Big tech’s tipping point
The largest companies in the world used to be banks and oil giants. Now Big Tech rules. Google, Facebook, Amazon, Apple, Microsoft are the largest corporations on the planet. These monsters represent the growing digitisation of the entire global economy. They have power over ever larger areas of our lives with every passing year. But last year, their seemingly unstoppable march faltered. And we have a chance to consider how much we really want this handful of huge corporations running “the new everything” with their mega-corporate gatekeepers knowing our every move.
Nigel Cameron explores how we got to the tech tipping point – and considers how we could tame the tech titans.
The boy wonders of the 1990s and early 2000s are growing up – along with their corporations. Companies that were started in dorm rooms and garages are now, not even 20 years later, the most valuable on the planet. They are bigger and more powerful than the traditional “multi-nationals” run by those “tycoons” who have long been the object of dislike and suspicion.
With their explosive growth has come immense power. And controversy. But has the tide started to turn? Are Facebook, and Google, and all the rest of the digital wonder companies, actually going to be held to account for their dire monopolistic behaviours (as they quash or buy up competitors)? For their destructive impacts (turning us into addicts and interfering with every human event from family dinner to dates to business meetings)? For their widespread failures as corporate citizens (as in, not paying their taxes, protecting the vulnerable, respecting their users’ privacy, and … you can fill in the gap yourself).
Facebook, and Google, and Apple, and Microsoft, and Amazon, are now the largest, most valuable, companies on the planet. Together with Uber and the many “second rank” Silicon Valley start-ups, they owe their success to something that is unusual and usually ignored. Their core technologies were a gift from government (and, therefore, the people) of the USA.
Publicly-funded technologies are driving vast private profits
As economist Mariana Mazzucato demonstrated in her book The Entrepreneurial State, every single key component in the iPhone was either developed directly by United States government, or by government-funded research.
It’s quite a list. GPS; the internet itself; touch-screen technology. Even voice-activated Siri. Public investments have funded the core technologies of many vastly profitable private companies: not simply the phone-makers, but also the scores of app-based companies that are evolving alongside the smartphones.
Of course, there is also a vast amount of private investment pouring into Silicon Valley, as start-ups secure funding that can quickly run into billions. These young companies are called “unicorns” – start-ups worth more than one billion dollars. There are at least 60 of them. Uber alone may be worth close to $100 billion.
Publicly funded core technology is no guarantee of success. But it does underpin much of the profitability of these corporations, and exaggerates the creative, innovative culture of “the Valley”. For while it is well known Sergey Brin and Larry Page wrote the algorithm that created Google, few realise that they made their key discoveries with funding from the US National Science Foundation.
There are monopolistic elements in each of the Big Tech giants. And, despite the fact that the United States has stringent “anti-trust” (pro-competition) laws, they have been largely left unchallenged. As a result they have taken the place of the old industrial and banking giants that used to dominate the global economy.
Amazon dominates e-commerce. It owns 74% of the e-book market. But it’s into other things too, like selling cloud storage and recently buying Whole Foods, the US supermarket chain.
Facebook displaced early social-networking pioneers such as MySpace and now commands 77% of mobile social traffic, with more than two billion monthly users. The aim is to sign up everyone on the planet and – excluding China, where the service is banned – they’re half-way there.
Google brushed aside Yahoo and other early search machines – and hasn’t been challenged since. It now has 88% of global search advertising. Its aim, of course, is to have absolutely everyone use it to access all the world’s knowledge.
The key to making monopolist profits, plainly, is to stay a monopolist. Peter Thiel’s defence of monopolies includes the idea that they are “serial” in nature; in due course, a fresh disruptor will come along and send the current one packing. But this is disingenuous. If you’re a monopolist, absolutely everything depends on stopping that from happening. The incumbent advantage of these huge global companies is formidable. And if someone could become a threat? Well, then, you could buy them, just like Facebook did with Instagram and WhatsApp.
The gathering power of the tech tycoons
It’s hardly surprising that enormously wealthy people who run huge companies soon gain power outside the boardroom. But it’s particularly striking how quickly the wealth created by the Big Five has propelled their executives into positions of national and global influence. Like the “robber barons” of a century ago they have aquired huge clout in politics and world affairs.
Amazon’s Jeff Bezos recently bought the Washington Post newspaper, which is enormously influential both inside and outside the nation’s capital.
Google’s Eric Schmidt, who just stood down as long-time Executive Chairman, was so engaged in the Clinton presidential campaign, even setting up new companies to analyse data for her, that at her election-night party, the Wall Street Journal reported he wore a badge labeled “STAFF”.
Mark Zuckerberg, as we have noticed here at UnHerd, may be considering a run for the Presidency of the United States.
Bill Gates, cofounder and until recently head of Microsoft, has become a leader – some would say the leader – in global philanthropy.
This list could be much longer…
New tech is moving in on the old economy
As the Economist magazine has pointed out, data is the “new oil”, and the digital giants are sucking it up in enormous quantities. That’s our data, they’re after – or at least the data that was “ours” before it became theirs. Their intention, however, is not simply to send us targeted ads.
Google wants to be the go-to company for smart cities. The “Internet of Things” – a network of devices, appliances and sensors with everything connected and communicating – will place digital companies such Google in pole position to break out of their “online” existence into the “real-world” economy.
The discussion then ceases to be about apps and digital services, and becomes one about the physical world and the real-world economy.
Take Uber, which might look like an app-savvy cab company, but which has just hired dozens of top Artificial Intelligence researchers from Carnegie-Mellon University (one of the very top schools for AI), and has just ordered 24,000 self-driving Volvos. It’s also worth somewhere between $60 and $100 billion.
Silicon Valley digital giants are no longer content to simply make their money from traditional digital efforts, which tend to revolve around advertising. They are seeking to break into the “real” world of the “old economy”.
Change is coming: Digital gurus confess
We’ve heard some striking confessions over the past year from people on the inside of the digital revolution, and Facebook in particular.
“The short-term, dopamine-driven feedback loops we’ve created are destroying how society works.” We’ve been hearing this sort of thing from anti-tech voices for years. But this quote was from Chamath Palihapitya, a venture capitalist and former Facebook exec, who continued: “No civil discourse, no cooperation. Misinformation, mistruth. And it’s not an American problem — this is not about Russians ads…. This is a global problem.” His criticism obviously stung, since Facebook felt the need to issue a defence: “We’ve done a lot of work,” said the company, “and research with outside experts and academics to understand the effects of our service on well-being.”
Similar concerns were voiced by one of the iconic early figure of the internet, Sean Parker, founder of the file-sharing site Napster, and president of Facebook in its early days. At a conference hosted by Axios, he made some startling remarks:
“I don’t know if I really understood the consequences of what I was saying, because [of] the unintended consequences of a network when it grows to a billion or 2 billion people and … it literally changes your relationship with society, with each other … It probably interferes with productivity in weird ways.”
And then: “God only knows what it’s doing to our children’s brains.”
Social media is showing its dark side
Revelations about Russian election interference keep coming – compounded, evidence leads us to believe, by Facebook’s naivety and plain indifference as their advertising space and newsfeeds were abused. And the money kept rolling in! Congress was astonished to learn that the Russians actually paid for their American-sounding ads in rubles. But the currency didn’t seem to set alarm bells rining at Facebook HQ.
There is growing evidence that Russian efforts to undermine the West went way beyond electioneering. For example, one Facebook page called “Being Patriotic” was teeming with explosive terms such as “illegal alien” and ″Sharia law” and received likes and comments from millions of Americans who would have been horrified had they known it was being run by agents of the Kremlin.
Meanwhile, President Trump’s dramatic use of Twitter to post threats against North Korea and pursue grudges against news organisations media and named individuals has highlighted the company’s inability (refusal?) to take responsibility for their product. Their foot-dragging response to trolling, sexual harassment, and other abusive activities – by individuals and also Kremlin-controlled bots – is sapping their users’ trust.
The good, the bad and the very ugly
Google’s image (remember “don’t be evil”?) is in big trouble.
According to Ben Smith on Buzzfeed: “The company’s long, quiet game of gentle Washington influence turned darkly thuggish when the New America foundation — long seen as a harmless channel for worthy tech philanthropy — pushed out the anti-monopoly scholar Barry Lynn and his team after Eric Schmidt lost his temper.”
Lynn’s crime? To have enthused over the fact that the European Union had just fined Google 2.4 billion euros for using its search monopoly to give prominence to results that would bring it more revenue. The story was a significant one that was broken by the New York Times, and picked up by the Financial Times in a report on Google’s growing use of money to silence dissent in Washington.
The New York Times report noted the very large sums that Google and Schmidt personally donated to New America. They also published extraordinarily embarrassing emails from the think tank’s president, Anne-Marie Slaughter, pleading with Lynn not to say things that would imperil funding from people like Schmidt.
Meanwhile, the Financial Times’ Rana Faroohar had noted that at least 140 different groups in the Washington, DC area, had been funded by Google. This was in order to make sure, she suggested, that no-one would use the “M word.” (Monopoly, that is.)
Valley culture in the wake of Weinstein
There’s been a long history of “bro culture” in Silicon Valley companies, but the Weinstein revelations have shifted the issue of workplace abuse to the top of the cultural agenda (so far, more than 80 woman have listed their complains of harassment or worse in his case alone).
Ellen Pao’s (failed) law suit against storied venture capitalist firm Kleiner Perkins sent shock-waves around the start-up community. She has just followed up, aptly in the wake of the Weinstein scandal, with a book with details of her story.
You may already be familiar with this excerpt:
“Once we were airborne, the CEO, who’d brought along a few bottles of wine, started bragging about meeting Jenna Jameson, talking about her career as the world’s greatest porn star and how he had taken a photo with her at the Playboy Mansion. He asked if I knew who she was and then proceeded to describe her pay-per-view series (Jenna’s American Sex Star), on which women competed for porn-movie contracts by performing sex acts before a live audience.”
“Nope,” I said. “Not a show I’m familiar with.”
“Then the CEO switched topics. To sex workers. He asked Ted what kind of “girls” he liked. Ted said that he preferred white girls — Eastern European, to be specific.”
This scene was not a one off; a series of high-profile recent resignations has resulted from exposes of this kind.
It’s plain that the notion of Silicon Valley as Camelot is dead.
The public is wising up to tech sin
The Silicon Valley insider website Re/code, says that public confidence in social media is plummeting: “Just 12 percent of Americans believe that social media platforms have had a positive impact on political discourse, while 63 percent believe it has been negative.”
In the Guardian, John Naughton argues that “the tide is starting to turn against the tech giants”. He notes that the European Commission this year fined Facebook 110 million euros for providing misleading information about its takeover of Whatsapp, and then hit Google with a fine of 2.4 billion euros for abusing its search monopoly. (The Google fine led directly to an embarrassing fight with a think tank in Washington, DC, discussed in point 8.)
Andrew Shirley in the Investors’ Business Daily conjures the same image: “Is the tide turning on tech?” he asks. And he leads with evidence that public attitudes may be shifting. Public distrust of banks and other large corporations has largely given the tech giants a free pass, despite “the litany of liberties taken by the tech industry with job destruction, the establishment of monopolies, and the havoc they wreaked on local economies was overwhelmingly, tacitly endorsed with only sporadic criticism”.
But he reckons opinion is shifting: “With the rise of populism, regulatory pushback, and some mind-numbingly dumb decisions from Silicon Valley, the high water mark of the tech hegemony might have already been reached.”
As Buzzfeed editor Ben Smith sees it:
“The new corporate leviathans that used to be seen as bright new avatars of American innovation are increasingly portrayed as sinister new centers of unaccountable power, a transformation likely to have major consequences for the industry and for American politics.”
The disaffection is keenly felt and widely distributed.
For a healthy future: anti-trust must strike back
In the 21st century most of us would like to enjoy the extraordinary benefits of digital technology without living under the thumb of vast corporate monopolies and their tycoon owners.
Rana Faroohar sums up our position in the Financial Times:
“It is all too reminiscent of the power held by 19th-century railroad barons. They, too, dominated their economy and society. And they, too, were able to price gouge, drive competitors out of business, and avoid taxation and regulation, largely by buying off politicians.”
But now, as then, change can come.
In Chicago Magazine, Whet Moser tackles the question from a more basic angle, providing some fresh thinking on anti-trust (competition) policy.
University of Chicago free-market economists have always been enormously influential in dismantling the old idea that led the US government to break up the early 20th century “robber baron” empires of oil and railways and banks. It is the duty of government, they say, to protect markets from being dominated by monopolies. The key influence behind this shift was Robert Bork – better known as a rejected Supreme Court nominee.
Moser explains: “As a legal scholar and appeals-court judge Bork was arguably the most important influence on antitrust law in the second half of the 20th century.” He “was okay with a lack of competition among businesses as long as consumers were getting what they wanted and what was good for them”.
“And it is here in the University of Chicago that a conference heard fresh ideas – about the harms caused by these great monopolies, and potential solutions.” For example: “make all your social-network data portable, just as phone numbers are portable between carriers.” “If we owned our own social graph, we could sign into a Facebook competitor — call it MyBook — and, through that network, instantly reroute all our Facebook friends’ messages to MyBook, as we reroute a phone call,” they write.
His conclusion: “A handful of scholars there played an outsized role in bringing us to this point; a handful might turn the tide.”
Politics must wake up
Both Right and Left are questioning the unopposed advance of Big Tech.
Last year, Buzzfeed noticed a “palpable, and perhaps permanent, turn against the tech industry…. Steve Bannon and Bernie Sanders both want big tech treated as, in Bannon’s words in Hong Kong… ‘public utilities’.”
From the Right, and in The Intercept, Ryan Grim details the, now exiled, Bannon’s approach – to regulate both Facebook and Google like public utitiltites. For many conservatives, their general pro-business stance has run up against the liberal and progressive sympathies of most players in Silicon Valley.
Meanwhile, on the Democratic side, Senator Elizabeth Warren has led the charge for the break-up of the tech monopolies. But not alone: in the Harvard Business Review, former Clinton White House staffer William Galston, who would be seen as a more moderate voice, has urged bipartisan support for a re-invigorated anti-trust, pro-competition, policy toward the new technology companies. This would represent a significant reversal of a general withdrawal from vigorous enforcement that began with the Reagan administration and continued under Bill Clinton.
The centrist No Labels movement has showcased Galston’s effort, with Bill Kristol, founder of the iconic conservative magazine the Weekly Standard, to take the tech companies to task. He tweeted, “Considering limits on and breakup of Big Tech could be a useful joint New Center/liberal/neo-libertarian project.””
And Buzzfeed has noted a deal of congressional critique of the role of the tech companies in the 2016 Presidential election – as these companies assumed they were impregnable, and focused on “playing small-ball politics of regulation”.
In its early days, the internet exercised a mesmeric effect on policymakers and public alike. (For example: the US freedom of internet sales from tax.) And there’s no question it has benefitted from a hands-off approach that enabled the flourishing of fresh technologies and business models.
Yet that approach also enabled the rapid growth of huge monopolies. As the digital economy begins to exercise increasing impact on the real-world “old” economy, it is entirely appropriate for political leaders across the traditional divide to take up their reigns of responsibility.
Global tech tax must be enforced
Governments have only themselves to blame for collecting so little tax from many of these companies. They’re waking up to their responsibilities, and the companies are awake too. While governments have long protested that “multi-national” companies (a somewhat dated phrase) find smart ways to avoid paying taxes. Sometimes, as in the UK, there are campaigns to shame companies to pay taxes that are not even legally due.
Yet the fundamental problem lies in the wariness of governments to legislate in a manner that may discourage such companies from operating within their jurisdiction. This is especially the case with companies offering digital goods and services, since it is so simple for them to relocate.
As digital industries mature, and increasingly engage with traditional sectors, the pressure is on both companies and governments to bring resolution to such issues.
The European Commission’s case against Ireland – seeking the payment of more than $15 billion in back taxes – offers the best possible example of the reason that both governments and companies have an interest in stability and a predictable tax regime, to prevent digital companies from hopping around in search of better tax deals.
A healthy dose of scepticism is needed
Fallout from the 2016 presidential election will undoubtedly accelerate during 2018 as more detailed reports emerge of Russian use of social media to interfere in the democratic process. There is also growing interest in Russian interference in UK, French, and other elections.
A healthy distrust in Facebook and other social media providers will be a very good thing. Yet we need to recognize that the basic issue is not simple. The old claim that web platforms have no editorial role will not survive our experience of waves of “fake news”, fake ads, stalking, harassment, doxing, and the rest. Yet it would be equally unwise to treat these sites as if they had the kind of editorial control of content that traditional newspapers do. They exist in a new place, and we have yet to grasp quite how their responsibilities and the freedom of their users correlate.
An easy take-away from recent experience lies in scepticism on the part of users. If (as we noted above) Russian operatives in St Petersburg, Russia, can recruit hundreds of thousands of Texans into a Texan nationalist “Heart of Texas” Facebook group, the savvy user will begin to adopt toward Facebook posts the kind of stance that we already take toward emails from generous Nigerian princes.
Consumers have the power
There are two ways in which social media “users” need to get savvy.
First, as consumers.
These digital technologies that have led to the Faustian bargain at the heart of the new economy: your data for our services. Because consumers don’t pay companies like Facebook and Google (at least, not with cash), consumers are confused.
Essentially, the business model depends on barter – a business model that has re-emerged from the economies of pre-industrial societies. Facebook offers photos and updates from your family, and Google offers search, in exchange for enormous quantities of information about you. And for many other companies – like Moviepass, for example, a hot start-up offering cheap film tickets – you pay a combination of cash and data. Data on who you are, what you do, what you like. At the core of the new economy lies what The Economist magazine has called “the new oil”.
One of the odder consequences of this business model is that the typical customer of the “free companies” doesn’t think of him or herself as a customer at all. The companies like to call them “users”. The customers themselves are confused. Is this some kind of charity I am using, or public service?
The net result of publicly-funded technology and data-driven “free” or subsidised service has been to give the digital companies a big advantage over traditional efforts – e.g., Uber versus cabs. And it has protected them from any kind of “consumer” accountability. “Free” services leave the user confused about what is really going on. That needs to end.
Second, users are slowly becoming savvier as humans – partners, parents, friends, business associates, drivers. It is astonishing how long it is taking for users of digital technologies to devise a proper manner in which to incorporate them into their general human activities. Dates, family meals, and business meetings, are constantly interrupted by embarrassingly naïve uses of these technologies; and driving is becoming more and more dangerous. The “taming” of these technologies will both enhance their utility and grant to users/consumers increasing sway over the services themselves.