Tagged: future of democracy
September 25, 2018 at 10:48 am #4657
A series of posts on the future of democracy has produced a lot of excellent content in the comments. There’s no good way on this platform to organize it all into a readable format that holds up across multiple blog posts. As an experiment, I’m trying to capture a sample and repost it here. If it works I’ll refine it.
September 25, 2018 at 10:49 am #4659
tmerritt15 Aug 2, 2018 @ 16:40
Yes, the Federal Government is dysfunctional at this time, but it was not always so. On the other hand, in many areas of the country liberal democracy is functioning well. True, there are problems, but that is always the case. In my location in Seattle, I feel that overall our state, county and local governments are generally functioning satisfactorily. We do have difficulties, but the voting public is generally able to apply corrective measures. Maybe there is a lag, but overall the system is functioning. At the moment, we do have difficulties with our City Council, but the people will hopefully take care of some of the problems in the Council elections in 2019.
Regarding the Federal Government dysfunction, I feel that mostly it is due to the compromises made during the Constitutional Convention required to get the delegates from the several states to approve the proposed Constitution. The Federal Government as originally structured by the Constitution is hardly a liberal democracy. In general, it was a limited democracy of the the elites.
Some of the areas where the original structure failed the liberal test are:
1. Slavery was permitted.
2. Senators were selected by state legislatures.
3. President was selected by the electoral college.
4. Women were not allowed to vote.
These are just a few of the deficiencies; some have been corrected over the years, but many remain. Let us remember that if election of the president was direct, Trump would not have won. He was able to take advantages of one of the Constitutional deficiencies.
Earlier, I mentioned the compromises required at the Constitutional Convention required for approval. Those were primarily due to the different outlooks of the various regions in the United States. Those are still prevalent. I recently finished an excellent book, ‘American Nations: A History of the Eleven Regional Cultures of North America’ by Colin Woodward, 2011. It is a little out of date having been published in 2011, but still applicable. He recently published a guest opinion in the NY Times, linked below. This article provides an update to include the 2016 elections, and partially addresses the urban-rural divide that has been much discussed. That happens to be the major difficulty in his analysis, in my opinion. The article also summarizes the divisions rather nicely. See:
This is a longer post than intended, but I’ve refrained from writing a reply to this thread, wanting to watch how Chris develops his concept of the failure of liberal democracy. In summary, I feel that that liberal democracy is not failing, but it does need some structural revisions, particularly in the United States. Many of the dysfunctions are traceable to the compromises required at the Constitutional Convention due to the regional cultures in the US.
September 25, 2018 at 10:50 am #4660
Chris Aug 3, 2018 @ 15:30
***Yes, the Federal Government is dysfunctional at this time, but it was not always so. On the other hand, in many areas of the country liberal democracy is functioning well. ***
There’s more coming here, but first a few thoughts.
I am hypothesizing that the dysfunction we’re all witnessing in the federal govt, and in democracies in Europe and much of Asia, is more than a blip. It’s not that govts were always bad or slow, but that circumstances have changed in ways that render rule of law-driven institutions too cumbersome to adapt and thrive. Those institutions may still be “good” and desirable, but they may also be so slow and resource-intensive that most people in most places lose the ability to sustain them.
But democracy works great where I live. Perhaps that’s true. Many countries still have monarchies and aristocracies. You can still find parts of the world where one’s tribe or clan affiliation is the most important element of their lives. Even if that hypothesis is correct, it doesn’t mean democracy will disappear – it means it will be eclipsed by other, cheaper, more efficient and adaptable forms of social organization.
In America’s richest enclaves, liberal democracy on a local scale might outlive many changes at the macro level. However, if you look closely at the state of democracy all over the country at the local level, you find wide swaths of the country that are utterly and horribly dysfunctional. The water crisis in Flint happened because local government was wrecked in a proto-Trumpian implosion almost twenty years ago. The city still doesn’t control most of its core services because it can’t. Stockton, CA is still trying to rebuild its local govt, though being in California (and in striking distance of SFO) still helps.
Local politics in my hometown, Beaumont, TX ground to a halt in the 80’s over racial tensions. They are unable to perform the simplest tasks. Very little is left but a taxing authority and a few functioning bureaucracies. A quick counts shows nearly as many schools closed as still open. Suburban areas are slightly more cohesive, but only by a narrow margin. There just aren’t enough people left there who can spell big words, while the demands continue to accelerate.
As for downstate towns here in Illinois, it’s hard to know where to start. Cairo has been getting a lot of press lately, but it’s hardly alone. Yes, these places are short on cash, but they’ve never exactly been tons of cash in these places. They’re just consistently dysfunctional, in the way we used to talk about hopeless urban slums or third-world countries. There’s no one there with the wherewithall to help them turn things around.
I suspect that affluent areas will weather this trend, to the extent that they want to, but places short on resources may be quickly overwhelmed.
September 25, 2018 at 10:51 am #4661
WX Wall 2018/08/04 at 7:34 pm
I’m actually a lot more upbeat about liberal democracy beating parallel-processing private entities (at least in theory; America isn’t doing so hot right now).
Even as a Bernie-style socialist, I have no problem with allowing the private market to supply a public need, as long as a) that’s truly more efficient than the govt b) appropriate regulation is implemented. That’s why, e.g. I support Medicare-for-all: the private system of providing health*care* in America is the best in the world. The private system of providing health *insurace* is the worst in the world. Therefore, nationalizing the insurance system to better provide the functions of insurance (security from financial catastrophe, universal coverage, and structuring financial incentives to improve overall health) while leaving the actual provision of health services firmly in the private sector, is fine with me.
The problem is that, at least in America, and at least since Reagan, the decision of private vs. public provision of services has been an ideological decision, not a technocratic one. When public services are sold to the highest bidder (or highest lobbyist) with no care as to whether they’ll actually do a good job (e.g. the parking meters in Chicago), then it’s no wonder that such services function poorly. The fact that, despite the evidence that every single country in the world has proven that public health funding is superior to private health funding (actually, it’s true even in *our* country: we already have Medicare-for-all. We just restrict to to the elderly), we still are unable to do it, is purely ideological.
Even in the halcyon days of liberal democracy, much of the actual provision of public services was done by contracted private entities. The NIH & NSF are funding organizations that disburse billions of dollars to private entities for health and science research. Even the decision as to what to fund is made by committees of scientists. The only role Congress has is allocating overall amounts for each institute within the NIH, and appointing the NIH head (and setting up regulations). Literally everything else is run by the private health research industry. It works well.
The problem with kiddie concentration camps isn’t that they’re privately run. It’s that they exist at all, which is a problem of policy-making, not efficiency.
You might argue that in public entities, ideology will always get in the way. That’s true, but anyone who’s worked in a big corporation will agree ideology can be just as bad in the private world. It’s what made Xerox dismiss all the innovations coming from its own research center (PARC) (“We’re a copier company! What’s all this computer stuff you’re talking about?!”) until Microsoft and Apple stole their ideas and killed them off.
You might be quick to point out that that’s exactly what parallel processing does: Xerox died off from its mistakes, and MS and Apple took over. Well, sure, we allow that in relatively non-critical areas like computing (back in the day). What happened to private Wall St. banks that were so incompetently (and fraudulently) run that they nearly tanked the world’s economy? Even the ones that went “bankrupt” e.g. Lehman Brothers didn’t really go bankrupt. A merger was arranged, greased with plenty of public dollars, such that guys like JP Morgan and Goldman Sachs came back with record profits just a few years later.
So this parallel processing, evolutionary style of rapid adaptation is only allowed to happen in places where failure doesn’t lead to massive social consequences i.e. in the periphery. Which is not 90% of the unglamorous, unsexy, hidden parts of the economy which keep our country going. When was the last time a private military contractor went bankrupt due to competitive forces? Even as their costs and delays escalated, and their products were found to fail their original requirements? Do you think Exxon will ever be allowed to go bankrupt? Or any of the national telecom companies? For your mention of AMC, I’d return with GM, which we bailed out just a decade ago, and should have, by any measure, been dead well before that.
I’d also pushback on the notion that private companies are necessarily more agile and effective than public companies, even for complex tasks requiring lots of specialized skills. For a given size and complexity of a problem to be managed, the public entity frequently does better. It’s not fair to compare the HHS, with its numerous massive mandates, to a private entity that’s focused on a very small, narrow goal. You have to compare apples-to-apples. So let’s do that:
Previously, I mentioned that the British EIC, despite being run as a private entity, completely mismanaged its primary asset. Under its management, India went from being one of the leaders of the global economy to a basket case, ultimately requiring the EIC to be bailed out by the government of Britain, which had to spend increasing parts of its own wealth just to keeping India alive (literally; starvation and famine were big problems), which is the reverse of what a colony is supposed to do for you. Since independence, for all its warts, its chaotic, socialist, corrupt democracy, with large parts of its economy nationalized, poorly run, and ossified (the term “license Raj” comes from there), and a huge chunk of its electorate illiterate and riven by caste, religious, and ethnic divisions that frequently lead to deadly riots, has managed to rebuild India’s economy far better than the EIC ever did.
Corporations’ fundamental weakness is they don’t look at long-term outcomes, and their decision making is less subject to pressure from their customers than you think. While politicians may only look to the next election cycle, CEOs usually only look to the next quarter. And when was the last time a disgruntled United customer had an actual vote on who their next CEO will be? How about a solitary United shareholder? Large corporation’s governance has less turnover than a soviet politburo, and is subject to less “evolutionary pressure” from its customers than a democratic govt.
I’d use the example of renewable energy as a recent positive example: solar and wind were felt to be the future of our world’s energy for decades and decades. Companies ignored it, preferring to focus on their cash cows of oil, gas, and coal. The only work done was by small companies kept alive by government grants and subsidies. They received a big boost with the election of Bill Clinton, who made a larger change in our energy policy than any government or private entity before. He also turned it around far faster than most companies ever do, despite the plodding govt bureaucracies. It turned again when GWB came into office and favored his texas oil buddies. And turned again when Obama came into office.
And now, thanks to that constant government foresight about the future of energy, and despite private energy companies’ stubborn refusal to see it, we’ve built a renewable energy economy that is just beginning to compete against fossil fuels without any subsidy. In a decade, coal will be gone, natural gas will feel the pinch, and (if electric transportation ever takes off), oil will be primarily used for plastics and other chemicals.
At this point, the industry is strong enough that even if Trump removes all subsidies, all private research funds, etc., the renewable industry will survive, compete, and win against fossil fuels. Heck, BP now sells wind systems. You can say this is a triumph of the parallel-processing nature of the private world, but that would ignore the fact that it was the government which saw the future, turned on a dime, and retooled our energy policy to better serve our needs.
Another example, this one somewhat paradoxical: in the race to the moon, ironically, it was America that used a fully public, top-down approach. Everything was done by NASA. Private contractors, to the extent they were used, had narrow mandates, and were frequently limited to very small, noncritical parts of the mission (like developing Tang :-). In contrast, the USSR used a public-private hybrid similar to our modern military acquisitions process: multiple private design bureaus (equivalent to prime contractors) who managed their own complex private supply chains, and ostensibly competed to provide what the Soviet space agency Roscosmos specified. To be fair, a “private” company in the USSR was not exactly the same as a “private” company in the USA, but the idea of parallel processing, competition, etc. were espoused more by the Soviet effort than ours; in contrast NASA was a model of Soviet 5-year planning. Guess which one managed to land a human on the moon?
So I think the critical error in your thinking, Chris, is not comparing similar functions. You can’t look at a single entity running a few camps and extrapolate to massive functions like managing our nation’s health. Are private roads managed better than public roads? Are public universities like Berkeley, Michigan, etc. any worse than the top private universities, while charging less tuition? If this trend towards increasing complexity continues, could it be possible that it would actually favor public institutions, which are much more comfortable with such expansive roles, filled as they are with disparate stakeholders, competing mission priorities, nebulous, long-term outcomes, etc?
I’m not trying to be a pollyanna. I’m worried about the same forces you’re worried about. But I’m a little more hopeful that we still have the ability to deal with them (or maybe I’m just less hopeful that private entities can do a better job. I am a Bernie-bot after all 🙂
September 25, 2018 at 10:53 am #4662
Chris 2018/09/06 at 9:35 am
***What makes the U.S. unique among the G7 countries that universal healthcare is not possible?***
So many things, first of all of course: race. But then there are some practical issues that get in the way of a national insurance scheme.
For starters we’re big. There isn’t another country with a health insurance system that covers half or even a third of the population of our system. Big isn’t necessarily a problem in insurance. In fact, scale is supposed to make a system cheaper, but we also have some other issues.
We do not live under a unitary central government, like France or Denmark. We live in a system of 50 federated states. This matters in practical and legal ways.
In practical terms you experience significant differences in the functional medical-delivery needs of a population in the northern peninsula of Michigan or people living in the MS Delta or St. Louis or Phoenix. The French, even with their large population and relative geographic distribution, can implement a relatively unitary system of healthcare delivery, which simplifies billing, approvals, prescription-management and other processes by orders of magnitude over what we would need nationally. Some things just work better, cheaper, and more effectively when they are more artisanal.
Medicare actually incorporates some of these realities into its structure, just not quite enough of them. Medicare is 50(+) different systems, all crammed under the same complex regulatory umbrella.
The world’s finest healthcare systems are in Europe, particularly France, Holland and Norway. Those systems are complex, but they share some characteristics. They were all developed under relatively conservative doctrines. Unlike systems in the UK and Canada, they evolved incrementally, preserving much of what was best in their old systems. Almost all doctors and hospitals are private sector institutions, not government or civil service employees. In the best systems, the state took over health care financing, not health care delivery.
It should also be noted that although health care in those systems is delivered by the private sector, most of those insurance companies, hospitals and medical practices are organized as not-for-profit entities (there are some exceptions, again it’s complicated). So capital markets have little involvement in health care delivery even though almost all care if delivered via the private sector.
The important lesson for us from the European experience, as compared to the much less happy experience of the British in particular, is that you should use what’s best about your existing system rather than trying to remake an entire healthcare system out of thin air. Here, that probably means leveraging private sector, for-profit insurers and hospitals simply because that’s what we’ve already learned to do. If there are practices or habits of those institutions that pose problems, then build rules to address those practices rather than trying to burn it all down.
Chances are, if you offered Americans universal access to our existing private health care system at prices comparable to Europe (including both taxes and premiums) we would all be thrilled. And any state could do it if they simply ginned up the political will.
September 25, 2018 at 10:53 am #4663
WX Wall 2018/09/04 at 8:52 pm
I have to really disagree with you on this one Chris.
The reason CA and NY don’t have Medicare for all is because a) you can’t control for adverse selection (sick, uninsurable people moving to your state for the insurance, and healthy people moving out) and b) they can’t get waivers from the Federal govt (specifically re: medicaid) to set it up. The Federal govt is happy to grant waivers if you’re a red state looking to slash medicaid benefits below federal minimums. They do not grant them (especially under Republican administrations) if you’re looking to take your medicaid money and pool it into a larger universal coverage plan. Also, c) I agree with Creigh: public insurance is countercyclical spending (i.e. spending goes up when the economy goes down) which is very, very dangerous to undertake if you don’t control your own currency (since spending goes up just when tax receipts fall), especially with a large program like healthcare.
Despite that, states do and have tried. Oregon has a medicaid-based coverage plan that has resulted in consistently lower uninsurance rates than the nation. Hawaii, where adverse selection is less of a problem due to its geographic isolation, mandated employers to provide health insurance back in *1974*, and it has worked well for decades since. Maryland has an all-Payer model (in which the state negotiates with providers and sets 1 fee schedule, which all insurance companies — including Medicare and Medicaid — must use) which reduces costs and allows them to implement quality measures that a fully private, fragmented market wouldn’t allow. Each one of these programs works better than the private system, and yet, for ideological reasons, they’re all pooh-pooh’ed at the Federal level. The reason MA’s system works and the Federal system doesn’t is because the Republicans ensured that the Federal system would be broken. Obama bargained with the Repubs and ultimately didn’t get a single vote from them. Yet somehow, the crappy compromises he made for them (like no public option) stayed in the final legislation. Despite that, and for all its warts (I was not a supporter, trust me) it’s significantly reduced uninsurance rates.
But my bigger problem is this: I strongly disagree that the US is *so* different from the rest of the world that none of their examples can be used here. We already have Medicare-for-all. You just have to be 65 years old to access it. Do racial tensions in this country automatically disappear when you hit 65? The number of retiree Trump supporters argues otherwise. And yet Medicare works. France modeled its program on *our* Medicare program, as did Canada.
The truth is, we don’t have to use other countries as examples. We have implemented every type of public, universal health care system in existence right within our borders, and then for ideological reasons, deliberately restricted their reach, even though they *all* work better than the private system, specifically to preserve the profits of the private insurance industry.
Do you like France’s system (public health financing, with actual care provided by private entities)? They modeled it after our own Medicare (restricted to >65 year olds).
Do you like Canada’s system (state-implemented payment systems, with federal regulations on minimum care, funding, etc.)? We have medicaid: a state-based system, with federal cost-sharing and minimum coverage regulations (restricted to poor people).
Do you like Britain’s NHS (fully federally funded and owned, providing care in an integrated model, with the option of going outside if you have private insurance)? We have the VA (restricted to veterans).
Do you like the German or Swiss model (strictly regulated private insurance companies that compete to offer a standardized package of coverage options)? We have the Federal Employee Health Benefits Plan (FEHBP) in which the federal govt sets standards, private insurance companies compete to offer the standardized plans, and employees select whichever plan they want, with their employer (the fed govt) paying for it (restricted to federal employees).
Every single one of these systems is in place today, cares for a legislatively restricted population (so restricted in order to deliberately leave a large chunk for private insurance to profit off of), and does it better than the private market. Every single one of those plans (including the VA and medicaid) beats the private market in quality, cost, coverage, and even customer satisfaction. They manage to do so while navigating all of the political constraints like race that you mention. Why am I not allowed to purchase Medicare coverage for myself? Why doesn’t the government figure out my actuarial cost and sell it to me in a revenue-neutral way? How about the VA? or FEHBP? Heck, I’d even buy medicaid over an Obamacare plan (far more extensive coverage, broader provider networks, and much less deductible / copays).
Obamacare was a last-ditch attempt to preserve the private insurance market, with all its failures, by pumping enormous amounts of subsidies into making it work. Despite that, 70% of the net expansion of the insured population was from the medicaid expansion. IOW, we could have gotten 70% of Obamacare’s benefit, with much less cost, simply by expanding medicaid eligibility, and leaving the private market to wither and die off, as it has been gradually doing for decades (and as economic forces would dictate).
Even now, according to a study by the NBER, the private market i.e. Obamacare, is such poor insurance, that people who don’t get any subsidy are financially *better off* paying the penalty and not buying the insurance product, even with the risk of catastrophic medical bills that that entails:
Here’s the choice quote:
“At higher income levels, small or zero subsidies and currently modest penalties will not be enough to affect the large welfare losses that the middle class uninsured experience were they to buy coverage,” the report says. Those in good health were “consistently worse off from purchasing coverage regardless of the assumptions made,” according to estimates calculated by the researchers.
The truth is, we’ve already figured out the hard part: how to cover people who are actually sick (the old, the poor, the disabled, military, etc). The private industry was left with the healthiest part of the population, and they can’t even manage to do that right, without bankrupting their customers or trapping them in a morass of bureaucracy that makes the DMV look like a model of efficiency. And as soon as they actually get sick, they get dumped on the public rolls anyway (lose your job and go on medicaid; get disabled and go on medicare). Right now, the govt (federal through local) already pays ~60% of the nation’s health bill. And that’s without the tax deduction that you astutely identify as a hidden public subsidy. We already have socialized medicine for the ones that need it, because private insurance has no interest in actually providing for the care of its beneficiaries. They dumped that obligation a long time ago to the government. It’s the rest of us that don’t actually need much care that private insurance jealously guards for the sole purpose of rent extraction.
As much of a supporter of Medicare-for-all as I am, I could be more accurately described as anti-private-insurance. I’d be glad to have FEHBP-for-all, medicaid-for-all, or even VA-for-all. Every single one of those is a better option than the current private world. Politically, it’s easier to sell Medicare because everyone has a grandmother / grandfather on Medicare, whereas not everyone has someone on the other programs. Which is why that’s what’s being pushed. But literally any system would be better than the private system we have now (and that’s not conjecture; that’s proven, within our own borders).
September 25, 2018 at 10:53 am #4664
WX Wall 2018/09/12 at 11:28 pm
So how did Medicare become so popular in this country that it’s considered the third rail (touch it and you die) of politics? You can even see exactly how big a chunk Medicare takes from your paycheck. It’s not rolled into one lump sum income tax like the rest of the govt’s programs. Every working American is reminded every 2 weeks just how much Medicare is taking from their paycheck, to cover plenty of people who don’t look, act, or talk like them. It also covers >55million people i.e. greater than the population of any Scandinavian country. Yet it seems to be holding up pretty well…
September 25, 2018 at 10:57 am #4665
Chris 2018/09/13 at 8:44 am
I would argue that the structure of Medicare explains its success despite the US’s issues with racism. It was structured to feel like a work-for-pay system, at a time when the only people who had full access to that system were white men. In reality of course its not a pay as you go, work for benefits system. There were a few white lies told to buy white votes. So be it. Such is democracy. Most people still think that the benefits they paid into the system are paying for their Medicare, this creating the impression that “the undeserving” (you know who they are) have been somehow locked out. And once you start depending on that program for your survival you tend to worry less about the welfare characteristics.
And lets not forget that America has 50+ Medicare systems, all with their own rules, funding and administration. That’s been key to its success, but still not as decentralized as it probably needs to be.
September 25, 2018 at 10:58 am #4666
WX Wall 2018/09/12 at 11:28 pm
I really like these articles, but you can’t cherry-pick examples.
You claim that the future is a decentralized world, and that corporations are the prime example of this, and yet corporations are getting *bigger*, not smaller. Thanks to a spineless Justice Dept. corporations are merging and becoming behemoths. Those small, nimble companies that you’d expect to kill off the dinosaurs end up getting squashed by them or bought out (and then squashed…).
Even in the tech world: Google and Facebook together take more of the online ad revenue pie than the rest of the market *combined*. No other company even gets 5% of the market. There is no oxygen left in Silicon Valley for a new company to thrive. In the first tech wave, of the ’90s, the goal was to IPO, because it was reasonable that if you created a new product, you could create a sustainable company around it. Nowadays, no one IPOs. Everyone’s goal is to get acquired by one of the FANGs, because there’s no route to actually building a new company that can thrive on its own two feet.
After the breakup of AT&T, AT&T (i.e. the international calling arm) was supposed to have been the winner: they were no longer the regulated local phone company, unconstrained by hidebound regulations, and could compete full bore in the emerging telecoms world. Plus, they kept all of their world-renowned Bell Labs research laboratories, and even owned much of the critical infrastructure and expertise on that new emerging technology, the internet. If anyone was placing any bets on who would survive after the breakup, AT&T, or the baby bells, I’d bet no one would have bet on the baby bells. And yet, AT&T is gone (as are the other unregulated telecom companies of the time, GTE, and (the old) Sprint), and the two largest telecom companies are former Baby Bells (Verizon aka NY Bell and AT&T aka Southwest Bell).
And this was not because NY and Southwest Bell were decentralized, ferocious innovators and disruptors. Far from it. They benefited from the govt. monopoly that allowed them to remain centralized, milk their customers on their ancient, crappy, copper cables, and then use this money to buy out competing Bells and other competitors who didn’t have access to that spigot of government-protected, free cash.
Motorola invented the cellphone and Bell Labs (aka AT&T’s research) invented most of the foundational technologies of telecoms (copper cables, fiber optics, wireless networks, etc.). Neither is alive today. Meanwhile, Verizon and Southwest Bell, inventors of nothing, are massive and profitable. How does your theory explain that?
Believe it or not, I actually like your theory. But the problem is that corporations only work that way *in theory*. Just like government works like Schoolhouse Rock, *in theory*. You’re comparing the way government works in real life to the way you’d like corporations to work in theory. That’s not going to be accurate. More accurately, in practice, the most innovative, disruptive, customer-focused companies frequently die off (although certainly not always; just like govt isn’t always ineffective), and the most coddled, least competitive companies stick around. How many new car companies have started in America in the past century? Why did they die off? Are you saying not a single one of them was more innovative than GM, Ford, or Chrysler?
Maybe you’d argue car companies are industrial. Tech is something new. My first objection is to say no, it’s not different this time 🙂 Tech is starting to coalesce as well. Microsoft is still ruling the enterprise roost for decades (an eternity in tech time), even during a period in which it was universally reviled for its shoddy products and buggy code, and when much better products were available.
And much of what passes for innovation in large tech companies are from acquisitions. Google didn’t invent Android. That was an acquisition. Neither was YouTube, which was killing Google’s own video service (called Google Video), so Google used its deep pockets to buy them out rather than compete. IOW, even tech companies behave like old-school industrial conglomerates, buying their competitors and their growth. Zuckerberg at least invented Facebook, but then he bought WhatsApp and Instagram (and tried to buy SnapChat), so that no matter what social media technology you wished to use, he would profit from it. How is that any more innovative than Proctor & Gamble or Unilever having 10 different brands hitting any and all consumer spots to make sure whether you’re a teenage girl, a 20-year old guy, or 50-year old transgender person, you will shower with a Unilever soap?
Like I said, I like your theory, and if corporations behaved the way you say they did, I’d be the biggest right-wing free market guy out there. But in practice, they don’t. Not any more than governments do.
September 25, 2018 at 10:59 am #4667
Chris 2018/09/13 at 8:36 am
First, you’re definitely on to something. One of the relatively simple things a competent central government could do it anti-trust. However, stop for a moment and perform this exercise.
Everyplace you’ve used the name of one of the FANG companies, or any other current behemoth, substitute Wal-Mart, Best Buy, AOL, Home Depot, or Barnes & Noble. Or, roll back just one era further, and insert the names Nokia, Blackberry, Sony, IBM, Microsoft, Oracle or Compaq. It is very hard to stay on top, and Facebook in particular is set for a spectacular fall fairly soon.
Anti-trust is a very important function, and the more rigorously it is pursued the more dynamic and prosperous the environment. Corporations need to die faster than people. However, when you look closely as the lived experiences of corporations in the wild, the only ones who seem to securely survive in positions of hefty power are the ones like Bell and AT&T that manage to achieve a kind of quasi-governmental status through their federal contracts or through outright governmental protection. We are seeing something similar and particularly nasty happening today in the banking industry.
We have an innate tendency to extrapolate that today’s status quo will be tomorrow’s status quo. The company that will neutralize Google will show up out of nowhere one day and most people will forget overnight that they ever worried that the company could be invincible.
There’s a funny dynamic in the tech business that I don’t yet fully understand. It seems to function in a similar way in other industries, other than resource extraction. Once you corner a market by becoming the 800 gorilla – the big technological winner, the market power of that asset becomes commoditized and it’s value starts to crater. If you surf the wave well, like Oracle and MSFT have done (and Google is doing now with search), you can ride your diminishing returns for a long time and make a lot of money on the long tail of your decline. IBM is the classic example, the lumbering, arthritic dinosaur that just refuses keel over. But the economic rewards of being a challenger in those markets are so ridiculously huge that all the talent and capital flows that way. It explains why Google broke all of its innovative businesses away into other entities, protecting them from the “bit-rot” that sets in on an established business.
Long way to say – anti-trust is fantastic. It makes a great economy greater. But even without it, unless you get specific government protection of your industry competitors still emerge. And even if you do manage to get government protection for your industry, like the taxi business, someone could still come along and wipe you out. Anti-trust is a fantastic government function, but it may not be as necessary a people tend to think.
September 25, 2018 at 11:00 am #4668
WX Wall 2018/09/13 at 11:41 pm
I do have to concede that 10 years ago everyone thought Wal-Mart was going to control the world and now they’re fighting for their life against a geeky book-seller from Seattle 🙂
And you’ve made this point before (which I agree with), that anti-trust is essential to keeping an economy healthy. Interestingly, the U.S. is a large enough economy that breaking up its large corporations could still leave them large enough to benefit from the economies of scale of capital pooling, etc. An economist named Ravi Batra, in a book entitled _The Myth of Free Trade: The Pooring of America_, noted that we could have all the benefits of free trade (improved competitiveness, comparative advantage, etc.) even while protecting our markets from outside companies, if we would just break up our big companies. For example, we didn’t need the Japanese auto makers to kick Detroit’s butt and improve car quality if we just broke up the American auto industry. Someone small and hungry within our borders could have done what the Japanese did if GM/Ford/Chrysler weren’t so damn big.
I’m intrigued about your idea that once you conquer a market, your product becomes commoditized. That’s counterintuitive to what monopoly power is supposed to grant you. And I’m not sure it happens the way you describe. Microsoft Office became the dominant office software (even more dominant than Windows in the OS realm). It didn’t get cheaper. People just resigned themselves to buying it (or pirating it 🙂 ). Yes, eventually they are now competing against cloud-based platforms like Google Apps. But MS Office is by no means priced as a commodity.
I think maybe what happens is that companies get complacent once they conquer a market. Once Microsoft had 90% share of the Office software space, they stopped innovating, confident that everyone would pay up for the next version, no matter how much they grumbled about it. I don’t think there’s been much innovation in the word processing space for probably 20 years. If that’s what you mean by milking the long tail, I definitely agree. And then eventually someone comes from left field and wipes them out.
Did you ever hear of the trophy headquarters paradox? That when a company builds a brand spanking new trophy headquarters complex, it marks the beginning of the end for that company? It works surprisingly well. And the explanation is that when a company is growing, it’s using every spare dollar to keep growing. They rent office space anywhere they can get it, and throw in cheap tables and chairs because their focus is elsewhere and the money is better spent pursuing their market opportunities. But once you’ve completely conquered a market, with no growth in the primary market left, and you have no idea what new markets to explore, or see no opportunities in which to invest the massive profits your monopoly is generating, you start spending it on frivolous stuff like a trophy HQ. Which is about the time when someone hungrier than you starts plotting your demise.
Which is why I’m considering shorting Apple 🙂
September 25, 2018 at 11:01 am #4669
WX Wall 2018/09/14 at 7:38 pm
How are what salesforce and amazon doing different than Andrew Carnegie spending his fortune building public libraries around the country? Or Rockefeller founding the U. Chicago and the Rockefeller Institute? I ask because none of these philanthropic efforts — major efforts in their day — led to a wholesale reduction in liberal democracy.
Also, I still am not convinced companies these days actually have an interest in these issues beyond virtue-signalling to their customers and employees. It’s nice that Amazon is concerned about the homeless. How about the plight of their warehouse workers? Their compassion curiously seems to stop at those doors.
I point this out because I still believe that corporations will involve themselves with the government as much as necessary to ensure their economic health / competitive advantage, but they have no interest in running the government for the rest of us. Sure, the Treasury Secretary is now a position wholly owned by Goldman Sachs. Does that mean GS is now suddenly going to also task their high-level executives to solving inner-city crime? Or that they’ll also capture HHS and run Medicare for us?
Liberal democracy may die off, but I don’t see corporations having any interest whatsoever in filling the void, even if — as you assert — they might be better at it. Rather, they’ll continue to do what they’ve always done: capture the parts of the govt necessary to ensure their business success, and let the rest of the govt and society hang. Bring a hundred brilliant engineers from Google into Congress, and maybe they’ll sort out our telecoms and tech policies (or more likely, merely ensure their competitors die off), but do you think they’ll really care about (or have the background to intelligently address) urban poverty? Foreign policy? Dairy subsidies?
I realize you’ve said before that you’re not necessarily saying corporations will do a better job than enlightened government, merely that that may be what we’re stuck with. But my argument is:
1) even if the world descends into chaos, corporations have no interest in addressing anything beyond their narrow economic interests. They will not step into the void. Something / someone else will have to.
2) Their economic interests are very narrow, not nearly as broad as you think. Yes, salesforce was instrumental in getting Indiana to drop their bathroom ban. And maybe their CEO, Benioff, is genuinely interested in addressing social issues. My cynical take is, again, this is virtue-signalling in their competition for talent, but I’ll give him the benefit of the doubt. But he’s an exception. Just like Carnegie and Rockefeller were exceptions in the Gilded Age (they were ruthless in business but at least had some notion of giving back). There have always been exceptions. I don’t see the sea-change in corporate attitudes that you’re saying is happening.
Even in the touchy-feely world of ultra-liberal (socially, at least…) Silicon Valley, who else is talking about social issues? What have Facebook, Apple, Twitter, SnapChat, Netflix, Microsoft (aside from Gates’ personal foundation) done that’s comparable to Salesforce? And not a single one of those companies, Salesforce included, is talking about anything else besides social issues. Is that all there is to public life? You once astutely noted that even if we elect 100 Ocasia-Cortez’s to Congress, Goldman Sachs would have no problem tying them up with debates about transgender rights and the proper use of the term Latinx. IMHO, that’s exactly what Salesforce and Amazon’s efforts amount to. Not a genuine interest in solving the nation’s problems.
September 25, 2018 at 11:04 am #4670
Chris 2018/09/13 at 8:36 am
The Carnegie comparison is apt. So, what makes this situation different from the late 19th baron/donors, or for that matter, the Roman patronage system? What Bezos is doing is how public works got accomplished in a pre-democratic world and the early days of the US.
When Carnegie created the public library system and founded universities, those were not government functions. State universities began to take shape after the civil war, but didn’t take on their current missions (beyond their focus on AG/industrial training and educating teachers) until mostly the early 19th century. Carnegie et al were nudging the political system toward a more active role (though that wasn’t their intent). Having democratic governments assume responsibility for these functions was a step toward creating real representative institutions. Having a new wave of 21st c. barons claw back these functions from the public square is a very big step backwards.
Do companies have an authentic interest in these issues, or are they merely mounting publicity campaigns? To take it further, are companies likely to invest real thought, effort and energy in a persistent way toward problems of public interest, or will they just splash money around and make bold statements?
This may need a whole piece because the more I think about it the more interesting and complicated it gets. Honestly, I hadn’t really thought it all the way through until your comment (again, the reason I love this little corner of the Internet).
Why will companies take on a public role more significant than Carnegie scattering coins around or Marc Benioff making grand, off-the-cuff pronouncements? Companies will coalesce around a more active, engaged political program for the same reasons that people do – to promote their threatened class and identity interests. Those class and identity interests happen to line up to a large extent with the interests of middle-to-high-income knowledge workers and more affluent non-white voters largely left behind by the GOP’s slide toward white nationalism.
To get where I’m heading with this you have to recognize something that I think gets lost in conversations about corporate power – corporations, like people, are not all the same. But like people, they have a peer cohort and rivals. And it don’t mean “rivals” in the sense of competitors. In this context, my business competitors in the marketplace will mostly be my class compatriots, like the way the steel-worker standing next to me in line to get picked up for day-labor is both my competitor and my “comrade.” My rivals are defined by their identity, and just as in the development of class consciousness among voters, there’s a process (I think happening now) of companies coming to recognize their authentic interests and class identity in politics, apart from just jostling with competitors for a few regulatory concessions. All companies are not the same. Some of them really suck. Some of them don’t. Some have been well-represented in politics. Some of have been under-represented. I’m positing that there is a large, powerful class of corporations who are under-represented in politics, share class and identity interests, and are increasingly frustrated about the advantages enjoyed by their rivals. They may be the emerging force that makes a post-democratic order take shape.
Let’s start with a look at the pathetic frustrations of the world’s under-powered corporate giants. Take a look at this interview with former Cisco CEO John Chambers.
Pay careful attention to the tone of his comments. He’s just dripping with ecstasy talking about his interactions with world leaders. Just listen to the douchebaggy thrill running through his anecdote about Shimon Peres’ personal advice to him. I mean, what advice have YOU received from Shimon Peres? Executives in our biggest and best corporations see the power they perceive as being wielded by their inferiors in public life and they want that. As of yet, they don’t have it and they haven’t quite figured out how to get it.
Then think about Google’s decision this month to give the US Congress the middle finger by offering to send a minor executive to a Senate hearing on tech bias. Senators insisted that Google send their CEO and Google basically said f-off, he has a much more important job than explaining big words to monkeys. They dared those morons to issue a subpoena and the US Senate backed down, mostly because Senators were terrified of what Pichai might say on national television if pushed. Worse yet they worried how stupid they would look when he just ignored the subpoena and everyone discovered that the Senate doesn’t have the power to make the CEO of Google do anything at all. Senators railed and yelled and stomped their feet and the president made ugly statements. Google hasn’t said a word about it. They’ve just ignored them. Because those idiots don’t matter.
The wealthy engines of the 21st century have a love/hate relationship with political power. Companies like Oracle and Cisco and even consumer companies like Nike are under-represented in politics compared to their class rivals. Will corporations fill the gap left by the decline of liberal democracy? Yes, I think they will. They’ll be engaging in a broader public policy role because it’s the only way to preserve their other priorities, including some basic human priorities that we all share. It will happen because those institutions are the last man standing, the last institutions with the power and coherence to act in that fashion, and their political engagement will be necessary for their class survival.
Why will they be in this position? Because our social environment has changed in ways that disadvantage the kinds of small, voluntary, participatory institutions on which our earlier system of democratic government was based, in other words, because our system is steadily disadvantaging and de-incentivizing citizenship (the premise of Politics of Crazy). It has in turn created new rewards for profit-making institutions that interact with the public in a vendor/customer model. Democracy is dying because we don’t want to be citizens anymore. We prefer to be customers.
Organizations built to thrive in that environment will grow more powerful, and they will have political needs. They will engage in the political system to meet those needs. The logic here is not that corporations=good and government=bad. The logic is that evolutionary demands dictate evolutionary outcomes, and our environment is evolving in ways that favor profit-centered entities like corporations, and possibly new forms that we haven’t even envisioned yet, like Southwest Key Programs which is formally a non-profit.
First, which corporations are likely to move into a more public role? Not all of them. Some of them are already occupying an outsized public role. Many of them are likely to shrink away as the relevance of their model declines and the power of the new knowledge/entertainment/consumer giants expands.
Exxon is a very different institution from, say, Starbucks or Proctor and Gamble. Exxon doesn’t have customers. It’s a dinosaur holdout from the days of war capitalism, built around resource extraction and labor exploitation. Sure, they hire some engineers and they perform some research, but they don’t make money off of innovation or talent. They’ll make their next dollar and their last off of grabbing access to more resources, not innovation or customer service.
Exxon doesn’t give a shit whether Florida sinks into the ocean and they never will. By the way, Exxon and the last remaining companies like it will probably die off in the next couple of decades. Yes, they are a profit-oriented corporation, but like liberal democracy they are built for a bygone age. Their collapse will be sudden and surprising, but certain and soon, because the pure exploitation model on which they exist is losing its power to deliver returns on investment.
Exxon is a little government, complete with its own army and diplomatic corps. And when needed, they can call in help from US and other militaries. They’ve even been credibly accused of having their own torturers. Exxon and the other oil and mining companies are a particularly ugly example, but the model extends to class industrial age businesses like the big automakers and old-school manufacturers. Their model is extractive rather than creative or innovative.
Think about Ford makes money. Now think about how YouTube makes money. YouTube can’t make one additional dollar by squeezing, harassing, or coercing the people who develop their content. They can’t make one more dollar by seizing and holding a patch of land. Change the way value is created, and you’ve changed the incentives that make a political system work, just like the development of industry changed the politics of agrarian societies.
Exxon is a class rival to companies like MSFT and Amazon. They hate each other the way Serbs hate Croats. When Google looks at a panel of Senators, they see a bunch of crooks in suits who work for GM and Goldman Sachs. Google isn’t planning to buy a spot on that panel next to Exxon’s Senators. In true Silicon Valley style, when they wake up to their “class consciousness” they’ll destroy that institution and replace it.
There are other kinds of companies out there besides the extraction extraction/exploitation model and the talent-driven innovators. Three major categories matter here and I only have time to dive into two of them right now: Small businesses, shit-companies (like the Trump org), and finance. Finance is just too big to tackle right now.
Small businesses are our biggest employer. They are the small restaurant chain, professional groups like doctors’ or accountants’ offices, dry cleaners, auto repair shops, and so on. They are legion in number and modest in influence. At local levels they tend to be relatively well organized through networks of chambers of commerce, etc. They are interesting to this discussion because they could form a bridge across which the emerging talent companies make their assault on the political system. Or not.
This class of corporations are currently aligned with the dinosaurs in national politics because that’s how you survive. Notice how Chamber of Commerce orgs across the country have lined up behind Republican politics even as the GOP has devolved into a hive of idiots. The general perception of these business owners is that they only retain their (critical) local political leverage by remaining aligned with the corporate dinosaurs nationally. That alignment is creating declining returns, but the arrogance and disdain of the talent class companies will make collaboration difficult. I don’t know what’s going to happen there. We won’t see shades of where that’s going until the talent companies start to mobilize more aggressively and openly in politics. This class of companies will never risk anything in politics. Nothing. Ever. They will slide under the wing of whatever institutions appear to be the winners.
Then there’s the shit companies, the true jackals of the corporate jungle. Private equity vultures. Secretive family trusts. Shell companies within shell companies within holding companies in partnership with offshore real estate investment trusts. Networks of pure parasitism, producing nothing, not even barrels of oil, while hiding and often laundering money for rich rentiers. Most mid-sized farming businesses are organized this way, starting with an extractive business model (grab land and squeeze it), then surviving on government handouts that provide them with cheap inputs like water and transpor along with direct subsidies so they never take a loss. Real estate business like the Trump Org are the poster-children for this class of businesses. Their political influence is absolutely pervasive. Our entire present economic order is built around their interests. It’s important to note that in economically backward places in the South, and especially in Texas, the political power of the shit-company/extraction-company axis is entirely unrivaled. There is simply no other organized political force. When you think about the relative attractiveness of a future political system dominated by companies like Red Hat and VMware, it’s a mistake to compare that future to some imagined democratic version of the present. Instead, for citizens across much of the country, you have to compare that future to what life looks like under the complete dominion of Chevron and a bunch of local shit companies.
Between the shit companies and the old-fashioned extraction companies you have the rivals to the rising order. Let’s take a look at one of the ugliest shit companies in the US.
JG Boswell is a farming company, sorta. Technically it’s publicly traded (pink sheets), but organized in a manner that lets it operate in secret. It has to, because it’s a corrupt shitshow. Boswell was built by a sort of corporate rapist who earned his first fortune helping to destroy California’s Lake Tulare, converting it to cotton production. Like most mid-sized corporate farm companies, it is an organization built on resource extraction, developing no contribution to human knowledge or technological progress. And the business would have died long ago without the enormous contributions of government in form the water-management infrastructure and direct public transfers of welfare dollars into their coffers. Cotton companies in California’s central valley alone collect roughly $300m a year in federal subsidies. Boswell alone took in $10m in direct subsidies over the past 20 years.
Thanks to grabbing control of the real estate under Lake Tulare, Boswell now also sits on billions in potential water rights. They contribute nothing to the economy that couldn’t be better delivered by another kind of entity, while collecting rents for their small collection of shareholders who grow richer without working, mostly on inherited assets. Boswell is an economically worthless entity that diverts an enormous amount of public value to its shareholders purely through its outsized political influence. In essence, Boswell, like most companies of its class, is a political action committee with an attached business.
Companies like Boswell or Exxon or Arch Coal are economic parasites. Almost everything economically useful they do could be replaced by machines or robots and the economy wouldn’t notice. Things would just cost less and work better. Along with these companies is a thick tier of shell companies and private equity entities that exist to obscure asset ownership and move money around. It’s the corporations that make of the world of the Trump family, the Madoffs and Martin Shkrelis who make money from manipulation, deceit and outright theft. Put these categories together and you have the average liberal’s mental picture of “corporate power.”
So, what happens in the boardrooms of Facebook, Twitter and Google when they receive a request from the US Senate to appear on some kangaroo panel? Twitter and Facebook enthusiastically comply and walk into a cluster-fuck. Google defers. Why?
First, revisit those comments above by Jack Chambers. The first generation of Silicon Valley CEOs are almost all like that. They have a kind of reverence for political power that’s weird and creepy. At a personal level, almost all of them are white, hyper-privileged, and despite their emerging corporate class rivalries, remain at a personal level aligned in class relationships with the Senators and other political dignitaries under whole leadership they chafe. The second generation of creative company leadership is starting to produce a different kind of executive.
Facebook and Twitter are run by folks who fit the first-generation model, like Chambers. Sheryl Sandberg and Mark Zuckerberg walked into that Capitol Hill shitshow because they remain more attached to their personal class identity than to the class interests of their company. Sandberg is trying to become a white Oprah. Zuckerberg seems to think he has some kind of future in politics, which is just adorable though a looming disaster for his company and its shareholders. They’re both hyper-privileged, East Coast white people lacking the slightest shadow of awareness of how our political system really works.
Dorsey at Twitter is an awkward case. A truly brilliant innovator who isn’t good other things, like running a company. He’s only in charge at Twitter because the company came so close to collapse that he, as the founder, was their last shot. It still isn’t clear whether it will survive. He looked like a deer in the headlights and clearly has no clue what was going on or what he was walking into.
Then there’s Google. Google was built by immigrants and currently run by immigrants. They aren’t privileged white people who went to Harvard on dad’s money. There are some hard mf-ers who run a very large, complex business. They aren’t interested in the thrill of receiving personal advice from Shimon Peres. Like much of this emerging second generation, Stanford, not Harvard or Yale, is the intellectual center of their world. They aren’t as white as the G1 folks and they don’t have the legacy social attachments and social inadequacies of the white nerds in G1. They have an adversarial relationship with the US political establishment both at a personal class level and at the level of this emerging business/class identity.
When they look at political power, they don’t see something shiny and glamorous that they don’t have. They see enemies in suits. They also see their inferiors in talent, drive, achievement, and grit. They see vulnerable dinosaurs. And they’re right.
Silicon Valley’s G2 is not made up of the white suburban computer nerds from the 80’s. These folks are hungrier, far more talented, less white and even less male than their predecessors. A much larger chunk of them are immigrants and their climb was much tougher than what Bill Gates or Steve Jobs faced. Microsoft was built by G1. Google was built by G2. And along with Google is emerging a wave of AI and data companies with a very different relationship to established political and class power in the US (G3?).
Mark Zuckerberg wants what those Senators have. This new generation of innovators don’t feel the same attachments to older indicia of class and power. They are far more hostile and disruptive in their posture toward government.
When Trump was elected, Uber CEO and white tech-bro Travis Kalanick, eagerly joined the president’s tech council. The company’s CTO, Vietnamese refugee Thuan Pham, took a very different stance.
Kalanick is gone, replaced by the Persian-American former Expedia CEO Dara Khosrowshahi. Kalanick is a throwback to Silicon Valley’s G1. G2 is taking over.
So, will companies start to take on a larger political role? Yes, I think they will. And the most powerful political force of the coming generation is likely to be a political realignment, in which under-represented talent/creative companies take on the over-represented dinosaurs of the industrial age and the hyenas of money laundering and exploitation that run our present system. The question for voters is, which side do you want to be on in that looming power struggle? How can voters organize themselve to steer the outcome of that fight? Because that’s what we’re really talking about.
Wealthy business interests have always held a lot of sway in our political system. We’re facing a future in which those political institutions themselves are losing their power and relevance, their capacity to influence outcomes. The question isn’t whether that’s a good or a bad thing, or whether companies will step up or not. They’ll be forced to take on a larger role to protect their class interests. The awkward and perhaps chilling question we face now is which companies best represent my political interests. Who do we want to win this fight over the remaining chunks of functioning government?
Forget about Republican or Democrat. Do you want to be represented by an alliance made up of Google, Nike and Lyft, or Exxon and JG Boswell?
September 25, 2018 at 11:04 am #4671
WX Wall 2018/09/21 at 10:44 pm
Arrgh. I was going to post this to reply to your comment in the last post and you’ve moved on. Forgive me if I’m hijacking this article…
First, let me say, despite my arguing with you on almost every post you’ve made, I’m coming around to the idea that liberal democracy may be doomed. It would be easy to think of Trump as a one-off that we could recover from, or that everything will be okay when the Republican party goes extinct, except that I’m worried that the Democrats, now that the economy is doing better, are losing their focus on economic issues and going down the rabbit hole of identity politics. This is to say nothing of the fact that other pressing issues I’m interested in basically get zero time (our surveillance state, privacy issues, the fact that we’re still engaged in two wars, etc. because the dems and repubs agree on all of them).
So maybe I accept that we’re staring into an abyss right now.
Will corporations fill the void? I really like the way you subclassify companies. You’re right, despite tech companies being ferocious competitors, they’re all allies in a deeper sense. They share the same worldview, live in the same communities, grew out of the same companies (e.g Fairchild Semiconductor was where most hardware and chip companies like Intel came out of), were funded by the same VCs when they were just starting, and sit on each other’s boards. The battle for control of the govt won’t come down to individual companies so much as coalitions of corporations formed based on their economic interests / fundamental worldviews / historical alignments.
But the question remains: what compels them to fill the void? The first question to ask is, does their business depend on having a functioning society? Exxon and their resource extraction cousins clearly don’t need that, and indeed, prefer working with corrupt autocrats because it’s easier to get drilling rights by stashing a few million in a leader’s Swiss bank account, than it is going through a democratic process. And hiring a few mercenaries to put down a popular protest is cheaper than dealing with tree huggers in a place where the rule of law still stands and firing at unarmed protestors is considered somewhat unseemly.
Do tech companies need a civilized society? Right now, perhaps they do. They need a country functional enough to provide internet access, at its most basic. And they need educated workers, extensive R&D, etc., all of which require a fairly advanced, functioning society. So perhaps right now, tech companies have a vested stake that will make them assume more of a burden than their narrow economic interests might at first seem to dictate.
But that leads to my second question: will they always need this? I think you need to look deeper at the lifecycles of industries. Every industry starts out as an innovation-heavy disrupter, grows to completely conquer a market, and then enters senescence as a rent-extraction machine. Eventually, hopefully, something comes along to kill it off and start the cycle anew. Ford, for example, disrupted the horse and buggy industry, and along the way, made massive innovations in modern assembly techniques that revolutionized mass manufacturing and that we still depend on today. GM’s Alfred P. Sloan was considered as much of a revolutionary thinker in the business world as Google’s Sundar Pichai ever will be. After the innovation settled down, they dominated their markets, then got complacent, then nearly wiped out by the Japanese, and now barely hang on thanks to historical loyalties (always buy American! Even if GM’s car is made in Mexico and BMWs are made in S. Carolina!) and periodic govt bailouts. They depend hugely on govt policies like subsidized road building, subsidized gasoline, lax fuel economy standards, lax environmental regulations, etc. for their business to survive. But those aren’t necessarily the types of policies I think you’re advocating when you talk about a “functional” society.
IMHO, the tech industry will follow the same path. They already are. Tech v1.0, i.e. the companies that came of age in the 80s/90s are down that road already. Microsoft was a massive innovator and disrupter, killing off a company so reliable in its earnings growth that it was called Big Blue, the bluest of the blue chips. Then it hit market dominance with its Windows and Office monopolies, became a rent extraction machine as it forced people into yearly upgrade cycles for software that was usually slower and buggier than the last version. FWIW, their new CEO Satya Nadella, IMHO, has done a good job realizing Microsoft’s imminent death if it continued to coast, and is turning the company around. But they’re still not part of the innovation economy so much as trying to maintain their historical stranglehold on profitable enterprise markets.
Apple was a disrupter and created computer GUIs and the entire modern smartphone era which is not just revolutionizing communications but the very fabric of our social interactions. But, having conquered a market so thoroughly, they have no clue what to do next. Their primary market throws off enough cash for them to outright *buy* a F500 company every year if they wanted to, to say nothing of being able to sponsor massive R&D and innovation endeavors. But they don’t. They’re paralyzed by their success and will likely start to decline (also, they built a brand-new trophy HQ, which, as I mentioned, is a great contrarian indicator 🙂
I would argue that industries in the early phase of this lifecycle require a functioning society, because they need that protected, nurturing environment to grow and thrive. But once they hit market dominance mode, that changes because a) they no longer need that environment and b) whatever they do need, they learn to provide themselves. Exxon is a great example. The oil industry disrupted the steam industry, and Rockefeller was a genius at many innovative things, from oil extraction technologies to transportation and storage. But oil is present in plenty of places around the world. Why did the oil industry happen to start in the U.S.? I’d argue it’s because only we had the requisite social supports for the nascent oil industry to thrive. Things like: a nimble govt (lol) that could craft sound policy around the new concept of oil extraction rights; engineering and mfgr’ing talent to drive the innovations in extraction technology; a pre-existing transportation infrastructure (railroads); deep capital markets that could fund the massive investments needed; and, perhaps most importantly, a large, growing industrial base that needed all this new energy that Rockefeller could provide.
But Exxon no longer needs any of that from us: the entire world now needs the energy that Exxon can provide, most of its oilfields are no longer in the US, most of the world copied our oil rights legal regimes (sometimes staring down the barrel of our military’s gun), and technological change has slowed. Even the parts of the govt it always needed, it now provides itself, e.g. an army and diplomatic corp.
You can see this starting to happen with tech: Many of them have opened development centers in India and other places so that they depend less on quality U.S. education for their talent needs. The intellectual property protections they require have now been largely adopted by the rest of the world, to the point that they can domicile their IP in whatever tax haven they find most efficient. Their customers are no longer just wealthy Westerners, but rich and poor from around the world. They don’t need a functional society that enables its citizens to be wealthy enough to spend money on “frivolities” like online subscriptions. Poor people in dysfunctional, poor countries also check facebook and twitter these days. Even the one unassailable need they have, reliable internet, they are no longer leaving to the vagaries of govt. policy: Facebook is trying to provide free internet access in Africa, and Google is toying with the idea of gigantic hot air balloons to provide internet access without involving messy local / national govts. Once this process happens, and tech companies rely less on a functional society for their success, will they continue to be interested in taking on that burden?
The second part of that question depends on understanding who leads these companies: you’re absolutely right that an immigrant like Pichai has a vastly different approach to govt than Zuckerberg or Dorsey. As an Indian American myself, let me tell you that it’s not suprising that Pichai doesn’t respect American Senators. In India, no one respects the politicians. Everyone down to the beggar on the street understands how corrupt and idiotic most of them are (there are people in high office who are functionally illiterate, and some who have been charged with murder, to say nothing of lesser crimes. Ted Stevens, with his comments about the internet being a series of tubes, took America by shock. In India, they would have appreciated that at least he thought of the internet as tubes and not magic sparkles or something). When a politician calls you in India, you know it’s because they’re either looking for bribes, or about to threaten your business. Their calls are no different than a mafia shakedown or graft.
The amount of fealty that guys like Zuckerberg or Chambers display is quite amusing to an immigrant like me (and I suspect Pichai), especially when they get together in Davos and pretend they’re big thinkers solving the world’s problems by hobnobbing with politicians and celebrities in between jaunts down the Alpine ski trails.
But this well-placed suspicion of politicians is a double-edged sword: they also have no loyalty to a functional govt, because they grew up and thrived in places that didn’t have it. They know it’s not a requirement to success. To an average American CEO, it’s inconceivable that a business can thrive in lawless, corrupt places. They have no idea how to do it, and don’t even believe it’s possible. Therefore, they’ll spend time and money ensuring that our govt and society never gets that dysfunctional. To a guy like Pichai who made it to CEO of Google while originating from a place that didn’t even have functional sewage systems, their belief in the necessity of a functional society is much less firmly held. (Can any American technology CEO run their company in a place where the electricity goes out every day? Indians can, and do. Thus, they hardly care about reforming govt policy on energy and transmission infrastructure.)
And my last point is this: even if you’re correct, and somehow Pichai believes it’s critical to have a functional society (even if not for economic reasons, then for class-identity reasons), AND this won’t change even when the majority of his revenue and customers are no longer in the West or other “functional” societies, AND he’s willing to invest his company’s time and money into developing that policy, they still have a *long* *long* way to go. IOW, even if they are ready and willing to step into the void, they likely won’t have the know-how to do so in an effective manner for decades, if ever.
People in business like to crap on politicians. Even as someone who’s served in the political / govt world before, I get it. I do it too. And a lot of times they / we deserve it. But public policy is *hard*. Just like I shake my head when I hear some 20-year old Stanford kid claim he’s going to disrupt some massive industry he knows nothing about, merely through an app he built during an all-nighter in his dorm room, I shake my head when guys like Benioff and Bezos do essentially the same thing.
I remember a conference I was at once when one of the guys who wrote Google maps was talking. He talked about how surprised Google was when they put out the product and all of a sudden they began receiving irate calls from people and even governments based on where certain country boundaries, names, etc. were on their maps. It completely stunned them. And I remember shaking my head, wondering, “how naïve must these engineers be to not realize that mapmaking is a political process?” Literally wars have been fought over the tiniest contours of map lines, and controlling the names of places is almost purely an exercise of political dominance. Did these guys really not know they’re stepping into political battles sometimes thousands of years in the making? To top things off, the guy who was talking said he was a poly-sci major in college! If that’s the level of understanding that these people plan to bring to the table when they plot to takeover the govt, they’re about to have their ass handed to them by the same “empty suits” they denigrate.
I could see it even in Zuckerberg’s testimony to the Senate. He was getting completely manhandled by a bunch of 70 year olds. They might not know how to check their emails, but they understand and excel in political bloodsport. If that’s the best prep that Zuckerberg’s billions can buy him, he will be down for the count if he ever decides to seriously enter the political arena.
And I can’t finish this point without bringing up my favorite bete noir: Rex Tillerson. Google and Facebook may be forgiven because they’re young companies, run by young people, with very little political experience. So you might think they just need time. But Exxon has been a govt unto itself for decades, if not longer. Their diplomatic / foreign policy corp is considered one of the best in the business, skilled at hard-nosed bargaining with everyone from western democracies to South American socialists, Asian communists, and African autocrats. Exxon doesn’t get rolled very often during those negotiations. And as you mentioned, Tillerson got to the top through his skill, not nepotism or something. And yet, when it came to a public position with similar responsibilities, he failed miserably, even under the incredibly low standards of the Trump administration. This is not a coincidence, nor a one-off example. Robert McNamara was the “genius” at Ford who was recruited to run the Vietnam War, and indeed ran it like a well-oiled factory, tearing the country (ours and theirs) apart in the process, because a brilliant guy focused on squeezing efficiency from a process is not necessarily a great guy to run a department whose product is death and destruction. And I’ll also leave out our only two President-businessmen, Trump and GWB…
There aren’t that many examples of businesspeople in govt, and that’s with good reason. The ones that have been there (aside from small jobs, or narrow advisory roles) have generally been quite bad at it.
So I guess my argument boils down to this: 1) tech companies only look innovative and desirous of a functional society because they’re in that early stage of the industry lifecycle. They will soon become the fat rentiers of tomorrow, who – like our current rentiers – have no care for nor need of, a functional society. 2) As they mature and understand the market better, they will internalize any function they require from the govt; (why bribe a politician and still be at their mercy when you can just hire your own people and do it all yourself?) 3) The immigrants running the place (especially in tech), know how to thrive and do just fine amongst dysfunction. If the crushing poverty of India didn’t rile them up decades ago (when they were younger and even more passionate), I doubt the relatively lighter poverty of America today will interest them much. You’ll note it’s Benioff, and not any Indian immigrant, that’s appalled by the homelessness in SF. 4) Even if I’m wrong about all this, the skills required to make good policy need generations to cultivate (e.g. academic departments, govt offices, etc.), and even then, business has traditionally been bad at it. I’m not sure they will be the savior we need, even if they want to be.
Anyway, sorry to hijack your current post, but I’m always a day late and dollar short on these things.
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