Societies in which a greater number of people have access to incomes that allow for stable middle-class economic experiences are better able to routinely invest in world-leading innovation. The reason is simple: The more places across an economy where regular revenues can flow from, the more regularly financing can be secured to invest in new ways of securing future revenues.
Generalized prosperity creates the foundations for ongoing generalized prosperity.
Extreme income inequality, in which the largest portion of new income expansion goes to a relatively small number of people, creates a perilous divide in everyday experiences of economic incentives: Some people enjoy near unlimited privilege, while most people find it becomes harder over time to afford high-value new experiences, as their own incomes stagnate or fall behind the rate of increase in the cost of living.
New technologies can exacerbate the dynamics that create extreme income inequality. First, speculation that new technologies will have immensely high future value shifts new income from labor to capital. That means it becomes easier to find new income if your income is primarily from financial investments and harder if your income is payment for work you personally perform.
This has effects on the ways in which technology is imagined, designed, and deployed. Given it is easier to gain from finance, and incomes are narrowing for most people, technology companies find it easier to ‘financialize’ their goods and services. That is why phones are expensive and financed through leases and long-term purchase agreements and why software has shifted to subscription-based business models.
This can have the effect of building ‘default brand loyalty’, where end users feel they cannot or should not change to a new service, while reducing accountability. Instead of a purchased product that needs to be ideal to be worth the investment, we buy subscriptions to products that can be fine-tuned over time, leveraging negative consumer experiences to generate free learning for the provider of that product.
From the standpoint of capital-driven income, this is a kind of efficiency. More information can be gleaned at lower cost, while revenues stabilize and eventually expand over time. From the standpoint of labor-based income, this way of operating reduces opportunity and interferes with the incentive to pay for better quality work from more experienced and dedicated workers.
A functioning middle class needs something else to drive decision-making and innovation. It needs a commitment to good-faith business and honorable service to end users. That commitment should be reinforced by financial incentives, policy incentives, and consumer protection laws.
All of this is more difficult in a world where centibillionaires can operate like small-scale entrepreneurs, leveraging enormous tax write-offs that transfer tens of billons of dollars from taxpayers to their businesses. As wealth is accumulated in fewer and fewer hands, opportunity for real social mobility starts to disappear, creating economic friction and political instability.
The often-cited motto of 1990s economics, that “a rising tide lifts all boats” is the essential spirit of mainstream, locally rooted capitalism. Money (capital) should move to where it can do the most good for the most people, and from that generalized added value, great fortunes can be made. Small businesses, improved protections for the rights of workers and consumers, and a strong middle class are hallmarks of a well-functioning economy of this kind.
Recent analyses suggest Americans earning more than $100,000 per year are still living in poverty, due to extreme increases in the cost of living and a multi-decade transformation in the core needs for everyday existence. When just a few individuals control as much wealth as 150 million people, in the wealthiest society in history, immense value is being lost to structural inefficiencies that reward counterproductive investment activity.
It is reasonable that people deprived of these benefits of generalized open prosperity ask: What is happening and why should we accept it? The work of correcting extreme income inequality is not about “class struggle”; it is about respect for humanity and honest assessment of the real-world value of specific business activities.
It has become functionally very difficult for even large numbers of organized citizens and consumers to effectively challenge high-level decision-making in large corporations and financial institutions. Companies are being rewarded for shifting costs from their balance sheet to society and Nature—hidden costs also known as “market failures”, which occur when free enterprise fails to force improvements through consumer pressure.
Income inequality is a climate-related challenge, because it is driven by structures and practices that conceal hidden costs, rather than revealing them. Climate disruption is one area where these costs play out dramatically and devastatingly, while causing potentially irreversible damage to people, communities, and Nature.
The practical need to identify, track, and eliminate such hidden costs is why the Sustainable Development Goals and the Paris Agreement call for “integrated and holistic” approaches to human development, investment, trade, and climate action. The availability of “Decent work” for people in vulnerable landscapes and in urban centers is part of this—work that is worth doing, where dignified treatment is the norm, and compensation is just and uplifting.
Without such opportunity, without livelihoods that improve economic leverage among the vast majority of working people, innovations will be more likely to be based on perceived financial returns rather than on success in providing what people want and need, to improve their quality of life. Innovations that clean the air, reduce emissions, and make incomes sustainable, are not necessarily favored by that dynamic.
And of course, the immense financial influence that comes with extreme income inequality makes it easier for polluters to conceal evidence or obstruct the protection of rights and lives. We are seeing right now that governments aligned with industry are seeking to destroy public datasets and undermine honest science endeavors that aim to develop real human and planetary health insights.
The cost of unsustainable business activities to society is already known to measure in the trillions of dollars. Warnings from US financial regulators and intelligence agencies that unchecked climate disruption could crash the financial system itself suggest the full spectrum of hidden cost may be functionally incalculable.
Resilience insight services that reveal hidden costs and allow small-scale actors, including individual consumers, to make informed choices about real-world value, are urgently needed. Developing those services, and the standards and systems that sustain them, is an immediate, high-value climate action priority.
