How Silicon Valley Is Hollowing Out the Economy (and Stealing From You to Boot)

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Jaron Lanier’s latest book, Who Owns the Future?, begins by noting an instructive coincidence: the bankruptcy of the photography giant Kodak occurred within months of Facebook’s billion-dollar acquisition of the photo-sharing site Instagram. This would be just one example of the destructive dynamism of American capitalism, a process through which old companies are overtaken by new technology and new firms more in tune with the needs of customers — and that perhaps benefits us all.

Except for one thing, that is: whereas Kodak employed 140,000 workers during its heyday, Instagram employed just 13 people when it was purchased in April 2012.

“Where did all those jobs disappear to?” Lanier asks. “And what happened to the wealth that those middle-class jobs created?” Lanier’s answer is that the new “information economy,” which is now superseding the manufacturing economy, is developing in such a way that the rewards are filtering to an elite few at the expense of everybody else.

Lanier is certainly not the first public intellectual to expound upon rising income inequality or the fact that the emergent information economy isn’t able to produce the sort of middle-class jobs that automation is destroying. But Lanier, a computer scientist who made his name in the field of virtual reality (a term he coined) in the 1980s, is one of the few conversant enough in the necessary disciplines — namely history, economics and technology — to approach the problem holistically. 

(MORE: Can Robots Bring Manufacturing Jobs Back to the U.S.?)

One popular view of the American economy’s recent troubles is that we’ve become too decadent, that we no longer make anything the rest of the world wants, and that our economy will not recover until we can learn to overcome our addiction to debt and cheap, foreign-made goods. And if one were to look at where the average American gets his paycheck these days, there’s evidence to support this worldview. Fewer and fewer Americans are employed in making physical goods — just 9% of the population works in manufacturing, compared with 40% during World War II. But total manufacturing output — that is, the dollar value of all the things American companies make — has continued to increase. In fact, by some measures the U.S. produces more stuff than any other country in the world, including China.

The missing variable in this equation is automation. We’re still making a ton of stuff here; it’s just that machines are doing more and more of the making. As a technologist, Lanier finds this dynamic obvious, though it tends to sneak up on the rest of us. Take for instance, the example of the self-driving car. While most of us see a curious but impractical invention, Lanier sees a tool that could devastate the middle class:

“Humans are terrible drivers. We kill each other in car accidents so frequently that the toll has become a more deadly problem than wars or terrorism. It’s one of our biggest sources of death and pain … the motivations for developing self-driving cars are so extraordinarily powerful that it’s hard to imagine stronger ones. Results from experiments thus far indicate that it is unlikely robots will ever drive as badly as people. My mother died in a car accident. What could be more compelling?”

Lanier goes on to note that roads filled with self-driving cars could save energy by making streetlights unnecessary. Travel would become vastly more efficient because cars could coordinate with one another, able to take advantage of the “full bandwidth of the freeway.” Politics may slow its implementation, but in the long run the appeal of such safe and energy-efficient technology will be hard to resist. And once this technology enters the mainstream, what happens to the millions of people around the world who make their living operating vehicles?

(MORE: TIME 100: Jaron Lanier)

This story isn’t a new one, of course. Ever since the Industrial Revolution, technology has been making previously lucrative careers obsolete. And as far back as Aristotle, philosophers have been worrying that technology would ultimately beget mass unemployment. That scenario has never come to fruition because even as technology destroys some jobs, it creates others. But according to Lanier, this process is breaking down — not because of some inherent flaw in capitalism, as Marx would have argued, but because of the way we’ve allowed the information economy to develop.

And this is because powerful forces in the technology industry have cleverly persuaded us to work for free. The information economy has the potential to be just as consequential and remunerative as the manufacturing economy, but most of the economic activity is taking place “off the books,” and the only players extracting any monetary value are big companies like Google and Facebook. To illustrate how this works, Lanier gives the example of translation services offered by Microsoft or Google. He writes:

“It’s magic that you can upload a phrase in Spanish into the cloud services of companies like Google or Microsoft, and a workable, if imperfect, translation is returned. It’s as if there’s a polyglot artificial intelligence residing up there in the great cloud server farms.

But that’s not how cloud services work. Instead, a multitude of examples of translations made by real human translators are gathered over the Internet. These are correlated with the example you send for translations. It will almost always turn out that multiple previous translations by real human translators had to contend with similar passages, so a collage of those previous translations will yield a usable result.”

Technology has made what once would have been seen as a miraculous feat into something quotidian and available practically for free. But, Lanier argues, it’s only an illusion that technology is responsible for the translation. In fact, the translation was done by thousands of human beings. Your retrieval of this information was facilitated by technology, but the work was done by humans — humans who will never be compensated for it. And this business model pervades Silicon Valley. Big tech firms lure you online with free media and services, while simultaneously encouraging you to provide services and media to others for free. Amazon makes money off of your product reviews. Twitter makes money from your tweets.

(MORE: Your Next Doctor May Be a Robot)

The first victims of this business model have been journalists, musicians and photographers. Lanier points out that the technological punditry has often cheered the demise of these careers as sources of secure middle-class jobs in their enthusiasm for a cheap, bountiful online experience. But as the “real” economy becomes more and more automated, what information-based work is safe from a similar fate? Education seems to be the next industry primed for the sort of disruption that the music industry faced 10 years ago, as the cost of education continues to rise at the same time the tools necessary for self-directed learning are increasingly at our fingertips.

Lanier calls his book a “work of futuristic economics,” or “speculative advocacy.” In other words, he’s imagining economic problems that are at least a generation away. But the contours of these problems are already taking shape, and he is right to feel the need to get a handle on them early. The Silicon Valley institutions that have such great influence over our lives didn’t get to where they are by being unconvincing. The new tools and toys that the tech industry produces are seductive, and for the most part the public has simply followed Silicon Valley wherever it has wanted to go, without stopping to think about the world that it’s creating.

But Lanier is asking us to stop and examine the economy we’re allowing to be created around us. If automation will subsume most of what we consider to be work, how will we spend our days, and how will we divvy up the resources created by the machines? It’s likely too early to come up with the solutions to such problems yet, but it will almost certainly involve the government. Government is the tool through which we set the rules and boundaries of markets. In a world where the most valuable assets are virtual, politics will play an increasingly important role.

Ultimately, Lanier envisages a future in which we would retain ownership of our virtual selves, the content we produce online, and the incremental improvements we make — passively or actively — to the products created by powerful companies. Some sort of universal micropayment infrastructure would be necessary to allow capital to flow to and from each player in the economy. Setting up this infrastructure will be a monumental undertaking for sure, but as Lanier points out, no more monumental than the infrastructures that have already been created.

62 comments
BrajbihariG
BrajbihariG

In Silicon Valley, there are the good billionaires and the bad billionaires. In Silicon Valley, this nation-leading hub of economic vitality and job creation, the unemployment rate in June was 8.8 percent, an increase of nearly half a percent from May, and well above the national average.

JenniferBonin
JenniferBonin

That first example, about Instagram replacing Kodak, is truly dreadful.  Yes, Kodak went out of business, but not because Instagram started up.  It went out of business because people preferred buying digital cameras over analog ones.  And yes, Kodak had tons more workers than Instagram.  But did it have more workers than all of the digital camera makers, plus digital photo software makers like Instagram?  That's a lot less clear.

There's a real argument to make about technology making jobs more efficient, and thus requiring fewer people to get the same work done.  But let's make it with realistic examples, please, and not fear-mongering exaggerations, please?

ThomasHafen-Uehara
ThomasHafen-Uehara

While I agree that our society has become decadent, way too much so, and way too many people have a "the world owes me, and where are my food stamps?" mentality, I have to disagree with on the point that automation/innovation takes away jobs.
The same argument was made when typewriters replaced scribes and photocopy machines did what typists used to do and word processors became our secretaries.
If that argument would hold true unemployment would have steadily gone up and up, yet with the exception of the great depression earlier in last century it has always hovered ard ~5-10% with presently a bit over 10%, but historically not unusual.
It is true, many people have unskilled jobs that pay a low wages, competing with low prices of imported products and low wage earning immigrants.
The way to combat that is not legislation and more protectionism like unions, border fences and import tariffs. What we need is having a skilled population.
We have to acknowledge that the world has become very small and will only get smaller. These protection mechanisms are only a means to hang on to an obsolete past and doing so prevents the forces that produce real growth and innovation to do it's job. Compare that to planting a garden. You seed a lot, then you thin out the weak ones (failed or obsolete businesses) along with getting rid of the weeds (crooks). If you protect every seedling there is (the unions approach), you prevent having a healthy garden for the sake of a false feeling everybody has it good, but in the end all you get is a whole bunch of scraggly carrots.
It is a global marketplace and inequalities worldwide will eventually be evened out. The areas that can provide a competitive marketplace (well trained Workforce, low corruption, low Taxation and a reliable Infrastructure) first will prosper the most. Be that China, India or the US.
The only way we can bolster the middle income families, the proverbial middle-class, is to educate our kids and stem the moral decay.
Our schools don't receive the funding they need because the management of the schools costs more than the teachers get. It is lower on the priority list than social issues. 
The political system we have that is basically only revolving around 2 parties and lots of special interests, namely unions, is antiquated.
Way too many people work for the government and/or have otherwise job garanties that are not, or only loosely, tied to their performance or need for their position. 
Today we have the technological means to tally everybodys opinion.
The need for representatives that "govern" our interests has gone away.
We the people...
When I look at how media like wikipedia can organize and form a consensus on a subject, it becomes clear that we need a direct democracy.
Perhaps I do not have the objectivity I should, but the system in Switzerland works, and the economy there is proof of it.

Payingattention
Payingattention

I think in the history of civilization when one segment of a population gains inordinate control over the rest they never willingly give it up.  It does not matter whether their control hurts the economy and well being of the population as a whole, the  elixir of being in control simply cannot be resisted.

During the heyday of liberal control the tax and spend mind set of government produced some mind boggling successes such as a man on the moon, the interstate highway system, affordable higher education (it was free in California), and mainly an improving lot for the middle class.  But it was the failures of the liberal era that led the country to adopt more conservative politics.  Most medium sized cities saw crime spiraling out of control, welfare had become a way of life, the infrastructure was falling apart and we'd suffered a defeat in war.  Carter gave the final coup de grace to the era with failed attempt to free the Iran hostages.

It will be the failures of the current era that will end it.  The Republican party has become mush more about greasing the way for the fortunate few to amass great wealth than providing a healthy growing economy for those without the silver spoon.  Minds change over time, and the young people today are seeing the raw deal they are getting and are very likely to see through the hoax of not taxing the so called "job creators".  With so many of these JC's in the same or better boat than Mitt Romney we should be swimming in jobs, not mortgaging your life for a college education that still only gets you a job at Starbucks.

The kids will remember.


DuckBeach
DuckBeach

Admit I was turned off by Lanier's appearance.  Now I want to grow dreadlocks ("Redlocks?").  

Lanier is talking for a lot of people including me.    

Subprimemortgag
Subprimemortgag

"If automation will subsume most of what we consider to be work, how will we spend our days, and how will we divy the resources created by the machines? It’s likely too early to come up with the solutions to such problems yet, but it will almost certainly involve the government. Government is the tool through which we set the rules and boundaries of markets."

We all know the government follows the mandate of the wealthy and powerful.  So it will be the wealthy and powerful that shall decide the rules and boundaries of the future market and how this new economy shall work.  Guess what is going to happen?

"But according to Lanier, this process is breaking down — not because of some inherent flaw in capitalism, as Marx would have argued, but because of the way we’ve allowed the information economy to develop."

Why are we so afraid to admit that Marx was at least a little bit right.  In order to solve some problems of capitalism, we have to recognize them and admit them as true.  Otherwise, we are just pushing the trash under the rug.

If you like these topics, you will like  "theknowledgestock.blogspot.mx".  Thanks.



DeweySayenoff
DeweySayenoff

This isn't entirely "news", though the mechanism is certainly uniquely viewed.  The middle class and poor have been sending their money to the wealthy at an ever-increasing pace ever since 1980 all thanks to congressional rules and laws that favor the corporations and wealthy at the expense of the rest of us.  The two FDIC insurance increases came at a time when the average deposit needed to be covered was $5,000.00 OR LESS, raising it from a perfectly adequate $25,000 to a more than generous $100,000 (from five times the average, to twenty times the average) JUST BEFORE the savings deregulation that led to the S&L crisis.  $32 trillion dollars later, (that's TRILLION, with a T), we're still paying off the S&L bailout.  Then again in 2007, just before the housing meltdown, the FDIC was raised again, from a generous $100,000.00 to a stupidly high $250,000.00.  And then we had to bail out banks AGAIN.  The total cost to taxpayers will likely top $100 trillion dollars.

Who's paying for that?  Not the investors.  It's the taxpayers.  The poor and middle class.

Point of fact: In 1980, the poorest 80% of the country controlled about 35% of the wealth.  Today, it's less than 7% (the last figure I had from two years ago) and may be as low as 5% by now.  That difference in wealth in today's dollars is over 52 trillion dollars.  And it all went to the richest 20% who now control 93%-95% of the wealth of the nation.  

Now, let's examine some political policies.  Rightists believe that by giving the wealthy (who they call the "job creators") tax breaks, they'll take their money and make jobs.  They have more money now than at any time in the nation's history.  Are we up to our necks in Help Wanted signs?  We are not.  The rationale that the "Job creators" will create jobs just because they have money is busted. Another rightist policy is that by giving tax breaks to the companies, they will create jobs.  Businesses streamline to make profit and use their profit to pay investors first, then everything else.  There is a very low priority to invest profit in new jobs when demand is low.  We have low demand now, and not much in the way of job creation.  The myth that low taxes on corporations (or tax breaks) will create jobs is also busted.

Leftists believe in spending money and high taxes.   But they'll tax everyone and not just those who can most afford it.  Most people want to work, not get hand-outs.  Hand-outs, however, puts money on the streets.  It's spent.  High taxes keep the spending low, though, so it's a self-crippling system economic system.  The perception of income is just as important as the income itself.  If people think they're not getting much, they won't spend much, regardless of how much they are really getting.

Let's look at economics.  In a capitalist economy, money must CIRCULATE.  It can't pool for long, or in large amounts because that causes a lack of circulation.  The more money that's circulating, the healthier the economy is.  Let's look at the situation over the last 33 years:  The poor and middle class are the "consumer class".  They are the spenders of most of their income.  They are the 80% who used to have control over 35% of the nation's wealth.  They are the drivers of our economic engine. 

And since 1980, more than 85% of the available spending money has been sucked out of the economy, pooling in the bank vaults and business investments (which we've already determined does nothing for an economy) of the wealthy.

We are running a major world economy with only about 15% of what we used to be running it with.  Capitalism has to have money flowing and there isn't ENOUGH to flow to get the economy going again.  This is just economics.  It's no more political than an ice cube.

There are only two ways to get money circulating: Printing more of it (the liberal idea of tax and spend) which is pretty damn stupid since it devalues the currency.  The other is to take it from where it's pooling and sitting doing nothing but contributing to a corporation/wealthy investor circle jerk (or the pockets of those who don't spend most of their income) and put it back into the pockets of the people who DO spend most of their income.  More money gets put into the economy.  We can call it what it is: Wealth redistribution.  It's the only economically sound step to actually solving the economic problems we've had for years.

That extra money will be spent, creating an increase in demand.  That increase in demand will lead to more hiring to meet the demand (after a long delay to reap as much profit from the system as possible, and get as much out of the workers they have, of course.  Businesses are often very much like slave owners, after all).  More jobs means more money going into the pockets of the spenders, who will then spend more, creating even more demand, which in turn will lead to more job creation.  

It's demand that creates jobs.  Not wealthy people - a friend of mine started a successful IT company years ago with pocket money and ANYONE can make it big, if there's demand for their goods/services regardless of how much money they have to begin with.  Nor do tax breaks create jobs.  Businesses complain about high taxes and regulations because their investors are complaining about low returns.  Gosh, someone making more than God himself may have to learn to get by on only three million times the average income of a developing nation instead of four million times it.  The business environment could be better regulation-wise, but profits should always be modest and reinvested so that the money flows back into the economic system.

If the money don't flow, the economy don't go.  And our flowing money, like the oil in the economic engine, is in desperate need of refilling.

Steve13565
Steve13565

As for redistributing income, we are already in the midst of a huge experiment to redistribute income and wealth upward.  We have a political system that makes rules discouraging the formation of unions so that two sides can bargain for how the benefits of increased productivity should be distributed.  Our government is the one that makes the rules that vulture capitalists pay lower income tax rates than people who create things.  You can't still think that the people who made fortunes repackaging substandard mortgages and selling them to unwary investors actually did something productive for the economy.

Our reach has extended world-wide.  Our international companies outsource jobs to countries where some employers that care not a whit about government safety and get away with it except for the occasional hanging or two.  Our Republicans have put in place amendments to trade legislation that do not allow us to consider worker health and safety and control of pollution in any of our treaties.  (I am complaining about not even being able to consider these factors, let alone taking any stand on how they ought to be negotiated.  And remember that negotiation means I tell you what I want, you tell me what you want, and some how we come to a mutual agreement. Negotiation does not mean I use unfair means to force you into agreeing with what I want.)

labdog00
labdog00

I don't agree with the belief technology is taking over jobs that citizens would have done.  This might be happening yet it doesn't reflect the major reason we are in an economic decline.  Many of our employment issues are due not the lack of need.  It is because of the outsourcing that started in the late 90's.  It now includes technology, customers service and manufacturing  We have become in general a retail economy.  It is destructive greed.  When corporate profits are put ahead of all else. We have outsourced millions of jobs.  As it relates to machines and manufacturing automation, it does limit jobs but at the same time is increases the need for technology employees to build, configure and support. 

moneypro
moneypro

8-9 years ago when living at Ocean Isle Beach every new home was built by an American citizen.  Roofers, carpenters, brick layers every needed trade and they all made a very good living.

Now none of them have a job or if they do they make half or more less than what they used to make because of the cheap labor now available in abundance.  Pretty sad for our citizen workers.

sciencescambridge
sciencescambridge

There are some good points in this article.  However, I don't like what I see when I look closely.

"how will we divy the resources created by the machines?"  Huh?  The resources created by machines are the property of the machines' owners.  They are not ours to 'divy'.  We can do productive work and purchase them at a price to be determined by supply and demand.  The United States is not socialist yet.

Also, Amazon does not directly make money from customer reviews.  Unless they bias the reviews, they make a margin on product A or product B, whichever you choose.  Or you can read the reviews and then shop elsewhere for the lowest price.  The only clear benefit of the review to Amazon is that the buyer may be more informed and satisfied.  Many buyers get free knowledge from these reviews - they should be compensating the reviewer, if anything (let's see if Angie's List grows in the future).  Let's keep quality reviews free as a community benefit.

MorriconeGiovanna
MorriconeGiovanna

" Who should own the future"

= Sounds like a Big Government Liberal Slogal.. The real question should be "Who wants to own the future".. and the answer is "Who believes in it and who transforms himself to changing times". 

firmsoil
firmsoil

These rich liberals are looters who do not pay taxes and live in walled off enclaves in California which has a 26% poverty rate!

mrdeanpaton
mrdeanpaton

How is this book different from "Lights in the Tunnel" by Martin Ford? He wrote his book in 2009 and is also a Silicon Valley Exec.

Rototime
Rototime

A shallow article. The leveraging out of middle class jobs by technology and automation is obvious and has been for some time. The real problem is capitalism and future production are not compatible with human substance. The solution offered is trivial, unworkable, and frankly sofmoric. Capitalism will need to change.

JonathanMartin
JonathanMartin

The thesis of this article is nonsense on stilts. Ever since the invention of the wheel and the cotton gin, new technologies have always had the beneficial effect of doing the same work with less labor. In a free market economy that frees up labor to be more productive elsewhere. We could create lots of jobs by getting rid of the wheel so that all goods had to be transported on human and animal back, but would we be better off? What is hollowing out the economy is the fact that Americans have priced themselves out of the market and exported their work to China. This was purposefully done by the Federal reserve which has been continually encouraging trade deficits since the 60s through easy money printing. There is still lots of room for new innovation. Better energy sources, better and less expensive medicine, less polluting industry, even technology to populate the moon. We are far from having attained the end of history.  Robots will never replace people because creativity is not something you can program. What we need is a second liberal revolution to unleash the creative energies of humanity. We need less government, not more. Government is the problem, not the solution. Our wise central planners have destroyed our economy and taken away the entrepreneurial spirit by creating a bogus american dream of comfort and safety, regulating the dynamic economy out of existence.

PeterEdwardHarrington
PeterEdwardHarrington

Jaron has really hit upon something here, it is fascinating, but maybe with the fast-paced march of technology, this won't be a problem for the next generation, but for all of us in the next 3-5 years? 

If you take Amazon as a good example. Customer reviews, as mentioned above, create more sales from interested buyers doing their homework. So why aren't Amazon giving reviewers a kick back for writing the review? Stop reviewing, change Amazon overnight - it would be a small (in the sense of being easy to see & monitor)  change based on what Jaron is I guess saying. Looking forward to reading his book!

NamecNassianer
NamecNassianer

"If automation will subsume most of what we consider to be work, how will we spend our days, and how will we divy the resources created by the machines?"

Corey Doctorow has touched upon this in his short story Truncat and in the novel Down and Out in the Magic Kingdom.