Aug 20, 2017 - Energy & Environment

The coming earthquake

Sam Jayne / Axios

One feature of our time is the disruption du jour — the whiplash of yet another big surprise that promises to upset everything and everyone for years and perhaps decades to come:

  • Brexit, the Trump election, and the broader anti-establishment global uprising, springing from lost jobs, income, stature and community, and making many people ambivalent about the post-war system of collective diplomacy and open borders.
  • Robotization — the shift to hyper-automation and the potential that many of our jobs will be swallowed up by machines.
  • And now the new monopolists, a creeping change in how we view a few tech monoliths that have amassed colossal power — Amazon, Apple, Facebook, Google and Microsoft.

Connecting the dots: These three narratives are melding into a gigantic, compound earthquake. When we speak of the race to artificial intelligence and robotization, we mean research dominated by American big tech, along with its Chinese cousins — Alibaba, Baidu and Tencent. When the workplace is filled with intelligent machines some time in the future, their brains are likely to come from one or more of these companies.

In 2001, Goldman Sachs analyst Jim O'Neill published a paper that coined the term "BRIC." Brazil, Russia, India and China would power the next stage of global growth, O'Neill said. The acronym caught fire. The new powers in global growth are the major U.S. and Chinese tech companies, though they fit less comfortably into an acronym.

For that and other reasons, including the decimation of retail by Amazon, they are core to our unease and alienation, as Axios has reported, and they are facing increasing scrutiny.

Going deep: This week, we look at two forthcoming books and a much-discussed legal paper that explain this evolving mind shift, and point the way forward:

The Four, by NYU professor Scott Galloway; World Without Mind, by Atlantic magazine writer Franklin Foer; and Amazon's Antitrust Paradox, by New America fellow Lina Khan.

Frank Foer: A surrender of free will

We are at the mercy of these companies, with billions of people outside China using Google to search the Internet, Facebook to follow their friends, Apple to talk to them, Amazon to buy stuff, and Microsoft for their office needs. Within China, the same can be said for the BAT companies. But that is more dangerous than seems apparent. Foer notes:

  • Amazon can kill or hobble a book, an author or an entire publisher, and did so to Hachette and Macmillan in 2014, delaying shipments and stripping sales links so books couldn't be bought at all.
  • Google worked to swing the 2012 U.S. presidential election for Barack Obama, boasting about the power of its analytics tool to help his campaign.
  • Facebook can also target and favor candidates of its choosing.

All of this troubles Foer, who delivers a passionate argument for the public to wake up and reconsider its tech idolatry. "Our faith in technology is no longer fully consistent with our belief in liberty," he writes. "We're nearing the moment when we will have to damage one of our revolutions to save the other. Privacy can't survive the present trajectory of technology."

His central message: We are at risk of authoritarianism, and a loss of ourselves — "a breaking point, a point at which our nature is no longer really human."

When Foer started this book, "it felt like I was engaging in a quixotic, esoteric venture," he told me. "The tech companies were held in such high esteem that the possibility that there was something fundamentally wrong with them didn't register with people. But the zeitgeist has started to shift, now in a fairly extreme way."

One of Foer's primary targets is Silicon Valley's war on individual genius in favor of the collaborative and populist crowd. This, he says, flies in the face of how big tech views itself, championing "the fearless entrepreneur, the alienated geek working in the garage" — Steve Jobs, Jack Ma, Bill Gates, Larry Page and Jeff Bezos.

"The titans of technology may be capable of breathtaking originality and solitary genius, but the rest of the world is not," he writes.

Another is tax dodgers: Amazon can offer low prices in large part because for years it paid no taxes, while brick-and-mortar stores forked over both that and rent — Walmart paid a 30% tax rate over the last decade and Home Depot 38%. Amazon's effective tax rate is 13%, and Apple and Alphabet's 16%.

Profits left abroad: Far from reaching their station fair and square, big tech squirrels away its profits overseas, and doesn't pay its fair share at home. Amazon dodges taxes by basing much of its operations in Luxembourg. As of 2015, Google had parked $58.3 billion in tax havens abroad including Ireland and Bermuda. In 2012, Facebook earned $1.1 billion in the U.S., on which it paid not a cent of federal or state tax. "The tech companies maintain every shred of data, yet seem to want to purge every bit of taxable earnings," he writes.

What should be done: Foer urges —

  • The creation of a Data Protection Authority to secure the sanctity of privacy, similar to former government oversight over telephone and TV.
  • The possible breakup of Facebook, Google and Amazon into smaller companies, or, Lina Khan writes (see below), forcing them to act as common carriers, and not predatory platforms for their singular corporate good.
  • "The Internet is amazing," Foer writes, "but we shouldn't treat it as if it exists outside history or is exempt from our moral structures, especially when the stakes are nothing less than the fate of individuality and the fitness of democracy."

Lina Khan: The new railroad barons

In January, the Yale Law Journal published a "note" that has since attracted remarkable attention — more than 50,000 hits — and made Amazon lawyers especially nervous.

  • It all goes back to 1911, and the U.S. Supreme Court decision to break up John D. Rockefeller's Standard Oil. Khan does not name the old oil titan, but she renders Amazon's Jeff Bezos as the Rockefeller of our age. Like him, Bezos subjects lesser competitors to a "good sweating," predatory pressure designed to drive them out and leave the latest market to Amazon.
  • Amazon can afford this approach because it seeks no profit, but only to grow; and pays little taxes or rent.
  • Amazon's reach is breathtaking, Khan notes, comprising "a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading provider of cloud server space and computing power."

They are modern-day railroad barons: Amazon, Khan told me, should be viewed "as an infrastructure company." And as a group, big tech "are utilities on which other companies depend," equating to the 19th century railroads, which their owners exploited to outsized profit advantage because they could.

Khan's intellectual breakthrough: Her big splash is taking explicit and injurious aim at Robert Bork's landmark 1968 book, The Antitrust Paradox, which carved the path to today's casual attitude toward corporate bigness, as Steven Pearlstein writes at the Washington Post.

  • Rather than judging anti-trust impact by pricing, supply and demand, Khan reasons, it should be examined through the lens of 21st century online business
  • The lens should be "whether a company's structure creates certain anticompetitive conflicts of interest; whether it can cross-leverage market advantages across distinct lines of business; and whether the structure of the market incentivizes and permits predatory conduct," Khan writes.

Scott Galloway: Power corrupts

Galloway takes the theme of bigness the next step into popular philosophy: Big tech's success, he writes, pivots on the human need for God (Google) love (Facebook), sex (Apple) and consumption (Amazon). Galloway has mixed success with carrying out the theme, but it's a showcase for a toughly argued, hard-edged message: Big tech's big success is "dangerous for society, and it shows no sign of slowing down. It hollows out the middle class, which leads to bankrupt towns, feeds the angry politics of those who feel cheated, and underpins the rise of demagogues."

Big money, small work force: Google employs 72,000 people, Galloway notes, about 40% of the 185,000 who work for Disney, which has a quarter of Google's $650 billion market cap.

  • As for the whole of big tech, when you include Microsoft, it employs about 660,000 people.
  • By comparison, with 3% of big tech's $3 trillion market cap, the three big American carmakers employ 940,000 workers.

In other words, says Galloway, the spoils of America's old corporate oligarchy was carved out more fairly among many more workers. "Investors and executives got rich, though not billionaires; and workers, many of them unionized, could buy homes and motorboats and send their kids to college," he writes.

  • "That's the America that millions of angry voters want back. They tend to blame global trade and immigrants; however, the tech economy, and its fetishization, is as much to blame."
  • And time will catch up with the companies: "Until now, it's been only sycophancy," Galloway told me. "Everyone wants to hang around the hot girl. They all want to seem young and hip and hold these companies to a different standard. I predict there is going to be a populist uprising. A politician is going to find that the fastest way up is to go after one or more of the companies."
  • He said, "We are already seeing it."
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