From Huffington Post
The most popular explanation for the sharp rise in inequality over the last four decades is technology. The story goes that technology has increased the demand for sophisticated skills while undercutting the demand for routine manual labor.
This view has the advantage over competing explanations, like trade policy and labor market policy, that it can be seen as something that happened independent of policy. If trade policy or labor market policy explain the transfer of income from ordinary worker to shareholders and the most highly skilled, then it implies inequality was policy driven, it is the result of conscious decisions by those in power. By contrast, if technology was the culprit, we can still feel bad about inequality, but it was something that happened, not something we did.
That view may be comforting for the beneficiaries of rising inequality, but it doesn't make much sense. While the development of technology may to some extent have its own logic, the distribution of the benefits from technology is determined by policy. Most importantly, who gets the benefits of technology depends in a very fundamental way on our policy on patents, copyrights, and other forms of intellectual property.
To make this point clear, consider how much money Bill Gates, the world's richest person, would have if Windows and other Microsoft software didn't enjoy patent or copyright protection. This would mean that anyone anywhere in the world could install this software on their computer, and make millions of copies, without sending Bill Gates a penny. As a smart and ambitious person from a wealthy family, Bill Gates would probably still be doing fine in this world, but he would most likely not be among the super-rich. In fact, he would probably still be working for a living.
The argument for intellectual property is well-known. The government grants individuals and corporations monopolies for a period of time, which allow them to charge well above the free market price for the items on which they have a patent or copyright. This monopoly gives them an incentive to innovate and do creative work.
Of course this is not the only way to provide this incentive. For example, the government can and does pay for much research directly. We spend over $30 billion a year on bio-medical research through the National Institutes of Health. Various government departments and agencies finance tens of billions of research each year in a wide variety of areas. In fact, it was Defense Department research that developed the Internet and also Unix, the program that was the basis for Dos, Microsoft's original operating system.
The government also directly or indirectly supports a large amount of creative and artistic work. The National Endowment for the Arts and Humanities capture headlines as political targets for the right, but in fact much more work is supported through the tax deduction for charitable contributions, which cover 40 cents on the dollar that wealthy people donate to orchestras, theaters, art museums, and other non-profit institutions that support the arts.