There are multiple aims driving change during the Age of Transformation. Dialling back inequality to create a more inclusive society is one of them and success would mean improved working conditions and better social prospects for all. Such an outcome would inevitably create a more prosperous economy and would lead to significant investment opportunities.
Technology is often seen an enabler of a more equal society. Not only has it revolutionised how we live every aspect of our daily lives, but it has become the biggest segment of the market in terms of valuation. The digital economy is estimated to be worth $11.5 trillion globally which is equivalent to 15.5% of global GDP and has grown two and a half times faster than global GDP over the past 15 years1 .
Technology-inspired disruption may be coming thick and fast, but are these changes positive for every part of society? Or is technology serving to increase social disparities? If so, is this something investors should consider?
A tech utopia…
To say that technology has changed our lives this century would be an understatement.
The smart phone has relieved us of having to carry around numerous heavy devices and provides us with access to the internet from almost anywhere. Its reach has also been broadened to encompass every social group and geographic region. Currently, more than 6.5 billion people use a smartphone, which translates to a staggering 83.9% of the world’s population2.
Number of smartphone users worldwide is growing including in emerging economies, where younger people are leading the way in smartphone ownership.
Social media has given a voice and a platform to otherwise marginalised groups and has led to social movements including #MeToo, Black Lives Matter and the Arab Spring. Cloud computing has empowered small and local businesses to compete with their larger peers, offering rapid business formation and expansion, and provided a platform to reach a much wider consumer base than otherwise offered by a bricks and mortar set up.
Augmented reality has enabled more surgeons to undertake complex medical procedures, as well as reduce operating times. And artificial intelligence played an integral role in the speedy research on Covid-19, as well as numerous other health innovations.
These are all areas where the advancement of technology has had an undoubtedly positive impact on everyone’s way of living.
…or a tech dystopia?
Yet, there has definitely been a darker aspect to the technological revolution of the 21st century.
The proliferation of smart phones – even in third world countries – has allowed technology companies to capture data on our every move. Not only has this data been used to monetise our information without our knowledge, but it has also resulted in data breaches and has been linked to the manipulation of users.
Algorithms – the instructions that underpin many digital tools – have been shown to have unfair biases (often racial and gender-orientated) or had inadvertent outcomes that have resulted in negative consequences. Social media has enabled the spread of fake news and misinformation, as well as providing a platform for hate speech and threatening behaviour. Authoritarian regimes have consistently demonstrated how digital tools can be used to survey and control the populace.
And rather than equalising society, wealth inequality has widened enormously during the last 20 years. While this can’t be directly attributed to technology itself, the entrepreneurs behind technology have certainly benefitted. Of the world’s 2,755 billionaires, 365 made their fortunes through technology and their collective net worth (at $2.5 trillion) far exceeds that of any other sector3.
Weighing the good versus the bad
In many tangible ways technology has delivered on its great promise of inclusivity. It has empowered emerging countries to catch up with their developed peers, offering greater access to education, health and information to populations that otherwise were previously being left behind.
Technology enables us all to have a voice. Not just relating to important social movements, but tech companies encourage us to review products and rate services. It also helps us save both money and time. Whether that’s through price comparisons, smart energy meters or just by making our lives simpler.
At the same time, technology has been tainted by its role in election tampering, surveillance and widening inequality. The major technology firms have been at the centre of debates around unfair trade practices, discrimination in the workplace and tax avoidance. Research has shown that the big six US technology firms paid just $219 billion in income tax over the past decade, that’s a mere 3.6% of their total revenue of over $6 trillion4.
So the question is whether these issues are the fault of technology itself or has it just been misused?
Time for regulation?
Of the many unanswerable questions surrounding technology and its potential for inclusive growth, how the industry can be regulated tops the list. Many of the world’s governments are currently implementing plans for greater governance of technology companies and digital platforms. Options for regulation include:
Anti-trust measures that could result in the breaking up of the big tech firms;
Limiting their ability to collect personal data, which could have a damaging effect on the value of these companies given many of their business models are based on monetising data;
Legal liability for the content hosted on tech platforms – are they distributors or publishers?
Changes in corporate tax policy – setting a minimum tax threshold so that tech firms can’t use low-tax jurisdiction of minimise their tax bills.
Unfortunately, none of these options has a neat solution. They would all involve trade-offs of some kind.
Balancing investment opportunities, risks and responsibilities
The struggle with trade-offs and principles also dovetails with the role of a conscientious investor. While we want to benefit from the growth potential of the technology sector, a responsible investor needs to consider the company practices from an Environmental, Social, and Governance (ESG) standpoint:
Are these companies promoting practices that care for the environment?
Are these companies protecting workers’ rights and eliminating discrimination?
Are these companies governed in a way that avoids exploitation
Embracing responsible tech
Whether you believe technology enables equality or not, it is an important sector in modern society that provides clear investment opportunity.
At BNP Paribas Asset Management we have made equality and inclusive growth a central tenet of our sustainable growth strategy. We believe technology provides a viable pathway to achieving this aim but recognise there are downsides as well as upsides to the tech explosion.
Our active management approach means our investment experts investigate technology opportunities. To us, research, transparency and engagement are the key tools to mitigating the risks posed by the technology sector. To achieve sustainable investment returns for our clients, we need to identify companies whose business models will benefit all stakeholders, including society as a whole.