The End of Competition, Private Property, and the Pricing model
Facebook and Google have had a brutal go since the 2016 election, and 2019 has been no exception.
Consider:
A thorough New York Times expose supports what’s mostly well known: that Google and Facebook auto-recommend radical political content to increase view times and ad revenue.
YouTube decisively but belatedly deleted 400 monetized channels related to pedophilia.
In an ongoing case, The Federal Trade Commission fined Facebook $5 billion for mishandling user data.
Tech Labor has continued growing, demanding redistributed ownership of Big Tech to its employees. According to a survey, Senators Elizabeth Warren and Bernie Sanders receive the most money from Google employees, even though both have busting Big Tech on their presidential platforms.
With more awareness of these platform’s societal impact, more scrutiny is unearthing more scandals of how they’ve misplaced or abused their power.
As for determining the root cause, there have been multiple commentaries. Among socialists, will be accusations of how Big Tech is inherently symptomatic of late capitalism. Among various non-Keynesian economists, are arguments about credit expansion and where we are in the business cycle. In any case, structural diagnoses of how we are looking at the system itself, not its bugs, abound.
This post will argue, however, that the chaos isn’t corruption or decline, but the growing pangs of a new system as we shift into a properly digital economy. On the block are some of capitalism’s most fundamental planks, including competition, private property, and any usefulness of supply and demand calculations in pricing. Silicon Valley is not another Wall Street but, for better or for worse, the birthplace of an entirely new economic paradigm.
While the author has argued elsewhere on AlleyWatch in favor of nationalization, this post is mostly to mind the gap between the territories we’re crossing. It is mostly concerned with supporting a lethal, if not total, account of capitalism’s decline so that space can be cleared for new ideas of how the means of production may be better organized.
The End of Competition
The back end of Big Tech’s monopolistic tendencies have yet to be fully appreciated. At play, is the profound switch of economic value from matter to bits and bytes. Necessarily, we have been surprised by Big Tech given the extent to which network effects, exponential growth, and a winner take all effect influences their growth.
One of capitalism’s most central planks is the holistic benefits of competition. An innovative car company, for example, may bankrupt others, but this process keeps the entire industry on its toes to produce better goods. The citizen must depersonalize themselves from their own job and company’s insecurities, to realize how competition benefits the overall system as a healthy pressure.
This dynamic is utterly confounded among platforms, however, given their tendency towards monopoly and the role of critical mass. Broadly speaking, critical mass describes that a network or a platform’s value increases exponentially with every user added. Practically, this predicts a ‘hockey stick’ in the platform’s growth curve. Once a platform becomes popular, in other words, more people and companies flock to it by simple virtue of its popularity and connectivity (‘the bandwagon effect’).
This describes, for example, the success of Facebook. Mark Zuckerberg always demonstrated an awareness of this phenomenon through his mantra of “move fast and break things.” Between 2004 to 2007, Facebook had 58 million users. 2007, however, was the year Facebook monetized its advertising functions, became valued at $15 billion and appears to have been the milestone of its own critical mass. From 2007 to 2008, it grew to 148 million users, which then doubled to 360 and 608 million from 2009 to 2010, respectively. On a graph, this growth appears just like the exponential and hockey-sticking curve critical mass predicts.
With this non-linear phenomenon, however, what follows is an unprecedented privilege. As the first movers of their networks, Big Tech has become exponentially larger than any of its competitors and can now harass or acquire them with impunity. Facing competition with SnapChat, Facebook simply stole their ‘stories’ feature. Instagram and even the militantly anti- Zuckerberg WhatsApp more wisely accepted his money to be acquired. Facebook is now 15- year-old faces no competition, and can simply shrug off its national scandals and the compromising of our democracy with, perhaps, the same irritation other civilians pay their parking tickets.
Veritably, some type of creative destruction is at play, but what is its use? A footrace of scale and growth may lead to operational cleverness – raising money, M&A deals, mingling with Saudi or Chinese kingmakers –but can have nothing to do with capitalism’s purported goal: continual pressure even on the incumbents to create better products and services for the people.
Intuiting this milieu, Silicon Valley has become pessimistic within itself. As a headline from Wired Magazine reads, the valley has become “a caste system,” as each startup neglects excellence to dress themselves up like a gourmet meal for the technocrats of FAANG to consume.
The End of Private Property
In the words of Kevin Kelly, former executive editor of Wired, we are switching from an economy of ownership to one of access. To paraphrase it less diplomatically: private property won’t be seized in a Marxist revolution, but, mostly, through technological obsolescence.
We will forget and dismiss private property, writes Kelly, given how superior access is. Rather than owning copies of digital content, access platforms like Spotify or Netflix allow users to stream almost infinite libraries of songs and videos on a subscription for a fraction of the price.
This is increasingly likewise for physical goods, as software continues embedding ‘slivers of mind’ into the material world. Instead of owning a car and a driver, Uber or Lyft offer access to both for just the amount of time needed to ride across a city. This is likewise for AirBnB, luxury clothing websites, and even WeWork.
Private property is comparatively inefficient since we are never using our goods or services on a 24-hour basis. Many people have shoes they haven’t worn for several months in their closet, and many wealthy people own homes they haven’t visited in years. By promoting them, platforms re-circulate what would otherwise be static, inactive material back into the economy.
Even if access is economically superior, however, Kelly is negligent of cross-examining the political ramifications. If in the future, a post-critical-mass AirBnB monopoly decides someone violates their user agreement, that person is potentially without housing. Already, we’re seeing typically right-wing commentators being de-platformed from social media, payment services like Stripe, and thus being denied of any presence in the digital economy. More access implies an almost radical dependence on Big Tech’s authority.
Private property doesn’t necessarily end in an economy of access, it could become more concentrated among a few technocrats. When peasants paid rent to access the aristocrat’s land, we called it feudalism. While a proto-Kelly could extol how superior renting land was in Medieval Europe, they would simultaneously be obligated to consider the power imbalance it created.
Similarly, we can take Kelly’s thorough diagnosis seriously but will have to consider a prognosis that doesn’t de-humanize masses of people as they beg for the scraps of a minuscule technocratic elite.
The End of the Pricing Model
Of all the Capitalist planks under fire, pricing and our analysis of value in the digital economy is perhaps the most confounding. As such, much of this section is phrased as genuinely open, if apparently rhetorical, questions.
As is well known, value is analyzed chiefly along with some combination of supply, demand, and perhaps some reference to behavioral economics. While someone running their sprinklers in drought-riddled California will be considered ostentatious, the New Englander can do so with unperturbed. With excellent marketing, street brand Supreme creates artificial scarcity to spike their prices 20X for a plain t-shirt. For discrete products or services, a rough calculation can be run for these circulations.
Veritably they have demand, but what is the supply of platforms? Besides marginal storage and electricity prices, do Facebook or Google face imminent scarcity? What was the calculation for Netflix increasing its prices from $14 to $16 per month, or Amazon withdrawing free shipping before repackaging it in the prime membership for $119 a year
The only answers to these questions can be a kind of referential, postmodern analysis. Amazon, for example, will undercut Spotify to offer music for $7.99 per month but will withdraw free shipping when competitors on that front are bankrupt and the coast is clear. Whether the price increases or decreases – none of this has any reference to surplus or scarcity but mostly consists of CEOs trying to outflank each other as everyone else looks on from the sidelines.
Rejecting Fatalism
As much as this paradigm shift represents a danger does it present an opportunity, and so what must be rejected is a growing fatalism in our culture towards Big Tech. This isn’t to chime messages of ‘think positive,’ so much as it is for sobriety over cultural developments we take for granted.
The generations who originally built Silicon Valley, NASA and America grew up in a cultural sphere that fundamentally affirmed life. Shows like Star Trek, Battle Star Galactica, and Carl Sagan’s quasi-gospel Cosmos were wildly popular, and almost every notable scientist admits vivid moments when these aesthetic visions drew them into the field. Even if they’ve aged as works of naive modernism today, each sympathetically renders expansive protagonists exploring space, overcoming opposition, and thus affirming our traditional tie to humanism and genius.
We don’t have such a privilege, as on every front there is an assault on humanism and humanity. Ray Kurzweil and Yuval Harrari are feted by TED and The Atlantic with their ‘inevitable’ dichotomies of either choosing technocratic feudalism or becoming the equally slavish nodes of a supercomputer. Andrew Yang’s UBI gains popularity as most people simply concedes that the technocrats will have their way. Both Blade Runner’s, finally, are tragedies showing Harrison Ford and Ryan Gosling carrying out the dirty work of the technocrat’s mistakes. On every front is a rendering of an exhausted humanity submitting to its own Frankensteins of capitalism, software – ‘progress.’
But is this chaos a petering out, or the chafing against something new?
For those who take such leaps of faith, what’s required are concepts as subversive as capitalism was to feudalism. Even if there’s disagreements over the means – nationalization, trust-busting, blockchain obsolescence – should there at least be an acknowledgement of the vacuum we’re in. Just like private property is inherent to our formulation of human rights, marriage, and state authority as a foundational concept, will we need other cultural visions that support our innovations and guide society through the other side of this bottleneck.
