The Need To Regulate Big Tech - Part 1: Protecting The People From Pernicious Manipulation
Authored by Bill Blain via MorningPorridge.com,
“Heaven is purpose and principle. Purgatory is paper and procedure. Hell is rules and regulation.”
We had a slew of spectacular Big Tech results this week, but has the time come to regulate them more closely to avoid increasingly monopolistic behaviour, and to protect the population from the pernicious effect of the manipulation of big data? It’s as much an argument about the role of the state as it is about the success of companies. There will be winners and losers.
As always there is lots going on in markets, but the run of superb Tech results has been truly spectacular. Many tech firms have successfully navigated the Pandemic, selling into bored WFH workers, and achieved staggering success. Let’s use the moment to ponder the difficult question of how should we value Tech, and should it be more thoroughly regulated?
To the upside, new value and economic growth is created from new ideas creating new demand and markets. Invention leads to innovation – which is why everyone is so over-excited about the swift adoption potential of AI, Virtual Reality, 3-D printing, Meatless meat, Robotics, autonomous systems from drones to cars and all the other wonderful things we read about in the new tech space. The companies trade on extraordinary multiples based on their perceived potential – and is often exaggerated.
In real reality, (as opposed to virtual), these ideas are often brilliant solutions in search of problems; they take time, effort, and travel many wrong paths on the road to monetisation. We see that repeatedly in the miserable negative profits generated by so many tech unicorns that promised so much. Some stuff works. Much doesn’t.
There is nothing wrong with the Tech adoption process. The massive personal rewards Tech entrepreneurs can make for themselves is a major reason why the West is so innovative. Long may it be encouraged.
On the downside, some Big Tech – most these most closely thriving off the back of the monetisation of data – have been massively profitable. Their success creates a completely different series of moral sentiment dilemmas, as Adam Smith may have put it.
Where do limits on Big Tech need to come?
It’s been said the goal of every entrepreneur is to become a monopoly and reap monopoly-like returns. The goal of legislators is to avoid it happening. Regulatory oversight of profits is not an attractive option for investors who’ve funded the entrepreneur on the basis they’ll get monopoly-like yields.
Google’s results earlier this week were spectacular. So spectacular they have raised fears for the prospect of further government/interventions to rein back on Big Tech money making machines. Google’s success (nobody calls it Alphabet) came on the back of the pandemic spurring up user numbers, web advertising, YouTube and the stock rose to a new record on a $50 bln stock buyback plan – what else would a tech giant find to do with its money, aside from buying Waymo’s driverless car tech and building more data centres?
Facebook posted a beat on earnings and $26 bln revenues on the back of a 30% rise in ad revenue, and an increase in the volume of ads. My Facebook pages are now 80% ads for leather desk mats, outdoor kitchens, light fittings, Scandinavian furniture, wine storage and all the other stuff She-who-is-Mrs-Blain and I have googled as we renovate the house. I barely use the thing any more. My kids don’t touch it. Facebook makes nearly $10 for every user from Ad revenue.
Amazon reports later today, and its looking like another massive winner on the back of boosted pandemic sales, the lack of high street competition due to lockdowns, its increasing dominance, and the fleet of Imperial Star Destroyers it’s planning to use to host drone deliveries…. (Ok.. but soon..)
Apple is different. It sells real stuff, and regular readers will know I’m an addict of its goods and services. Its results were stellar – double digit growth across the product range, revenues of $90 bln – half of which was iPhone sales, 42.5% margins and authorisation for a $90 bln stock buyback programme.
However, Apple is under the regulatory cosh for the way in which it’s using its massively powerful App Store gateway to gouge profits from App Developers – the Fortnite maker Epic Games takes Apple to court next week. Apple can do that because iOS and Mac is its own ecosystem/tech-habitat, and if you want access to its Bright-Shiny-Things you play by their rules.
The problem of Big Tech’s success is its sheer scale, and many firms have passed the innovation/inventive stage into the monetisation phase. That is when some of them will morph from moving society forward into a pure profit play as they seek monopoly status. They stop inventing stuff, and seek to make their stuff pay, becoming increasingly bureaucratic as they do so.
I read recently Matt Stoller of the American Liberties Project pointing out:
“What these firms are doing to get 20-30% returns is capturing market power, they are not creating wealth.”
Many politicians now agree. They see Facebook, Amazon, Google et al as de-facto monopolies reaping unwarrantable windfall profits while creating untold harm to consumers and other firms from anti-competitive business policies. Its a factor legislators around the globe are determined to address. (Especially if it makes them look strong to voters.)
The question is – how much should government intervene to regulate and licence big tech? The Libertarian right would say not at all. But Adam Smith would have recognised the dangers inherent in Big Tech’s control and use of big data. Information is a public good. Rather than allowing Big Tech to own and control it – should it be owned by the people and licenced by the state as a public good? That’s a question, btw, not a statement
Investors will say no – they want the returns. But these companies now utterly dominate their space. They are no longer inventive tech companies expanding the limits of innovation – now they are monopolies milking their data streams.
That’s why Apple’s new privacy controls are so interesting. This week they upgraded the operating system to stop Apps from tracking Apple User’s data. Google is also on board to kill the App tracking cookies. That’s terrifying news for Facebook which has been monetising that data to sell ads. The social media site is on the wires arguing its bad for smaller niche advertisers, and that its just Apple and Google looking to concentrate the data in their own hands.
There is any amount of economic literature to explain why monopolies are such a bad idea. Monopolies that exploit the information revealed by internet users about themselves are perhaps even worse – inserting themselves virus-like into their victims and driving their spending decisions. Its wider than just trying to sell us stuff our browsing history has suggested we might like to buy.
As the degree of polarisation in recent elections has shown, the rising problem of this modern age is that billions of voters think they have free will, but their every action and belief is now increasingly set according to the algorithms dictating what the read, see and buy. In the US, its been the subject of judicial hearings: Algorithms and Amplification: How Social Media Platforms Shape our Discourse and Our Minds.
Regulation is never a great solution, but maybe it is time for greater government action over the windfall profits being made by Big Tech behemoths? If Amazon is swamping the high-street because it runs cheaper – even it out by taxing them higher! The logic is simple: Amazon’s success puts high streets out of business and causes additional social welfare, medical and other costs from the workers and businesses it displaces. You can make similar arguments for any Big Tech monopoly…
Except, maybe Facebook. If I can think of any reason not to dump Facebook, I’ll be sure to let you know. Basically it’s just an advertising platform, and its primary advantage of targeted advertising to likely interested, motivate buyers, is about to get much weaker. Sell. There are plenty of other ways to advertise.
I have some further points to make re the need to regulate Tech, looking at it from a slightly different perspective of when Tech is Good or Bad for the environment and ecosystem (not just from the perspective of climate change), but I will save that up for Part 2… It will be about the pros, cons, and potential costs of launching Low Earth Orbit coms satellites, and will ask about the perceived public need vs public good!
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