Peter Josty is the Executive Director of the Centre for Innovation Studies based in Calgary.

Our standard of living is much higher than our ancestors hundreds or thousands of years ago because of a stream of technological innovations.

Some of these technological innovations had an enormous impact and affected the whole of society (such as the steam engine, electricity, internal combustion engine or the computer). Others had a much more limited scope.

The large technological innovations create enormous amounts of wealth.

How is this wealth distributed? Is it spread widely through society or is it concentrated in a few individuals. Does it tend to increase inequality?  And what can be done to ensure its impact is benign?

This is a pressing question today as we are just in the early stages of the Fourth Industrial Revolution.

Many of the technologies under development – artificial intelligence, synthetic biology and robotics – can be expected to create great wealth.

The diagram below illustrates the Industrial Revolutions.  

Source: Neos Networks

Inequitable benefits from technological innovation

In Canada, real wages have increased by a factor of seven or eight in the last hundred years, and average life expectancy has gone from about 60 years to more than 80 years.

The average work week has declined from 50 to 55 hours in 1925 to 35 hours in 2024. The main driver of this has been technological innovation.

However, when new technology comes along the benefits arising from it can be distributed in several different ways.

The winners of the 2024 Nobel Prize in Economics – Daron Acemoglu and Simon Johnson, both at the Massachusetts Institute of Technology – give an excellent account of this in their recent book Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity.

They provide a number of historical examples where the benefits from new technologies were captured by a small elite and never benefitted the rest of the population, such as:

• The pyramids. In ancient Egypt the technology of grain production was improved by managing the annual flood of the Nile. The huge grain surpluses arising from this were captured by the elite (perhaps five percent of the population) and used to build the pyramids. These were gigantic construction projects employing a workforce of 25,000 people for around 20 years. The pyramids provided no material value to the other 95 percent of the population.
• Cathedrals. At the end of the 11^th century several new technologies were developed that greatly increased agricultural productivity. These included water-powered and wind-powered mills to grind grain, the loom, better horseshoes and the wheelbarrow. Most of the surplus was captured by the religious hierarchy, again about five percent of the population, and they used it to build cathedrals, monasteries and churches. The living standards of the rest of the population actually declined.
• Cotton. In 1793 in the U.S. south, Eli Whitney invented an improved cotton gin that removed the seeds from upland cotton. It was said to be 50 times as efficient as the previous technology. This greatly increased the demand for cotton and this meant an increase in demand for slave labour. Cotton production in the southern U.S. increased from 1.5 million pounds in 1790 to 167.5 million pounds by 1820. This greatly enriched the plantation owners, but the workers were pushed more deeply into exploitation.

In each of these cases the wealth created by new technology was taken by a small elite because of their coercive power and the rest of the population did not benefit at all.  The new technologies increased the already very high inequality in society.

The struggle to share benefits from technological innovation

As the First Industrial Revolution took hold things did not change. As Tufts University political science professor and author Michael Beckley, writing in Foreign Affairs, put it: “For the first 70 years of the Industrial Revolution in Great Britain, from 1770 to 1840, average wages stagnated and living standards declined, even as output per worker grew by nearly 50 percent. The gains from mass mechanization during this time were captured by tycoons, whose profit rates doubled.”

By the time of the Second Industrial Revolution – around 1870 – conditions had improved significantly. But this did not happen easily. It was the result of a protracted struggle between the people working in the factories and the factory owners.

Those in power realized that the new technologies were impoverishing a significant part of the population, and they wanted to head off the possibility of a revolution such as those occurring elsewhere in Europe.

By the 1870s about 75 percent of men in Britain had the vote, and trade unions were legalized in the U.K. in 1871, and in Canada in 1872. This  led to an improvement in wages and working conditions and a wider sharing of the benefits of new technology.

 Where do we stand in the 20^th century?

The graph below shows the share of the top one percent of income earners in total income. It is a rough measure of inequality and of how widely the benefits of new technology are shared among the population.

From the 1920s to the mid-1970s, income inequality declined steadily in both Canada and the U.S., largely due to high tax rates, enforcement of anti-trust laws and strong unions – indicating that the benefits of new technologies were being more widely shared in the population.

Starting around 1975, inequality began increasing, as a period of lower income and capital gains taxes, less government regulation, weaker unions and less enforcement of anti-trust laws started.  This situation has continued in the U.S. and looks likely to continue there. The richest people in the U.S. are the entrepreneurs who developed the new technologies (Elon Musk {X, SpaceX}; Jeff Bezos {Amazon}; Mark Zuckerberg {Meta}; Larry Ellison {Oracle Corporation}; Larry Page and Sergey Brin {Google}).

In Canada, wealth inequality declined after 2008 due to spending to offset the effects of the Great Recession, and to government re-distribution policies.

However, even in Canada, the richest 20 percent of Canadians owned 67.7 per cent of the country’s total wealth in the fourth quarter of 2023, an average of $3.3 million per household. Most of this wealth was held in financial assets.

In stark contrast, the bottom 40 per cent of households held only 2.7 percent of total wealth, an average of $67,038 per household.

The gap between the wealthiest 20 percent and the poorest 40 percent was 65 percentage points in the fourth quarter of 2023, an increase of 0.4 percentage points from the same quarter a year earlier.

The wealthy in Canada are likely to experience a greater share of the benefits from technological innovations, at least from the initial gains.

The wealthy have greater access to capital for investment in new technologies, more ability to leverage technology for business growth, and higher potential for increased returns on investments in technology-driven industries. 

Conclusion

Throughout most of history the benefits of new technology have been captured by a small elite who had coercive power.

This began to change during the Second Industrial Revolution as the benefits were shared more widely.

Today that trend has reversed and the world is on a trend that less of the benefits of new technology are shared widely and more is captured by a small elite, including the entrepreneurs who develop the new technologies and the wealthiest individuals.

Reversing that trend would require a major effort that would likely include measures such as higher taxes on the wealthiest, more collective bargaining and possibly a basic income.

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