The coming earthquake - Axios
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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."
Featured

China fines social media services over banned content

Vincent Yu / AP

China's Cyberspace Administration said it has fined to the highest degree three social media services—Baidu's Tieba, Weibo, and Tencent's WeChat—for failing to censor banned content, according to CNBC. On Tuesday, it also appeared that Facebook-owned chat app WhatsApp was blocked, though some users report service has resumed.

Bigger picture: Chinese authorities said in January that they were planning to "clean up" online activities by March 2018. In June, a new cybersecurity law went into effect, though it's been criticized for not being clear enough as to how it will be implemented. China has also cracked down on VPNs (software that keeps online activity private and secure), forcing Apple to remove a number of them from its App Store in China, as well as certain cryptocurrency activities.

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DOJ to file charges in college basketball corruption scandal

A Duke-North Carolina game at Madison Square Garden in March. Photo: Julie Jacobson / AP

The Justice Department will announce charges of fraud and corruption this afternoon against ten people in connection with a wide-ranging bribery scheme at some top college basketball programs, per the WSJ.

What's expected: The charges will be filed against coaches, managers, financial advisors, and some representatives of a major sportswear company. The investigation uncovered evidence that coaches from some schools had received kickbacks to steer their players toward receiving services from outside groups.

The coaches charged, according to NBC News' Tom Winter:

  • Tony Bland, USC, associate head coach
  • Lamont Evans, Oklahoma State, assistant coach
  • Chuck Person, Auburn, associate head coach
  • Emanuel Richardson, Arizona, assistant coach
Featured

What North Korea has labeled a declaration of war

North Korea's Foreign Minister Ri Yong Ho. Photo: Richard Drew/AP

On Monday, North Korea's Foreign Minister Ri Yong Ho said President Trump had declared war on North Korea when he tweeted they wouldn't "be around much longer" if Ho echoed "thoughts of Little Rocket Man."

Isaac Stone Fish, senior fellow at the Asia Society, laid out other instances North Korea interpreted as declaration of war:

Featured

The history of singing the national anthem before NFL games

Michael Perez / AP

Football season is now at the center of a heated political debate over whether or not players should be allowed to sit or kneel during the national anthem. Some agree with President Trump and find the move offensive, claiming it is disrespectful to those who serve in the U.S. military; others argue that the protest is a form of patriotism, and the U.S. guarantees the right of players to protest however they choose.

Why it matters: While patriotism should not be conflated only with the military, the history of playing the national anthem before sports games does have strong ties with honoring the armed forces.

Here's a timeline of how the national anthem became a sports tradition in the first place:

  • 1814: Francis Scott Key wrote the Star Spangled Banner, while watching the bombardment of Fort McHenry in Baltimore.
  • 1889: Secretary of the Navy Benjamin F. Tracy called for the song to be played whenever the American flag was raised.
  • 1916: President Woodrow Wilson signed an executive order declaring the "Star Spangled Banner" the American national anthem.
  • 1918: The song was played spontaneously during the seventh-inning stretch of game one of the World Series between the Cubs and Red Sox, while the country had been in World War I for a year and half. After this, the song was often played on holidays or special occasions in many baseball parks.
  • 1931: Congress passed an act officially confirming the "Star Spangled Banner" as the national anthem, and President Hebert Hoover signed it into law.
  • 1941-42: Playing the national anthem before the start of regular season baseball games became the standard. And with the U.S. in World War II now, the National Football League also included the playing of the anthem before games.
  • 1945: NFL commissioner Elmer Layden said, "The playing of the national anthem should be as much a part of every game as the kickoff. We must not drop it simply because the war is over. We should never forget what it stands for."
  • 2009: NFL players began standing on the field for the national anthem before the start of primetime games. Before this, players would stay in their locker rooms except during the Super Bowl and after 9/11.
  • 2015: Senators John McCain and Jeff Flake released a report revealing that the Department of Defense had spent $6.8 million of between 2012 and 2015 on what the senators called "paid patriotism" events before professional sports games, including American flag displays, honoring of military members, reenlistment ceremonies, etc. The DoD justified the money paid to 50 professional sports teams by calling it part of their recruiting strategy. However, many teams had these ceremonies without compensation from the military, and there was nothing found in the contracts that mandated that players stand during the anthem.
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The states spending the most out-of-pocket on health care

Data: JPMorgan Chase Institute; Chart: Lazaro Gamio / Axios

Colorado's full of healthy hikers and mountain bikers, right? Well, it also has some of the highest out-of-pocket health care spending in the country. That's according to a report being released today by the JPMorgan Chase Institute, a new initiative that's using banking data to study spending trends and the financial pressures in people's lives.

Report details: The report looks at health care spending trends in 23 states where Chase has retail branches, and it found a lot of variation, even after controlling for age and income differences:

  • Highest average out-of-pocket spending: Colorado ($916), Utah ($906)
  • Lowest average: California ($596), Michigan ($601)
  • Highest average spending compared to income: Oklahoma (1.7%), Louisiana (1.7%)
  • Lowest average: New Jersey (1%), New York (1%)

Why it's happening: The report says it's likely due to differences in health care prices, insurance coverage, and how much people are using medical care — but demographics didn't matter.

Go deeper: Check out the report here, and more data visuals here.

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Equifax CEO retires after security breach

Equifax headquarters in Atlanta, Photo: Mike Stewart / AP

Equifax chairman and CEO Richard Smith retired today after his company suffered a major security breach earlier this month that exposed personal financial information for approximately 143 million Americans.

The details: The information accessed in the three-month-long hack included customers' names, birth dates, addresses, social security numbers, and driver's license numbers. Close to 209,000 consumers' credit card information was accessed. Smith's exit follows two others. Equifax's chief information officer and chief security officer stepped down earlier this month.

From the company's statement: "The cybersecurity incident has affected millions of consumers, and I have been completely dedicated to making this right. At this critical juncture, I believe it is in the best interests of the company to have new leadership to move the company forward," Smith said

What's next: President of Equifax's Asia-Pacific division, Paulino do Rego Barros, Jr., will serve as interim CEO. Board member Mark Feidler has been appointed non-executive chairman.

Featured

Merkel's drift left allowed the far-right to grow

Angela Merkel in Berlin on Monday. Photo: Michael Kappeler / dpa via AP

Angela Merkel's leftward drift over her years in office, especially on issues like the European Union and migration, has made her more palatable to left-leaning voters, but it has created an opportunity for the far-right to proliferate, per the NYT.

Why it matters: Last weekend's election saw a strong showing for Alternative for Germany (AfD), the far-right populist party, that attracted voters from Merkel's right-leaning base and mobilized those who usually didn't vote via non-traditional campaigning. It illustrates how the far-right can continue to prosper across Europe even without the flashpoint issues, like last year's migration crisis, at the forefront of the news cycle.

Featured

The rebirth of Quirky

Quirky once was one of the tech world's most-watched startups, raising around $200 million to build a platform whereby inventors could submit ideas that Quirky might then manufacture and distribute via major retail channels. Even more exciting was that other users who contributed valuable feedback could receive royalties. More than 150 products came to market.

But then, two years ago, the whole thing went bust, filing for bankruptcy and selling off its Wink home automation hub product to Flextronics for $15 million. Company founder and CEO Ben Kaufman moved on to an e-commerce role with Buzzfeed.

Today, Quirky is back.

Something new, something old, something borrowed: The new Quirky is still an innovation platform focused on consumer products in the electronics, toys and home goods verticals. And the fractional royalties system remains in place. But the company no longer plans to manufacture "winning" inventions, instead employing a licensing model through which it will partner with companies like HSN, Vanderbilt Home, Atomi, Shopify and Viatek. This is a bit similar to the pivot Quirky attempted before its bankruptcy filing, but by that point it was too little too late.

While in limbo: Quirky's website received over 50,000 invention submissions during its reorganization, including around 3,000 per month over the past year, according to new company president Gina Waldhorn. "You'd have thought most of the traffic would disappear since we weren't picking new products, but the community just wouldn't quit," she says. Waldhorn adds that while Quirky is originally relaunching today, it has quietly helped launch 12 products in 2017 — including relaunches of some previously-successful ones — has another 10 offerings in production and over 40 in development.

Answering critics: Quirky's terms of service since the reorg gave the company all IP rights to a submitted product, in perpetuity, no matter if Quirky actually picked it for development. The company says it is introducing new terms that give Quirky exclusive IP rights for 12 months, but that they then revert back to the inventor if the product is not picked.

Reputational damage: Waldhorn acknowledges that while the bankruptcy hurt Quirky within the company's home market of New York -- where it received the most media coverage — most of its users didn't care. "There was an opportunity to represent open innovation for inventors, but no one else came around to do it."

Financing: The original iteration of Quirky raised around $200 million from investors like General Electric, Kleiner Perkins and Andreessen Horowitz. But its current owners, who purchased the company's non-Wink assets out of bankruptcy, have no plans to raise outside capital. But they have been investing in restaffing, including a development team based on Poland.

Well wishes: Quirky founder Ben Kaufman tells Axios that he "hopes it works out" for the new team. "I'd glad to see someone try, but it'll be hard."

Featured

Trump bullish on tax reform at dinner with conservative leaders

Trump speaks at a dinner with conservative grassroots leaders in the Blue Room of the White House. Photo: Shealah Craighead / White House

President Trump was in an unapologetic mood last night, dining on beef Wellington with conservative grassroots leaders in the Blue Room, joined by EPA Administrator Scott Pruitt and White House aides Marc Short, Kellyanne Conway and Nick Ayers.

A source in the room told all-terrain Jonathan Swan: "He was very juiced up about tax cuts... very bullish on passing tax reform, and he was specifically calling it a tax cut."

  • Trump — who was still equivocating on the Republican tax plan as recently as yesterday morning — told the group it's going to be "great, we're going to do tax cuts for everyone," said the source, paraphrasing the president. Trump said he's going to lower the corporate tax rate, "and that he wanted it to be lower but it's going to be great ... There were a lot of 'greats' in there."
  • Trump wasn't worried about NFL blowback, and gushed over Alejandro Villanueva — the Pittsburgh Steelers offensive tackle and Afghanistan veteran — who stood alone with his hand over his heart while the rest of his team stayed in the locker room. (His gear was the NFL's best seller yesterday.)
  • Who's who — The White House released this list of attendees: Penny Nance, CEO of Concerned Women for America; Tim Phillips, president of Americans for Prosperity; Matt Schlapp, chairman of the American Conservative Union; Leonard Leo, executive vice president of the The Federalist Society; Ralph Reed, chairman of the Faith & Freedom Coalition; Marjorie Dannenfelser, president of Susan B. Anthony List; Ed Feulner, founder and acting president of the Heritage Foundation; Tim Goeglein of Focus on the Family; and Bob McEwen, former congressman and executive director of the Council for National Policy.
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Bannon’s last-minute, anti-establishment plea to Alabama voters

Former White House strategist Steve Bannon speaks at a rally for U.S. Senate hopeful Roy Moore. Photo: Brynn Anderson / AP

Steve Bannon went — as Steve Bannon might say — "buck wild" inside a barn in Fairhope, Alabama, last night. He was there to rally support for Roy Moore, who faces incumbent Republican Senator Luther Strange in today's special election. Trump was in Alabama last week hosting a rally for Strange (the same rally at which he began his tirade against the NFL), but that didn't change Bannon's mind on which candidate to support.

The recently departed White House chief strategist was unshaved, unkempt, dressed in a green military jacket and came out onto stage to "Street Fighting Man," by the Rolling Stones. He name-dropped Plutarch and Shakespeare, and described today's Republican Senate primary run-off in Alabama in typically hyperbolic terms.

  • "Tomorrow's going to decide who has sovereignty in the United States of America," said Bannon, who was stumping for the anti-establishment candidate Roy Moore, who leads incumbent Sen. Luther Strange, the favored candidate of Senate Majority Leader Mitch McConnell and President Trump, by eight or so points in the polls.
  • Things only escalated from there. "Mitch McConnell and this permanent political class is the most corrupt and incompetent group of individuals in this country," Bannon shouted. "They think you're a pack of morons. They think you're nothing but rubes. They have no interest at all in what you have to say, what you have to think or what you want to do."
  • Amazing to think that a little over a month ago, Bannon was working in a White House that was trying to pass health care in cooperation with Republican leadership.