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CHAPTER IV - Shifts of Power, Wealth and Voice

The arrival of networking technologies in urban life has been alarming to many Mayors, political parties and city officials because these systems tend to disrupt the status quo and at times ignore city protections for their citizens. Familiar governmental procedures, stable political arrangements and insular institutional cultures can all be put at risk by open data systems and tech-empowered citizen participation. Treating the “city as platform” can catalyze structural shifts of power, wealth and voice within an urban region.

“The ownership of civic conversations is changing,” said Ryan Panchadsaram, the Deputy U.S. Chief Technology Officer. “That is disrupting things, making many folks feel uncomfortable. I think that’s actually a really good thing.” One reason that it is good, he explained, is that it opens the door for healthy new forms of citizen engagement. Network-based systems are more hospitable to citizen participation, said Panchadsaram, because the “architecture of participation”—to use Tim O’Reilly’s term—is open and modular. This may be one of the key drivers of structural change.

As O’Reilly explained in a 2014 blog post on this topic, open source software projects have been able to build large development communities because “they have a modular architecture that allows easy participation by independent or loosely coordinated developers…. The Web, however, took the idea of participation to a new level because it opened that participation, not just to software developers, but to all users of the system.”

Following this logic, city governments can leverage the power of open participation as seen on the Web and in open source communities by devising standard, interoperable systems that enable sufficiently small and accessible “units of participation.” O’Reilly writes, “Modularity depends on standards—formal or informal expectations about behavior and interfaces—and interoperability. To take an example that is not from software, consider that our most competitive, participatory industries all feature devices made from standardized parts. Whether you are talking automobiles, personal computers or cell phones, a rich ecosystem of suppliers is possible only because we agreed that the threads on bolts and nuts should be a certain size that electronic parts should be interchangeable, and that complex, custom assemblies should be kept to a minimum.

This is precisely why so many aspects of government remain inaccessible to ordinary citizens—and detrimental to democracy: the “units of participation” are too large and complex. O’Reilly writes: “When a bill is tens of pages long (consider, for example, the Federal Aid Highway Act of 1956, which established the U.S. interstate highway system, at 29 pages) anyone can read and understand it. When it is 906 pages long (like the Affordable Care Act), few people—including the legislators who vote on it—are likely to fully grasp it, and it ends up being shaped by a small cadre of very knowledgeable insiders and lobbyists who have strong economic interests in the outcome.”

Jennifer Pahlka of Code for America told a story of how the City of Philadelphia took steps to make it more feasible for people in housing projects to participate in policy dialogues about housing programs, and how this opened up a new dialogue. Lower-income citizens were thrilled to have their opinions heard, but many homeowners were distressed that their voices no longer dominated the political agenda. Similar shifts are likely, as network systems bring new voices into public life.

The city as an open-source platform may be disruptive in the short-term, and it will certainly entail new complexities. But it is also a force for rejuvenating civic life and democratic participation, and ultimately, spurring better, more equitable government performance. Instead of connected insiders driving the priorities of city programs, said Benjamin de la Peña, in coming decades we are likely to see the rise of social movements whose “local networks will be telling government what they want. That is democracy.”

The Role of Technology in Economic Inequality
One of the most important purposes of treating a city-as-platform is to spur economic growth, productivity and jobs. But an abiding question is whether tech systems indeed have a deleterious opposite effect, at least on substantial segments of the urban population. Do new digital technologies foster greater inequality? If so, how might tech policies be changed to foster greater opportunity and more equal outcomes?

This topic was addressed in a short presentation by Tessie Guillermo, President and Chief Executive Officer of ZeroDivide, a San Francisco advocacy group that leverages technology to accelerate social change in underserved communities. She started by noting that the “social contract” that has given middle class Americans job and income security is being shattered by a confluence of factors. These include the “sharing economy, the increasing numbers of non-employee contracted outsourced workers, the gap between business and asset owners and operators, the cult of big data, and the technologies that enable this confluence.”

This topic was extensively covered by a 2013 Aspen Institute report, “The Power Curve Society: The Future of Innovation, Opportunity and Society Equity in the Emerging Networked Economy.” The report notes:

Although the new technologies are clearly driving economic growth and higher productivity, the distribution of these benefits is skewed in worrisome ways. Wealth and income distribution no longer resemble a familiar “bell curve” in which the bulk of the wealth accrue to a large middle class. Instead, the networked economy seems to be producing a “power-curve” distribution, sometimes known as a “winner-take-all” economy. A relative few players tend to excel and reap disproportionate benefits while the great mass of the population scrambles for lower-paid, lower-skilled jobs, if they can be found at all. Economic and social insecurity is widespread.

To give this trend a personal dimension, Guillermo gave a personal history:

My immigrant, working-poor parents became property owners and raised seven children in the 1960s in San Francisco, but fifty years later their third-generation grandchildren, my daughter, and her partner, live in a one-bedroom apartment while raising two of their own children. They pay in real terms anywhere from five to ten times what my parents paid on their 30-year monthly mortgage, and cannot afford or find a private alternative to one of the lowest-performing urban public school systems in the country, even though both of them are college educated and employed, one in the tech sector, ironically, and the other owning her own small business.

In trying to explain this social reality, Guillermo noted that “income inequality is fueled by disparities in skills and education, many of which in today’s economy are explicitly tech-related. The people and institutions who benefit the most are those with the expertise and creativity to adopt and use technological innovations—and that drives income inequality. The demand for highly skilled workers rises, while workers with less education and expertise fall behind.”

The inequality gap can be self-reinforcing, especially among those who cannot afford access to the Internet and smartphones. Guillermo continued, “Twenty percent of Black adults, 17 percent of Hispanic adults and 25 percent of households making less than $30,000 do not use the Internet. So data-driven smart cities, in the name of efficiency, have the potential to widen the gap between the haves and have-nots.”

A key issue, then, is “who owns, collects, analyzes and productizes the data to support and lift these [lower-income] people up,” said Guillermo. Much of the data generated by people using the Internet and smartphones accrues to private companies for private gain and not for the general good.

From a jobs perspective, we are experiencing a shift—due to sensors, cloud technology and digital social networks—from a situation in which people were once paid for their labor and productivity, to a product development process that is now done with free and willing labor participation. The sharing economy is making it so that the employer/platform owners have no obligation to provide the benefits, safety and longevity that traditional employment once did.

This is where policy comes in. The issue of jobs and work cannot be solved in the marketplace alone. How can cities “realize the promise of inclusive innovation?” asked Guillermo. She noted that her organization, ZeroDivide, which has dealt with digital equity issues for 17 years, is shifting its focus from technology demand and adoption to basic Internet access, content creation, data tools and product development. She cited the many nonprofits and social enterprises that are actually developing the capacity to collect, analyze and own their own data from the services that they deliver. Developing greater digital literacy among disadvantaged groups of citizens is a key challenge, Guillermo said.

New Frontiers of Automation and Its Impact on Jobs
Conference participants agreed that there are many troubling, inexorable structural changes in the economy, many of them driven by new technologies. The changing nature of work is well-illustrated by the comment made by entrepreneur Robin Chase who, in a prior Aspen Institute conference, noted that a friend’s father had one job in his life; she would have seven jobs in her life; and her child will have seven jobs at one time. An economy that increasingly relies upon huge pools of freelance workers with multiple jobs and multitasking workdays is raising profound new questions for government and policy. How should social services should be structured? How should job-creation and inequality be addressed?

Stefaan Verhulst, Cofounder of the GovLab at NYU, suggested that we may need “a wholesale rethinking of what a job might be, and explore to what extent a minimum income is needed.” There are many ways that this might be addressed, he said, ranging from the kinds of basic income ideas often proposed in European countries to apps such as one called Even, which helps individual freelance workers with irregular paychecks to smooth out volatile swings in their income.

Another approach is for cities to develop new sorts of economic development models that can generate more jobs. Verhulst suggested two interesting ideas: an open-data system that could provide market intelligence to small and medium-sized enterprises (SMEs) and micro-enterprises, helping them to compete against larger corporations. Another idea is for cities to provide a “co-location model” that provides SMEs with a kind of headquarters that can help them develop export markets for their products and services.

However beneficial such approaches, the larger secular trends in the economy may simply swamp such strategies, suggested Benjamin de la Pena of the Knight Foundation. He cited a recent article journalist Scott Santens on the website Medium, which assesses the likely economic impact of self-driving vehicle technologies. The first fully autonomous self-driving truck was successfully tested in Nevada in May 2015, and analysts such as Morgan Stanley predict that there will be completely autonomous truck capability by 2022 followed by massive market penetration by 2026. This development could have a devastating impact on the estimated 3.5 million truck drivers in the U.S. and another 5.2 million non-drivers who are employed by the trucking industry. Combined with the hotels, restaurants and other businesses that depend upon truck drivers, journalist Santens concludes that, “we are facing the decimation of entire small town economies, a disruption the likes of which we haven’t seen since the construction of the interstate highway system itself bypassed entire towns.

This general automation trend is playing out in many new frontiers today, from the outsourcing of white-collar work to cheaper labor in India, to the automation of supermarket cashiers and flight check-in. “The Port of Norfolk, Virginia, used to employ 3,000 people,” said Steven Adler of IBM. “Today the whole port is run by 100 people. Distribution centers around the country are run by just ten people. Robots move pallets around, with the whole warehouse run by a computer screen and a mouse. We are on the verge of eliminating huge numbers of blue-collar jobs that will never come back.”

The Indispensable Role of Government and Policy
There was general agreement among participants that markets left to their own devices are not likely to address the problems of job loss, inequality and insecurity. For that, government and policy will be indispensable. “There are many things that only government is going to provide over the long term,” said Susan Crawford, a law professor at Harvard Law School and a co-director of the Berkman Center for Internet & Society, “and in order to be effective, government must be visibly doing a good job.” She added that government stands alone in its capacity to assure that everyone’s baseline needs for education, health, transport, clean water, electricity and social insurance are met, “I think we can stipulate that the market will not provide these,” Crawford said. “Government is essential for providing the basic, long-term things that no private sector actors want to provide.” Or as one participant noted, “There’s really no market for taking care of poor people’s children.”

But however useful this line of thinking, it is also true that government cannot meet these needs alone; increasingly, cross-sector partnerships are needed, said Jay Nath of the Office of San Francisco’s Mayor Edwin M. Lee. This will require a new sort of leadership to mobilize diverse factions to rally behind a new vision. Or as business columnist Eduardo Porter wrote in The New York Times: “Success won’t hinge on a list of proposals. It will require reshaping entrenched political positions, and convincing solid majorities of voters of the vital role of government in their lives.”

Government will face another tension—how to deal effectively with inequality and social needs without jettisoning its traditional economic development goals. Can this be achieved? Some conference participants hailed the capacity of current markets to provide greater job flexibility and choice, while others regard that as a race to the bottom that threatens people’s basic needs and desire for security.

“The power curve exists in pretty much every domain of the economy, and as such, I don’t think we can complain about it,” said Jacques Bughin of McKinsey & Company. “It’s a fact of life.” In Europe and Asia, he said, smart cities are actually driving the inequalities of the power-curve by creating more white-collar and service jobs, and not blue-collar, manufacturing jobs.

Many conference participants agreed that social equity and income security will only grow more important in coming years, and that some forms of redistribution may be necessary. “This is ultimately a question of what kind of culture and society do we want to live in,” said Sara Horowitz, Founder and Executive Director of the Freelance Union. “We really need to have that kind of conversation. We keep expecting everything, including nonprofits, to function like free markets, as if aligning supply and demand and reaching some optimum will solve the problem. We know that that just isn’t true because we’re seeing all of these market choices being made in the midst of massive income inequality.” Horowitz called for the creation of “a social sector” that could have new sources of capitalization and support—a role that other participants suggested could be significantly augmented by philanthropy.

So much of the distortion of market outcomes stem from the “financialization of markets,” said Tim O’Reilly, in which hedge funds, speculators and other capital investors interfere with the “real economy” of production and services. The solution, he suggested, will come from policy interventions, particularly in changing how government taxes labor more than capital. We do not need tax breaks for financial deals that serve only to drive up stock prices without improving corporate performance.

A number of participants noted that many successful companies in the gig economy are in effect free riders who are shirking the historic “social provisioning” obligations of employers. Jennifer Bradley of the Aspen Institute Center for Urban Innovation said that “Uber’s business model is based on free-riding because it does not necessarily pay for the benefits of its drivers by making them employees. If such companies had to pay their share of the public provision,” she said, “we could capture some of that value and put it back into social systems like health insurance and vacation benefits. There is unquestionably a role for government here, and I think that we need a new sort of regulatory framework to get there.”

Conceptually, many participants agreed that new sorts of pooled mutualization of benefits, perhaps under the auspices of government, could work. The trick would be to meet both the legitimate social needs of individual workers while respecting the economic and innovative virtues of the gig economy. Tim O’Reilly cautioned against “throwing away all the things that are positive” with Uber and other network-based enterprises. There was agreement with this, but also a response: So how, then, do we provide social benefits such as health insurance, vacation time and unemployment compensation? How do we deal with (what some regard as) the free-rider problem?

This remains an unanswered question, but Sara Horowitz of the Freelancers Union believes that we should move away from a conversation about specific companies to the larger question: How to provide reliable, universal social benefits at a time when employers are shedding that historic role?

Horowitz suggested that the social sector could become a “holding vessel” for social benefits, perhaps in collaboration with government. Instead of traditional New Deal approaches, one could devise massive open platforms and APIs as a vehicle for mutualizing social benefits in decentralized ways, without benefits being tethered to a single employer.

This is more or less how the Danish social welfare system functions, said Steven Adler of IBM. He explained that Demark has taken all social benefit payments from employers off the government balance sheet. All employers pay a wide array of social benefits (health insurance, unemployment, vacation benefits, maternity leave, even severance pay) into the universal system. Funds are administered by a publicly listed, privately owned insurance company, ATP, which is 49 percent owned by the Danish government. Because workers have no fears about losing social benefits, Denmark has the highest labor mobility rates in Europe, said Adler. “It is a remarkable country that has figured out how to balance a socialistic economy with a free market system.”

Adler proposed that cities consider trying to devise social support systems on their own. After all, they already provide a wide variety of social services. Why not unemployment insurance or maternity leave? But others were skeptical. “Quite frankly, cities don’t have the tax base for something like this,” said Peter Marx of the City of Los Angeles. It was pointed out, as well, that even large cities like L.A. do not have a large enough risk pool to develop such forms of social insurance.

Yet there are things that cities could experiment with, said Benjamin de la Peña. To challenge large employers who deliberately take six months to pay freelancers for their work, for example, cities could require that contractors be paid within thirty days. The social sector itself has extensive expertise that could be used in partnerships with city governments to come up with better, financially feasible approaches, said Tessie Guillermo of ZeroDivide. Yet another source of help could be the maker movement, said Peter Hirshberg, which has plenty of civic commitment and innovative ideas.

Horowitz believes that the real force for galvanizing action against inequality will be moral opinion. Citing Pope Francis’ encyclical on climate change as a model, she thinks that a new politics will emerge from new moral framings of issues that focus on elemental human realities like “love and work.” Just as fights against child labor were not merely economic or practical issues, she said, “The new political realignments are really going to revolve around questions of morality. I do not think this is a crisis of creativity.”

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