How Big Tech's rise fuels income inequality

The explosion of technology in every facet of life is a big reason that the rich are getting richer, and the big are getting bigger.

Why it matters: The result could be more income inequality, and the creation of vast amounts of wealth, but without corresponding broad prosperity. This, in turn, causes political and social instability.

• Scary thought: The situation is on track to get worse, because artificial intelligence will make the internet look like the Apple II.

How we got here: The idea of disruption is that technology enables small, nimble companies to supplant lumbering old giants.

• But the pre-internet giants — Microsoft, Intel, IBM — are all doing very well.
• And the ability of those giants to spend enormously on technology has helped them maintain their dominance. The more data they get, the more powerful and valuable they become.

Advocates for Big Tech argue that it democratizes — that code is a meritorious equalizer.

• Facebook was built without institutional knowledge or legacy backing.
• Google, too. Ditto Amazon. And Uber.
• Thanks to the cloud, you can build a better mousetrap without tons of cash.

The harsh reality behind Big Tech's power consolidation is clear in these five trends, reported by Axios’ Sara Fischer, Ina Fried, Steve LeVine, Dan Primack, Scott Rosenberg and Felix Salmon:

1. Data begets data, and that begets power.

• Today's giants have a big leg up on the next wave of tech: Prediction engines built on machine learning are entirely dependent on gobs and gobs of data.
• In the past, you could usurp incumbents by fundamentally improving on a core technology. Think Google in search, Apple in phones.

2. Size begets more heft and dollars.

• Big Tech buys up the best AI, quantum, robotics, driverless car tech, and other talent for the industries of the future.
• The very biggest companies — Microsoft, Google, Facebook, along with their Chinese rivals Baidu and Alibaba — are poised to run away with AI.
• When a startup does come up with a brilliant new idea, Big Tech often buys the upstart. If the startup won't sell, Big Tech copies the idea.

3. Automation screws a lot of workers.

• Companies want profits and greater efficiencies so they replace people with machines. The company gets bigger, the person creating the tech gets richer; the worker often gets shafted. Again, AI probably makes this worse, not better.

• AI and machine learning are poised to replace humans in many tasks in knowledge work, including some functions now performed by lawyers, paralegals and radiologists.
• Tech also creates new jobs — we have plenty of occupations that didn't exist 30 years ago. The question is how long and deep the in-between chasm is.

4. Algorithms favor the fortunate in big business.

• The well-connected get tips on lucrative deals. And use (or benefit from) algorithms to get better returns on their investments.
• They also hold the tech stocks rising fastest in values.

5. Tech is also making big, bigger in media.

• Yes, Google and Facebook ate a lot of media revenue.
• But the major media players have the resources to take bigger risks, innovate faster and develop more strategic relationships with the tech platforms.
• Those relationships help them get ahead of product or algorithm changes before they get crushed by them — like the new smaller players do.

Be smart: Optimists point out that the tech pendulum has always swung from concentrations of centralized power to periods of decentralizing breakthroughs. But so far that’s mostly swinging wealth and power to the wealthy and powerful.

Go deeper: A new form of American capitalism