Inequality in the Information Society

Abstract

Information and communication technologies (ICTs) have enabled tremendous innovation and contributed to economic growth. Co-evolving with the opening of national economies to international trade and the liberalization of infrastructure and services markets, ICTs have helped lifting millions of individuals and families in low income countries out of poverty. For the first time since the beginning of the industrial revolution the global gap between average national incomes is shrinking. Increasing connectivity and Internet use therefore have become high-priority goals of policy-makers worldwide. Yet the past decades have also revealed dynamics of the digital economy that aggravate income disparities, such as rapidly increasing industry concentration, winner-takes-all effects, and skills-biased technological change. While these effects are present worldwide they seem to be affecting individuals in high-income countries more strongly. A clear understanding of the full range and incidence of positive and negative effects of global connectivity is necessary to harness the benefits of the Internet for society at large. Researchers and other stakeholders have recognized some of these ambiguities and contradictions but the discussion thus far largely unfolds in disconnected communities of optimists and pessimists. This paper seeks to overcome this chasm by developing a theoretically and empirically grounded approach focusing on the multi-faceted relationships between ICTs and income distribution. A key insight is that, with regard to income inequality, the laissez-faire spirit driving the Internet and advanced ICTs is insufficient to broadly realize the promises of the information society. Additional attention needs to be paid to the broader social and political conditions of technology deployment and use to help mitigate some of the challenges identified in the paper.

Keywords: ICT, Internet, inequality, globalization, digital innovation, winner-takes-all effects, productivity

JEL Classification: O33, O38, L86