Here’s How Economic Inequality Affects Innovation

May 25, 2016

2:00 pm

The existence of economic inequality in the United States is well-documented. Between an economics-focused presidential election and the release of the Panama Papers, the financial misdeeds of the upper echelon have been on display for the last few months. But how is this unequal division of finances affecting the tech world? As you might expect, it favors the super rich.

According to a recent study out of Harvard University, the increasing wealth of the top 1 percent of citizens has created an influx of luxury products on the market. As incomes have increased in the “$100,000 or more per year” bracket, businesses selling expensive consumer products have flooded retail websites and stores with the high price tag pieces. And before you bust out your magnifying glass to solve the case, the reason is quite obvious.

Ever wonder why trivial products are becoming so popular while necessary products are becoming obsolete? It’s because businesses are realizing that there is more money to be made by appealing to rich people than by catering to poor people. While the amount of wealth accumulated by the top 1 percent goes up, the market need for appealing to poor people goes down. Unfortunately, it’s that simple.

“It’s required us to think differently about our product portfolio and how to please the high-end and low-end markets,” said Melanie Healey, group president of P&G’s North America business. “That’s frankly where a lot of the growth is happening.

This data has much more implications than you might think. Because the market is being flooded with these luxury products marketed towards the super rich, the overall price of these items has gone down. Because of this, the average annual inflation rate for households making more than $100,000 a year was 0.65 percentage points lower than that for those making less than $30,000. As far as inflation rates are concerned, that’s a substantial difference.

This knowledge shows that economic inequality stretches much further than income differentials. While the vast gap between the lower income classes and the upper echelon have been deemed “significant,” this data shows that it’s actually a lot larger. With luxury prices dropping, 1 percenters are enjoying lower costs of living than ever before, furthering the economic inequality beyond numbers we can’t even calculate.

Yes, there are startups out there trying to make the world a better place. Yes, there are founders committed to social good rather than the bottom line. But more and more common is the CEO looking to make a quick buck. More and more often do we see employees getting the shaft while founders reap the benefits. And while they sit in their ivory towers making decisions that affect how much food costs, businesses are forced to appeal to them in order to make ends meet.

Until we take a stand and demand professional actions that benefit the population rather than their wallets, the people in charge aren’t going to change the way they do things. Particularly when economic inequality is so “good for business.”

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Conor is a writer, comedian and world-renowned sweetheart. As the Assistant Editor and Writer at Tech.Co, he’s written about everything from Kickstarter campaigns and budding startups to tech titans and innovative technologies. His background in stand-up comedy made him the perfect person to host Startup Night at SXSW and the Funding Q&A at Innovate! and Celebrate, posing questions to notable tech minds from around the world. In his spare time, he thinks about how to properly pronounce the word "colloquially." Conor is the Assistant Editor and Writer at Tech.Co. You can email him at conor@tech.co.

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