Back in 1776, Adam Smith popularized the notion of an ‘invisible hand’ in the global economy. He was a liberalist avant-la-lettre and profoundly believed in the unintended social benefits stemming from a free market. This mechanism would naturally steer a country towards welfare maximization. In the age of Google and Amazon, an entirely different invisible hand seems at play.
“Congratulations: you have found an American willing to say he is pro-Trump”, dixit Gary Shapiro. Shapiro is CEO of the Consumer Technology Association, representative for over 2000 tech corporates such as Google and Amazon. Shapiro is an advocate of innovation without borders.
And he is on a mission: to make the world safe for innovation. He praises the positive impact of technological inventions on our lives: Fitbits, stimulating physical exercise; Uber, to increase mobility anyplace, anywhere, anytime, and companies such as Google and Amazon providing people with the access to information, entertainment and support in ways they have not witnessed before.
At the same time, these developments cause a great deal of turmoil within national and cross-national politics. Laws regarding tech firms are often intransparent and poorly coherent within a country, let alone within the enire European Union. ‘Privacy’ is part of a lively debate in which the tech giants are depicted as silent killers aiming to abuse our identities. Shapiro is clear: those protests symbol a modern variant of protectionism, instilled by the current corporate powers which are afraid of losing their market-share. There is no reason to be allergic to tech giants, especially because of the low entry barriers – all it takes to enter today’s market is a smart idea and the right group of people to execute the idea. Why force control upon this thriving liberalism?
Gary Shapiro (center). Source: Wikimedia Commons.
On the other side of the spectrum, there is Daniel Ezrachi, professor of Competition Law at Oxford University. He points out some factors which Shapiro seems to comfortably ignore. The theoretical entry barriers are low indeed. Yet the de facto distance to transform a start-up into a ‘Google’ is enormous. Ezrachi mentions the so-called ‘network effects’. Facebook is an explicit social network, as we all know, but Google are Amazon make use of exactly the same cornerstone in a less transparant way. All user data, all company data – all is connected and intermingled. The power to control this network allows an Amazon to indicate ‘other products you might be interested in’, and it enables Google to finish your phrase after typing in a single word.
“Competition is one click away” – Eric Schmidt, CEO Google
This goldmine of data is empowered by clever algorithms, and they lead to micro-marketed business models: the more data gathered, the more fine-tuned the support which Google and Amazon can provide to you as customer. That is great, if you are aware of this mechanism. Yet that is where Ezrachi points out the second peril of the unhindered data-driven world as supported by Shapiro: people often have no clue that they are being influenced by this invisible hand. We all click ‘Agree’ on the terms and conditions which no-one has ever read. We all fill out our details if that allows us to view a page without those annoying pop-ups. And we have no problems with cookies because that was some political fossil.
The question arises to what extent a government should protect its citizens against potential perils. Why care about ‘privacy’ if everyone is sharing the details of their lives?
One may argue whether or not we should have the digital right to be forgotten (a childish desire, says Shapiro), but every economist should be aware of the grey area which these companies put us in. Few people seem aware that many of our beloved new techies are partaking in the practice of price discrimation on a daily basis. Got an Apple? Ryanair will up the prices displayed on your screen because you’re a wealthy kid. Low on battery? Uber automatically adapts its tariffs upwards as you’re likely to pay more for your ride home. That is rather straightforward, third-degree price discrimination. Yet additionally, in the interaction with other firms, algorithms of Google are programmed to be in perfect sync with the actions of its competitor Yahoo. This automated way of negotiating prices comes at the cost of one entity: the customer. A loss in consumer surplus – that should ring our bells. It puts the amazing merits of techies in a different and more deceptive light.
“Competition is for losers”, says Peter Thiel. He is the co-founder of PayPal (sold for $1.5 bln in 2002), the first major investor in Facebook, and the 73th most powerful person in the world according to Forbes. Thiel refers to the gigantic power which a Google-like company exploits while camouflaging itself as a neutral and passive platform. Google CEO’s “Competition is one click away” statement is becoming an ironic common phrase for the deliberate blindness of tech firms in obeying competition laws. Google doesn’t share the pie, Google is baking the pie.
Instead of a neutral platform, Google behaves more like a meat-eating plant. It is devouring our data without us noticing it, and that is not necessarily a bad thing. But it’s not realistic either to assume the indirect social benefits which Adam Smith described. Google is an extremely sophisticated money machine – but a money machine nonetheless.
Headline source: flickr.com/photos/sixteen-miles/4163562929.