Who Done it?
Luigi Zingales is an Italian born MIT doctorate, now a Professor at the University of Chicago. He is the author of two widely reviewed books: “Saving Capitalism from the Capitalists” and “Capitalism for the People: Recapturing the Lost Genius of American Prosperity”. His work has been published extensively in economics and financial journals. He has expressed a number of concerns about “Big Tech” to which I will try to do justice in a short three part series.
What has changed?
With the tech sector, we are no longer dealing with a mainly tangible economy. In the tech sector intangible assets like research and development, marketing, and software dominate. This is not an insignificant fact. There are four main characteristics of an intangible economy that lead to higher market concentration and less competition. They are:
1. Scalability; intangible assets are highly scalable and can be reused with little additional investment.
2. Investments in intangible assets tend to be sunk, their value difficult to recuperate.
3. Intangible assets are susceptible to spillover, other companies can benefit from using or mimicking them.
4. When combined intangible assets often produce valuable synergies.
Classic economic approach
Economists since Adam Smith have taught that the pursuit of private interests leads to the best possible outcome for everybody in a competitive economy. Notice the qualifier: for this arrangement to work… there must be competition. It should disturb us that the founders of Google admit that the history of searches they have amassed creates a gigantic barrier to new entrants.
Is Big Tech different… different enough?
The Big Tech revolution is also different in the quantity and precision of amassed data it makes possible. Businesses have always accumulated data on their clients. Big Tech companies are doing so in quantity and the level of detail beyond anything previously imagined. It is massive data concentration in the hands of very few. Data’s value increases rather than decreases with quantity. The value comes from analysis of the data for predictive application.
Analysis allows greater depth of knowledge down to the individual level. Consumption patterns of individuals are more valuable if linked to their location. They are more valuable still if linked to their health information, etc., etc., etc. This data concentration represents an insurmountable barrier for new entrants into the market. The threat to individual privacy should not be discounted. It can even be a threat to the functioning of our democracy. Recent data mining and censorship scandals are calling this out for us; if we are listening.
Google and Facebook know more about us than our spouses or closest friends. Sometimes they know even more than we know about ourselves. These companies can predict what we’re going to do. They can predict how we’re going to vote. For profit they predict what products we’re going to buy. These companies acquire and use the best minds in the world to manipulate our decisions. We need to process that and understand what it means.
Why is that important?
Do you remember the debate over the Bork nomination to the Supreme Court? The Washington Post reported the titles of the videos he rented. Think about that. Now, during the Kavanaugh confirmation hearings the only reason we did not call forth information about where the accuser and accused actually were at the time of the alleged event was the alleged events took place before smartphones. So smartphone companies were not able to disclose the geolocation of the nominee and his accusers during the early 1980s. Where was that discussion from the talking heads?
Do we really want the government tracking our every movement? Should Big Tech companies be tracking us? Is it worth the risk having these private monopolies grant access to information about us to the government? Would protection of their monopoly power cause them to cooperate or merge with the government? What is 5G and what does it permit, whether it is intended or not? Has Google already done this with China?
Big Tech is different from what has come before in significant ways. The implications of its wealth, information and analysis capacities have opened up for it avenues to power. We are moving forward with laws based on strong values and principles. The nexus is approaching where we find out whether we can preserve our values and principles while embracing this technological revolution.