People who had horse businesses went out of business." In a market economy there's always change and there's always some people who are losing out and some who are gaining.

But there's something different now. Because when Mr Frisbee job goes he's replaced not but somebody else but by a robot. What's different about that? Because after there are still people who make robots, right?

Well there is something fundamentally different. To see that I want you to think of an analogy. Imagine for a moment that the economy is like a running race.

Consider that there are different types of running races. For example, at my school we had a running race where there wasn't a single winner: everyone who finished in under two hours was a winner. Everyone who finished in under two hours they'd done it, they'd made it.

Now, that's what the old economy was like.

Old economy was like apple farming: many growers, free competition and limited inequality

Think about it. Imagine you were a farmer and you grow apples. Sure there are some farmers who are better and some are worse. But everyone who does an okay job growing apples will be able to sell their apples and make a living. Or let's say you work in a car factory and you make cars. Yes, there are some workers who are faster workers than others but if you do a decent job you make a living, you earn a wage. And it’s also true if you are an owner: yes there are other car factories but if you do a decent job you’ll sell your cars. That’s a decent free market system working right there.

But then what's happened is we've got a shift to an economy like a race where there's just one winner. It's all about who comes first. If you win that race you get all the prize money, all the value, and everyone else it doesn't matter where they came.

Why is that like a digital economy? Because in a digital economy the fundamental, central, massive change is infinite, costless copying. Once I've got one copy of Windows software I can give a copy to everyone on the planet at the touch of a button. Once I've got one copy of a movie or one copy of the database I can reproduce for everyone practically costlessly.

So now we have a situation where I can supply everyone.

New digital economy is a magical apple tree economy where farmer Gates has a tree that can supply everyone

And that’s very different. Let’s go back to the example of the apple farmer for a minute. There's a limit or how many apples a farmer can supply. That means I can be farming apples, you can be farming apples, someone else can be farming apples and we can all sell our apples and make a living.

But suppose that one day there is one farmer named Mr Gates and Mr Gates has a magic apple tree and that apple tree can produce millions of apples each day at no cost to him.

Suddenly Mr. Gates can supply everyone with his apples that cost him nothing. He can undercut everyone else. Suddenly he dominates the entire apple market and everyone else goes out of business.

And that's what's going on. The real world Mr. Gates once he has the Windows operating system he dominates. He supplies everyone in the world and it costs him nothing to make each new copy. So he can dominate that market.

And that's what we're seeing: these incredible monopolies like Facebook, Google, Windows. And in every vechicle you look at you have monopoly or close to it.

Exclusive ownership: a seemingly sensible solution to the costly first copy problem

Now, there’s one really important to thing to add to the story. And that’s that the issue is not just the infinite, costless copying. It's that a single person also has exclusive ownership and control of the material. That Mr Gates the farmer has exclusive control and ownership of his magic apple tree, that the real Mr Gates’s Microsoft has exclusive ownership and control of Windows.

That's what crucial. Because we could have a story where Mr Gates magical apple tree is shared with everyone. Everyone has apples. But no, we've created rules that give people exclusive control and ownership.

And there's a logic to that: it costs money to create the "apple tree”. We all know it costs money to make Windows or to make a movie. So as a society we thought: "Ok, we've got to have a way they make their money back." So what we've done is given out these monopoly rights like copyright and patents that have given someone exclusive, monopoly control of these pieces of software, these movies, these databases etc.

But there is this massive unintended side-effect: inequality, stagnation and instability

But there has been this massive unintended side-effect. The result of running the new economy on these old rules of exclusive ownership is this incredible spiralling inequality.

In 2016, the eight richest people in the world had as much money as the bottom 50% of humanity, that’s three and a half billion people.

And of those eight, six of the eight richest people on the planet are tech billionaires. Forty years ago not one of the richest people was in tech.

Conclusion

This is an extraordinary, unprecedented concentration of economic wealth and power made possible because these digital goods are costlessly copyable and exclusively owned.

And this creates this incredible anger for Mr Frisbee. He sees his job disappear and he does not know why. He sees the few getting rich and he does not know why. And he gets angry and resentful.

It is this inequality, driven by the information economy running on old rules of exclusive ownership and control, that is the motor of the greatest political shifts of our time.

It is being driven by people like Mr Frisbee, who are angry and dispossessed and understandably so, who are not getting new jobs in this new economy but are simply getting replaced by the robots owned by Mr Bezos, and now have nothing left.

So we need new rules. We need new rules for this new digital economy, taking the old rules of the physical economy and applying them in this new one makes no sense. Old property worked, but transplanted into this new world as intellectual property it does not work. In this new world, intellectual property is intellectual monopoly. We need to create new rules, rules that allow for sharing, for costless copying and for creators to get paid.

And I’m here to say that a better world is possible. We’ve got stuck in our old world thinking, stuck in thinking that bits are like bread. But they’re not. They’re different.

And if we are willing to innovate, to create new rules, rules based on openness and remuneration rights, we can restore free enterprise, restore free markets and make a world where everyone has a chance and everyone has a choice.

How can we do that? Find out more in my free ebook The Open Revolution »