The Digital Divide and Increasing Returns: Contradictions of Informational Capitalism

Abstract The far-reaching advances in information and communications technologies (ICTs) in tandem with the globalization of trade, investment, business regulation, production, and consumption have signaled the rise of "informational capitalism." This article reflects on the social and economic inequalities of informational capitalism by examining two contradictions of ICTs-led economic development—increasing returns and the digital divide. Two main and interrelated strands of evidence are presented: First, contrary to expectations that rising income per capita will tend to reduce wealth and wage disparities, the distribution of income and wealth both between countries and individuals has sharply skewed in the information age; second, knowledge production is a self-reinforcing cycle that tends to disproportionately reward some and exclude others. The so-called digital divide is as much a symptom and a cause of these broader techno-economic phenomena, and regarding it as a simple issue of connectivity is simplistic and reductive. Keywords: digital divideglobalizationincome inequalityincreasing returnsinformational capitalisminternational division of laborknowledge economy ACKNOWLEDGMENTS Thanks are due to Anthony D'Costa, T. T. Sreekumar, and Gui Kai Chong for their critical and useful comments on earlier versions of this article. I am also grateful to two anonymous referees and the editors of The Information Society, Harmeet Sawhney and the late Rob Kling, for their thorough and critical comments on this article. I have tried my best to incorporate their suggestions and views, but I take ownership of any remaining errors and interpretations of information age empirical trends and evidence. Notes 1The digital divide is one of the most misunderstood and misused concepts in the mushrooming discourse on information society. Since the literature on the digital divide is vast, no theoretical discussion of the concept is carried out in this article. However, it may be pertinent to note that the very idea of a digital divide has been progressively constructed into a growth industry by both digital utopians and dystopians. A simple web search can unearth a veritable dot-com industry on the digital divide. A Google web search of the term "digital divide" provided 774,000 hits on19 October 2002, 871,000 hits on 11 February 2003, and 1,960,000 hits on 17 November 2003. There has evolved a huge digital philanthropic enterprise in the past decade or so, with its headquarters in the United States, to transform the digital divide issues into "digital dividends." Smith Citation(2002) identifies this initiative as "digital corporate citizenship." 2According to Brian Loader Citation(1998), this is precisely due to many information society analysts' proclivity to view technological development as apolitical and outside the purview of political economy. Mark Poster Citation(1997) also questions the modernist attitude to view the Internet like a "hammer," a mere material configuration to do some simple tasks. One must view it, he argues, like "Germany," a socially and politically mediated complex space, rather than as a "hammer," a thing without agency (although human agency is involved in constructing a hammer). 3I am cognizant of the fact that capital is not cheap in developing countries visnoexpandà-vis developed countries due to higher rental cost consequent to higher real interest rate in the former. The plant cost (part of fixed cost) in developing countries is lower due to the availability of cheaper building materials, land, transportation cost, and so on. Also, sophisticated plant machineries are still sourced and procured overseas for local manufacturing. 4The rise of "free trade" on a global scale with the rise of the World Trade Organization (WTO) on the global stage in the 1990s is an important event here. The establishment of the WTO saw the strengthening and globalization of the intellectual property rights (IPR) regime through the implementation of such legal instruments as Trade-Related Intellectual Property Rights (TRIPS) and General Agreement on Trade in Services (GATS). For more on the WTO and the ratcheting up of IPR, see Drahos with Braithwaite Citation(2002). The nature of the manufacturing arrangement after the globalization of production took many forms, such as the original equipment manufacture (OEM) contract, whereby the developing country firm would assemble ICTs (such as computers or telecom equipment) for foreign multinational corporations (MNCs) and sell these under the MNCs' original brand names. 5It is not implied that "knowledge workers" is a homogeneous category. There are different kinds of work involved in the knowledge economy and all are not paid equally well. While on the low end software-code and data-entry and call-center workers are paid low wages, on the high end software engineers, programmers, and chip designers are paid disproportionately higher wages. Call-center work is compared to sweatshop work in term of its long hours and poor work and wage conditions. 6The bursting of the dot-com bubble and the consequent decline in the fortunes of many "silicon snake-oil" (Stoll, Citation1995) peddlers should be seen as one of the many contradictory acts of informational capitalism. 7As mentioned earlier, Kuznets Citation(1955) hypothesized an inverse relationship (U-shaped) between income inequality and per capita GDP. 8Faced with conflicting empirical evidence, Picketty and Saez are trying to save Kuznets's theory (its relevance beyond 1970s) by inventing an ad hoc hypothesis of the U-curve doubling on itself, a tendency called "saving the phenomenon" (which actually means saving a theory under threat due to inconsistent empirical data) in the philosophy of science. Here is a classic example of saving the phenomenon. Faced with the negative evidence of weight gain when materials were burnt, the supporters of the phlogiston theory of combustion put forward the ad hoc hypothesis (to support their beleaguered theory) that phlogiston had negative weight, an ingenious but improbable claim. In fat, the weight gain was caused by the combining of oxygen with the material that was heated or burned. This paradigm shift from the phlogiston theory of combustion to the oxidation theory of combustion is called the great chemical revolution of the late 18th century, which Kuhn Citation(1970) cites to support his theory of scientific change. For a sophisticated/protect discussion of ad hoc hypothesis and saving the phenomena, see Hempel Citation(1965). a For Sub-Saharan Africa. a For Sub-Saharan Africa. 9It is important to point out that historically, extreme inequality existed in countries such as Brazil, Mexico, China, and India due to skewed distribution of land and other productive assets. But land reforms (in China and parts of India, in states like Kerala and Bengal), industrialization, and modernization had allowed some from the ranks of the poor to escape semi-feudal living conditions in the rural/agrarian sector. 10Biased technological change means the change in the production function due to changes in the relative price of the factors of production (capital and labor). Biased technological change can be either labor-saving or capital-saving, depending upon the changes in the marginal rate of technical substitution of labor or capital for each other. Skill-biased technological change means learning investments required by new capital equipment (such as computers) are greater than required for current machines in operation (Caselli, Citation1999). Skill-biased technological change due to the information revolution reallocates capital from slow- to fast-learning workers (Caselli, Citation1999). Biased technological change also leads to the substitution of labor with capital with declining capital costs due to advances in ICTs (inverse relationship between the price of computing power and technological change attributed to Moore's law among others). 11We must note that most of the wealth and income accrued to the owners of the feudal estates as land rent. The number of people in the "knowledge" class was very low compared to the serfs who lived in abject poverty and deprivation. The "knowledge class" was patronized by the landed aristocracy as the serfs were largely incapable or not allowed to seek the services of the knowledge class. I make no claim that this ratio was the same for all feudal societies. What is claimed is that on a global scale, the average of this ratio would be about 1:100. It may have been lower in European feudal societies while higher in China. Although wage differential during feudal times may be difficult to compute, a proxy can be found in the distribution of wealth between the rich and the poor segments (e.g., the top and bottom deciles) in historical terms. For works on income and wealth distribution and studies on standard of living through the ages, see Burnette and Mokyr Citation(1995), Lindert and Williamson Citation(1995), Mokyr Citation(1990), Maddison (Citation1982, Citation2001, Citation2003), and Brenner et al. Citation(1991). 12This is despite the caveat of the Kuznets curve in income distribution during the industrial era. What is important to note here is that the average income inequality across time between feudalism and industrialism would make the former more unequal than the latter. 13This harrowing phase of British industrialism was eloquently portrayed by Dickens in his numerous neo-realist novels and Marx in his many political economy tracts on industrial capitalism. 14Again, this ratio is a global average. The United States, which did not have a feudal past but only an agrarian past when industrialization took off, was much more egalitarian than imperial Britain. However, with social democracy making headway in England and other European nations, income inequality declined there in absolute and relative terms. The income differential may have been as low as 1:5 in some countries, while it could have been 1:20 in others. The claim of the global ratio of 1:10 should be taken as an average reference point of departure to compare with the past and the present (and the future of knowledge society?). For excellent studies on income inequality and wage differentials since the industrial revolution in the United States, England, and other European countries, see Brenner et al. Citation(1991), and Lindert and Williamson Citation(1995). For other parts of the world, including the West, see Maddison (1982, 2001, 2003) and Burnette and Mokyr Citation(1995). 15This is an improbable mathematical expression because it implies the absolute income of the knowledge class to be infinity (1/0 = ∞). The binary symbolism highlights the sharp contrast in income rather than the real income. 16Arthur Citation(1998) describes the unimaginable wealth created by high-technology industries due to increasing returns as akin to casino gambling. Frank and Cook Citation(1995) vividly describe the growth of "winner-take-all markets" in the United States since the onset of informational capitalism nearly two decades ago. 17This was because most of the central tenets of economics are still based on nineteenth century physics which was again based on Newtonian mechanics. Economic theories are also seen through the lens of entropy law (second law of thermodynamics). Although there were a series of paradigm shift in physics—from Newtonian mechanics to Einsteinian relativity to quantum mechanics and chaos and complexity theories—economists seem to be oblivious to these fundamental shifts. Economics is more of a behavioral social science that is more amenable to chaos and complexity theories than to the laws of physical nature. 18Plotting IP protection rate on the horizontal axis and welfare on the vertical axis will yield an inverted semicircular curve. The ideal state of IP protection that yields maximum welfare will be in the top middle of the curve. Regions on the extreme left of the curve will lead to free-riding and low welfare, and regions on the extreme right will lead to rent-seeking and low welfare.