Technology and Inequality

CAMBRIDGE – Until now, the relentless march of technology and globalization has played out hugely in favor of high-skilled labor, helping to fuel record-high levels of income and wealth inequality around the world. Will the endgame be renewed class warfare, with populist governments coming to power, stretching the limits of income redistribution, and asserting greater state control over economic life?

There is no doubt that income inequality is the single biggest threat to social stability around the world, whether it is in the United States, the European periphery, or China. Yet it is easy to forget that market forces, if allowed to play out, might eventually exert a stabilizing role. Simply put, the greater the premium for highly skilled workers, the greater the incentive to find ways to economize on employing their talents.

The world of chess, with which I am closely familiar, starkly illustrates the way in which innovation in the coming decades may have a very different effect on relative wages than it did over the past three decades.

During the late eighteenth and early nineteenth centuries, a brilliantly inventive chess-playing “automaton” toured the world’s capitals. “The Turk” won games against the likes of Napoleon and Benjamin Franklin, while challenging many great minds to penetrate its secrets. Concealing a human player in a shifting compartment amid a maze of impressive-looking gadgetry, it took decades for outsiders to correctly guess how the Turk really worked.