Big Money: Is the internet destroying the middle class?

Ever heard of the term ‘virtual reality’? The guy who came up with it is Jaron Lanier, who in 1985 was involved in VPL Research, the first company to sell ‘virtual reality’ goggles and gloves.

Lanier is no Luddite. He’s worked with Microsoft and Linden Labs, he’s a visiting scholar at several universities, and he’s seen and been involved with plenty of the key developments in the internet.

But for someone from a technology background, Lanier is deeply sceptical of many of the changes being brought about by the internet. In his new book, Who Owns The Future, he makes a terrifying prediction.

He says the internet is destroying the middle class. This is because, supposedly, the high-volume, low-margin businesses making a killing online are largely automated, and have no need of any but the most skilled technicians and the cheapest grunt labour.

In the book’s introduction, he compares Kodak and Instagram. At the height of its power, Kodak employed 140,000 people. But today, Kodak is bankrupt, while Instagram, the new face of digital photography, recently sold for $1 billion. In 2012, Instagram employed 13 people.

Where did the jobs go? Many of them, Lanier concludes, have disappeared, and it’s foolhardy to assume they’ll come back.

Lanier’s comparison of Kodak with Instagram isn’t perfect. Instagram doesn’t make cameras. The companies that do still employ thousands.

But Lanier isn’t the only one to point to the internet as the destroyer of our comfortable, middle-class aspirations.

Earlier in the year, journalist and novelist Jon Evans wrote on Tech Crunch that everyone should get ready to lose their job. In the technology press, it’s not an altogether uncommon view.

There’s some statistical support for it. In America, the Pew Research Centre has been charting the spread of incomes for decades. Their figures show that the wealthiest and the poorest are becoming more numerous. The American middle class in 2011 comprised 51% of the American population – down from 61% in 1971.

If the pessimists are right, and the 20th-century growth of the middle class was largely an aberration, this will have consequences for all businesses. Countless SMEs specialise in goods sold to the middle class. And our economy as a whole very much relies on consumer demand, which in turn relies on middle-class consumers earning enough money to be spending on more than the necessities.

Do I think the middle class is going to be destroyed?

There’s undeniable logic to Lanier’s argument. But there’s an equally persuasive rebuttal.

Since the industrial revolution, industries have been declining and others rising. When Australia was founded, most of us worked on the land. Now only a fraction of Australians do. But the rest of us aren’t unemployed. We’ve found other jobs, most of which didn’t exist 200 years ago.

To boot, most Australians work in service industries, which are less vulnerable to being mechanised.

Seen through broader historical lenses, the changes wrought by the internet are just a matter of degree. The speed of the change may be new, but the change itself is not. And there’s always been a countervailing force to creative destruction – the rise of new industries and new jobs to replace those lost through technological innovation. I can’t see why this won’t work in the future as well as it has in the past.