Luke Skywalker becomes Darth Vader: tech hopefuls are becoming the evil cluster
date
Oct 6, 2016
slug
superstar-economy-dark-side
status
Published
tags
Darth Vader
tech hopefuls
evil cluster
tech companies
superstar economy
type
Post
ogImage
summary
Tech was once seen as a boost for the people’s lives economy to improve at the same time. Now, they are increasingly becoming the new oil and tobacco cartesl.
Take a moment, close your eyes, and visualize a typical day in your life. If you live in a city and have internet access, it's almost certain that you are a customer of at least two of the world's biggest tech companies - Facebook and Google. There's a good chance you use the services and products of a third, Apple, and it's not impossible to also use services from Amazon and Uber. You're not alone: hundreds of millions of people worldwide do the same. These tech titans, symbols of capitalism's triumph, are paradoxically also becoming a threat to it due to their immense resources and power.
"Competition is for losers," a phrase coined by Peter Thiel, co-founder of PayPal and Facebook's first significant investor, encapsulates this sentiment. Thiel, a product of American super-capitalism, takes the free market principles to the extreme. He believes that if a company offers a product that's significantly superior to its competitors, society is better served than with products from less efficient suppliers. In essence, Thiel suggests that oligopolies benefit society.
However, Thiel is not the cause but a symptom of a movement towards mega-corporations. The fourth generation of mega tech companies is solidifying, characterized by billion-dollar revenues, a relatively small workforce, predominantly trans-national capital, and aggressive fiscal management that borders on tax evasion. These new titans earn a lot, spend little, heavily invest in research, and pay minimal taxes.
In countries with corrupt governments, tax evasion might be viewed with a sense of humor, given the rampant corruption. However, in consolidated democracies, the reduced tax revenue not only creates social problems but also sparks widespread indignation. The average citizen is caught in a system where tax evasion is nearly impossible, yet multinational "stateless" companies view taxes as almost optional.
This isn't a fringe opinion from a left-wing research group; even The Economist, a bastion of economic liberalism, has voiced concerns. In a September edition, it featured a special report on the so-called "superstar economy," dominated by trendy companies like Apple and Google. The magazine notes that despite these tech mega-corporations representing innovation and research investment, they also signal an economic concentration akin to the 1920s era of companies like Ford and General Electric.
The top technology companies have become cash generating machines through heavy investment in research and development. For example, Amazon invested around US$13 billion in research in 2015, more than 10% of gross revenue. Such investment has enabled these "stars of the economy" to scale and develop niches, earning them significant competitive advantages.
The shift of tech companies in the global economic landscape is natural and not unprecedented. New technologies create revenue opportunities that were previously impossible. This cycle repeats itself periodically, with peaks such as the advent of the internet. However, there are some negative aspects. Companies like Apple and Amazon have such investment capacities that they can stifle competition and either suffocate or buy out promising startups.
The multinational nature of these companies is becoming increasingly radical, moving operations to countries with lower wages and greater tax exemptions. The number of jobs is also diminishing. At their peak, the three largest U.S. automakers employed 1.2 million people, produced US$250 billion annually, and had a market value of US$36 billion. Today, Alphabet (Google's parent company), Facebook, and Microsoft employ less than 140,000 people, generate similar revenue, and have a combined market value of US$1 trillion.
These "star companies" have also developed a knack for creative tax arrangements by moving their headquarters to countries like Ireland, the Netherlands, and Luxembourg. While legal, these financial maneuvers cost governments billions in lost taxes, boosting the companies' profits and share values. This tarnishes the image of companies and businesspeople, with about 80% of Americans saying they don't trust the biggest names in the private economy.
The power these companies wield can have far-reaching effects. A simple decision in Google's algorithm can destroy an entire market niche; a new Amazon product can decimate competition to the point of monopoly; a change in Facebook's privacy policy can expose the data of hundreds of millions of people. In other words, these companies concentrate so much power that it could lead to potentially catastrophic consequences, even when they are merely trying to deliver the best possible product.
The most significant internet companies have reshaped the economy in several ways. Their ability to grow their customer base from a few thousand to hundreds of millions in a short time has led to new management paradigms and productivity goals. However, this super-productivity has led to a potentially dangerous scenario. In a matter of years, companies can go from startups to corporate giants, whose influence on the market and politics can become insurmountable.
The startup model, responsible for the success and efficiency of the tech market, is increasingly impacting free competition. 90% of the companies that start in garages and university dormitories on the American west coast don't become independent companies; instead, they're acquired by corporations that absorb their talent and nip possible future competition in the bud.
In conclusion, the tech giants' influence is undeniable. Their dominance may benefit consumers by providing superior products, but it also stifles competition and limits choices. It might be that Peter Thiel is right, and competition is for "losers." However, among the losers are the billions of people who aren't owners or shareholders of these companies.