It was a small thing and, to be honest, none of my business – and yet it made my blood boil.
I was in a queue at a train station ticket window. I didn’t have to be: these days you can buy train tickets online and collect them from a ticket machine. But not on this day. IT problems meant the machines weren’t working properly.
So when a man tried to collect his ticket, he couldn’t. Explaining this to the attendant at the ticket barrier, he was refused entry. He didn’t have a ticket, so he couldn’t come through, he was told. Mr. Exasperated displayed proof of his online purchase on his mobile phone. The attendant was not impressed: “I can’t let you through without a ticket and that’s not a ticket.” And so instead of joining his train, Mr. Exasperated had to join a queue.
And that’s what made by blood boil. Not the ‘sorry, not sorry’ attitude of the train company, but the fact that nineteen years into the 21st century, a mobile phone can’t be a train ticket. Well, it could be – we’re not talking about technology so advanced as to be “indistinguishable from magic” here. It’s the sort of user-friendly system that train companies could easily put in place if they wanted to. But when your customers can’t go anywhere else, why bother?
And that, in a microcosm, is why competition is good.
Or is it?
Is there anything Amazon can’t dominate?
In his book about entrepreneurship, Zero to One: Notes on Startups, or How to Build the Future, Peter Thiel argues that new enterprises should aim to become monopolies and that competition isn’t always healthy.
The book was published in 2014, but its influence has grown – especially in Thiel’s stamping ground, Silicon Valley. Indeed, it can be read as a justification of the monopolistic tendencies of big tech companies.
In that respect, Zero to One is among the most important books of our age. If you don’t have time to read it, there’s an in-depth review by Scott Alexander on the brilliant Slate Star Codex.
Let’s start with the kernel of Thiel’s argument:
“The title comes from Thiel’s metaphor that ordinary businessmen like restaurant owners take a product ‘from 1 to n’ (shouldn’t this be from n to n+1?) – they build more of something that already exists. But the greatest entrepreneurs bring something ‘from 0 to 1’ – they invent something that has never been seen before.”
What’s wrong with the ‘1 to n’ approach to business? New entrants to established markets provide more choice and more competition, which is good for us, isn’t?
“This was the promise of the classical economists: capitalism will optimize for consumer convenience, while keeping businesses themselves lean and hungry. And it was Marx’s warning: businesses will compete so viciously that nobody will get any money, and eventually even the capitalists themselves will long for something better.”
Those are the rival theories, but in practice competition isn’t always of the cut-throat variety. Even when they’re not forming actual cartels, most suppliers in the same market will try to avoid ultimately self-destructive tactics like full-on price wars.
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Thiel’s focus, however, is on escaping competition altogether by developing a product that can’t be copied by others. Instead of merely adding another version of something that already exists (i.e. going from 1 to n), Thiel’s advice is to create something that didn’t exist before (i.e. going from 0 to 1).
There are many ways of establishing monopoly. For instance, you can secure the rights to a ‘natural monopoly’ such as those enjoyed by train operating companies. Another is cartelisation – which one might regard as a shared monopoly.
Thiel’s interest is in creating markets not fixing them. And, according to Alexander, he mention four particular paths from zero to one: “proprietary technology”, “network effects”, “economies of scale,” and “branding”.
But whether a monopoly is created by fair means or foul, what’s to stop the monopolist from using that power against the public interest? Arguably that’s a question stemming from a glass half-empty view of the world, so here’s the glass half-full:
“Since it doesn’t have to worry about competing with anyone, it [the monopolist] has wider latitude to care about its workers, its products, and its impact on the wider world. Google’s motto — ‘Don’t be evil’ — is in part a branding ploy, but it’s also characteristic of a kind of business that’s successful enough to take ethics seriously without jeopardizing its own existence.”
In other words, the optimistic question is this: ‘free from the pressures of competition, why wouldn’t the monopolist use its power for the common good?’
Unfortunately, there’s a long list of answers to that one, but let’s stick to the most obvious: greed. Landlords hold the most natural monopoly of them all – and they use their position to extract as much money from the economy as the market will bear. The landlords of Silicon Valley are no exception – something lamented by a certain Peter Thiel.
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Admittedly, landlords did not create the product they monopolise, God did; and Thiel’s Zero to One argument concerns the monopolies created by genuine innovators.
However, that still leaves a number of counter-arguments. Here are three:
Firstly, the fact is that ‘1 to n’ – i.e. copying existing innovations – is an engine of global progress. Hundreds of millions of people have been lifted out of poverty across the developing world by local enterprises imitating, adapting and, on occasion, stealing innovations from more developed countries. If what you care about is achieving basic standards of nutrition, health, literacy and income, then the lesson of the last thirty years is that copying works.
Secondly, zero to one isn’t the whole story. Look a bit closer and you see that the starting point is often rather more than zero. The tech giants wouldn’t be where they are now without the internet and other key technologies – whose creators (including government agencies) chose to share. The giants shouldn’t guard their own monopolies so selfishly, not when they owe so much to others.
Thirdly, even if we assume a starting point of ‘zero’, we shouldn’t be so impressed by the achievement of getting to ‘one’ that we ignore the means by which the monopoly is maintained. If the monopolist uses its power and wealth to kill (or merely buy-out) the competition at birth then it is destructive, not creative.
Whatever the downsides of 1 to n, the opposite process – i.e. n to 1 – is much, much worse.