What follows is a response to The Biggest Digital Companies Are Decimating the Economy by Douglas Rushkoff. It comes from an August 2020 email exchange with a friend who sent me a plethora of anti-monopoly work. One of which was from this gentleman Rushkoff, who I was not aware of before but who turns out to be quite a decent writer and influential in certain circles. I do not argue that no problems exist. Only that the way most commentators are going about it is, at best, counterproductive. More likely, their unsupportable claims are a distraction from legitimate issues; they (re)normalize using bad arguments. The article and my counterpoints enter a broader domain. Still, one can sense the connection between the Justice Department’s case and Rushkoff’s assertions (a similarity which I doubt he would take as a complement).
BCC’s Notes on “The Biggest Digital Companies Are Decimating the Economy” by Douglas Rushkoff
I am no apologist for monopolies, rent-seeking bureaucrats, corporate socialists, or those who transfer risk to the taxpayer. That said, I don’t find that sort of argument in this and preceding works sent, and an avid reading of history makes the cases put forth difficult to rationalize. Allow me to explain why from first principles. My starting point is derived primarily from Mortimer Adler’s works on reading, assessing, and debating views:
First, anyone arguing for some position makes judgements about the world. Whatever judgements are used to reach a conclusion must be reasonably supported on a standalone basis. Second, we must acknowledge our emotions and prejudices and work to “steelman” the opponent’s argument — i.e. address the entire argument, especially the strongest points. And third, explicitly acknowledge that both parties can be wrong in four ways:
[A] Being uninformed.
[B] Being misinformed.
[C] Relying on incoherent, ambiguous, or faulty reasoning (e.g. weak or false premises; disorderly, stretched, or egregious assumptions; false equivalency, analogies).
[D] Using incomplete analysis.
If we do not agree on these as the first principles, discussion will be unfruitful. The issue with the case laid out here and elsewhere is the authors seem to either be ignorant to history or, worse, believe they can twist and ignore realities, leaning hard on unstable premises, because their objective is somehow more noble than their opponents. On one hand, their argument implies standards of living, wages, workers’ rights and options were better in the past. How do they measure this, purely based on popular sentiment? It cannot be based on a prudent study of history. On the other hand, they disregard history when it doesn’t conveniently fit their objectives. For instance, they never address the brevity of corporate pensions in history — pensions are the exception, not the rule — or that even lower classes in America live better than the kings of any pre-industrial era. This is not to say we cannot or shouldn’t try to make things better; rather, how might one expect to be taken seriously through time if they never acknowledge (work into their view) basic progressions?
To the extent things were better in the past (certainly true in some areas), it would not be attributable to better or higher pay, benefits, discretionary income, or free time. It would have been due do a greater sense of community, family, religion, call to service, and so on.
The essay begins with an indefensible premise:
“Growth was easy when there were new territories to conquer, resources to take, and people to exploit. Once those people and places started to push back, digital technology came to the rescue, providing virtual territory for capital’s expansion.”
This immediately creates strawmen to be easily knocked down. When and how was growth easy? Who were the exploiters and how did they exploit? Is he referring here to Cortez? …Rockefeller? …Ford? Growth has never been easy. What is not addressed, but should be, is that higher growth rates are more sustainable in smaller and emerging economies — which is where the U.S. was until the latter half of the 20th century.
Uncertainty and the pendulum of brewing class warfare are ever present. (Isocrates stated some 2400 years ago stated that in his lifetime commercial success had gone from admirable to detestable.) I would submit right off the bat, Rushkoff is boxing himself into a Robespierre-type corner — for modern exploiters are those who, by ignorance or (even legitimate) malcontent, gin up public ire with untenable and wily assertions.
“Unfortunately, while the internet can scale almost infinitely, the human time and attention that create the real value are limited.”
This is a myopic view of the usefulness and scalability of technology. The underlying premise here is that everything is based on number of users and engagement, when in reality the most valuable technologies will be (and have always been) those that are most useful. Everything else eventually fades away. Content oriented businesses (e.g. search, gaming, social media) are very valuable but, to the extent they do not truly improve peoples lives in some way, it’s unclear how long that will last or when they will be commoditized. They’re also valuable because those entrepreneurs saw something, risked something to build the company, got a little lucky, and have innovated. One can recognize this without having to declare Google a saint.
We must evolve past the point of sending every “evildoer” prosecuted in the court of public mass hysteria to the guillotine. If not, opportunistic power-grabbing clowns will never cease to appeal to the disgruntled by shouting to hang the witches and richest. Even when the problems are legitimate, they are brushed aside at the spectacle of chopping off Marie Antoinette’s head. And what they can’t see yet is that if they win, the tables turn. They then become the exiled Napoleonic victims of the behavior they helped perpetuate — concocting accusations to chop off heads.
It is the most egregious and dangerous path to say “here are our problems…over there are the rich and powerful”, therefore “they are the culprit.” Sometimes the issues are legitimate. Sometimes, not. Sometimes they’re caused by some group. Sometimes they just are. The whole spectacle stops only when we can, as a society, agree on first principles and rules of civil discourse stated above. The west made significant progress on this in the latter half of the 20th century. Intellectuals said it was because we were more enlightened, more evolved. It’s looking more and more like happenstance.
When a big box store moves to a new neighborhood, it undercuts local businesses and eventually becomes the sole retailer and employer in the region.
Here we have one of those assumptions, stated as if it were some irrefutable reality, when in fact it is patently false for all practical purposes. Any case that can be found where such has occurred (with his forthcoming conclusion) should rightly be criticized. But the author’s statement in context presumes this is some ongoing, widespread phenomenon.
As a personal matter, I am familiar with the undercutting of businesses, real and perceived. In the mid- or late-1990s, [a family member’s] grocery store became less valuable overnight. Similarly, [a business colleague] worked for his brother who lost his manufacturing business after NAFTA. Following this lesson, he started a business that couldn’t be shipped overseas.
Is the author assuming large employers in various regions are “sole employers”? Or even that they employee a majority of people in an area? If so, is there anything to support this claim against “big box stores”? I can only assume he’s mistakenly attributing the impact of NAFTA and other trade-related concerns (like China’s ability to devalue their inland currency and produce products so cheaply) to “big box stores.” It is virtually never the case that a large corp becomes the sole employer. He may also be attempting to take what happened a few times in the first half of the 20th century and apply it to the present day.
One of the instances I can think of is Wal-Mart’s headquarters in northwest Arkansas, in which case they have boosted the economy making it the most valuable region in the state.
“With its local monopoly, it can then raise prices while lowering wages, reduce labor to part-time status, and externalize the costs of health care and food stamps to the government. The net effect of the business on the community is extractive. The town becomes poorer, not richer. The corporation takes money out of the economy — out of the land and labor — and delivers it to its shareholders.”
Where is the argument for this? Show us this endemic behavior in modern America. Simply saying this is true does not make it so and sensationalized blanket statements only stifle the legitimate issues. Outside of the exceptions that prove the rule, how and where have towns become poorer? He seems to be referring to Detroit I suppose, but this cannot be said to be a common problem. On the contrary, local and state governments are clamoring to get businesses to move to their cities (even in NYC). Why? Because more jobs lead to more economic activity (e.g. more haircuts, restaurant goers) and higher tax revenue.
Explain how businesses take money “out of the economy” from “land and labor” and deliver it to shareholders? This assumption truly flies in the face of all that is decent (including my retort above). No doubt there are bad actors and exceptions where this may be true. In general, more jobs, even if they don’t last forever or come with pensions into infinity, make a big and lasting difference to a region’s economic well-being. I believe all one has to do there is look at the real situation (not what is espoused for political purposes and power grabs) in Dallas, Houston, or Nashville and compare it to Chicago, NYC, or LA.
Is he referring to DuPont? The airlines? GM or Ford? In the aggregate, negative net wealth has been transferred to these shareholders. This is the case with most companies. They fail to produce even decent returns. Who benefits? The local economies, employees, and govt’s via taxes paid. Granted, in many cases executives and cronies effectively loot the company. Another material contributor to GM and Ford’s problems was pensions became a structural problem, even going so far as to inhibit their ability to adapt in hard times. Probably one more thing that goes unnoticed here: the mother eating her young metaphor he’s getting at in the entire piece has been most evident in restrictive regulation and unsustainable pension practices (or, what he’s arguing for.)
“A digital business does the same thing, only faster. It picks an inefficiently run industry, like taxis or book publishing, and optimizes the system by cutting out most of the people who used to participate. So a taxi service platform charges drivers and passengers for a ride while externalizing the cost of the car, the roads, and the traffic to others. The bookselling website doesn’t care if authors or publishers make a sustainable income; it uses its sole buyer or “monopsony” power to force both sides to accept less money for their labor…”
By this logic, it would’ve been best to oppose automobiles because they hurt the carriage industry; or prevent the printing press because it put monks and scribes out of business; ban televisions as they’d negatively impact radio.
Is he saying there’s less money for authors now that the publishing process has become shorter and far less costly? Is he making an argument for traditional publishing or bricks-and-mortar bookstores? Does he think they were more effective or that people prefer those models? Who has benefited from self-publishing? Both well-known and independent authors. They can publish what they want and keep more of the money. Who has benefited from, say, Uber and Lyft? Certainly not long-term shareholders. The companies haven’t yet been profitable. It will be a long time before they make up for years of negative earnings. The parties who’ve benefited are (1) customers — which is why Uber was founded in the first place, because the antiquated incumbent industry refused to evolve; and (2) drivers —many of whom claim satisfaction with being able to choose their own hours. What is inevitably coming though will be much more controversial — a “driverless Uber.”
Only speculators have benefited from stock price movements here, and we don’t find many throughout history who keep their winnings.
“…The initial monopoly can then expand to other industries, like retail, movies, or cloud services. Such businesses end up destroying the marketplaces on which they initially depend. When the big box store does this, it simply closes one location and starts the process again in another. When a digital business does this, it pivots or expands from its original market to the next — say, from books to toys to all of retail, or from ride-sharing to restaurant delivery to autonomous vehicles — increasing the value of its real product, the stock shares, along the way.”
Again, any evidence outside of “Innovator’s Dilemma” scenarios? Does the inefficiency of said “marketplace” or the customer’s choice matter?
This is all said as if these paths were somehow pre-determined in some backroom. They were in fact determined by opportunity and need. Amazon built AWS for themselves first because they thought they could do it better. It was only after they’d been using it for a while that other companies began approaching them (unsolicited), asking if they could use AWS.
“The problem with this model, from a shareholder perspective, is that it eventually stops working.”
Yes, finally something that can be supported! Any unsustainable model will not work long-term. He doesn’t address how consumers work in this equation. Or how the businesses that don’t stop working accomplish such a feat. Or how long- term economic value is created. Probably the most basic error here is he approaches it as if it’s a short-term, zero sum game when the last two centuries of global economic history have proven otherwise.
“…corporate returns on assets have been steadily declining for over 75 years. Corporations are still great at sucking all of the money out of a system, but they’re awful at deploying those assets once they have them.”
Not sure how any of the above statement is supported. I believe he is confusing capital and assets. Yes, most businesses fail at deploying capital, as do most people. So this author’s people or the federal gov’t will do better? If what he says were true, it would be defense number one for those corps to not pay higher wages or benefits. Given the statement is flatly false — that is, ROA in the aggregate is increasing because more firms need lower fixed assets, either because of outsourcing or technology.
When his argument is corrected, it makes the opposite case to the one he’s trying to make. The case falls flat as soon as one understands the author unwittingly fails to distinguish between which corporations are “sucking all of the money out” vs. which ones are “awful at deploying those assets once they have them.” By definition they cannot be the same ones, because after sucking money out of the system, if they re-deploy poorly, they have little or nothing left. In reality, the majority of firms overtime are “awful at deploying” capital. Then, the minority of businesses being demonized here as “sucking money out of the system” must be the ones who are re-deploying capital effectively, or else they would not be able to continue profitably.
Corporations are getting bigger but less profitable.
Really? Margins are lower now than fifty years ago? Let’s assume for a moment that’s true. How does it account for differences in revenue recognition or depreciation durations in the past? And what is meant by “corporations are bigger.” The economy is also bigger. GDP is bigger. Incomes are higher.
He is wrong on both accounts. Corporations not getting less profitable and he fails to address that today’s revenues and market capitalizations are not comparable to dollar amounts from 1950.
“They’re just sitting on piles of unused money, and taking so much cash out of the system that central banks are forced to print more. This new money gets invested in banks that lend it to corporations, starting the cycle all over again.”
Here Rushkoff shows a deep lack of understanding of credit and money markets, inflationary vs. deflationary pressures, and monetary policy. Corporate cash balances are not at all why central banks are easing monetary conditions. The statement is absurd in its incoherent circularity. Firms have lots of cash → They deposit the cash in banks → Banks then lend to firms who have so much cash? How does one take “cash out of the system”? What cycle is starting “all over again”? No eruditious entrepreneur or capital allocator would be able to make sense of this statement.
“Digital businesses are just software that converts real assets into abstract forms of shareholder value. Venture capitalists remain hopeful that they will invest in the next unicorn with a “hockey stick-shaped” growth trajectory, and then get out before the thing crashes. These businesses can’t sustain themselves, because eventually the growth curve must flatten out.”
There is some truth in here, but it’s disorderly and poorly worded. Mostly this statement reaffirms the author’s lack of understanding of markets and really the entire system. Again, he confuses two or three things that are not the same — in this case, there are material differences between: value creation and speculation; segmented and consolidated markets; real (permanent) value added and short-term price increases.
Further, software is one subset of digital or high technology businesses, and not the one he means to refer to — e.g. Facebook, Amazon, Google. His main problem is with the network effects created in and by these businesses.
“The myth on which the techno-enthusiasts hang their hopes is that new innovations will continue to create new markets and more growth. For most of history, this has been true — sort of. Just when agriculture reached a plateau, we got the steam engine. When consumerism stalled, television emerged to create new demand. When web retail slowed its growth, we got data mining. When data as a commodity seemed to plateau, we got artificial intelligence, which needs massive supplies of data in order to learn.”
Again, he’s going to have to back all this up. Empirically, and judging by what he’s written proceeding this statement, it’s unlikely this statement can be supported.
On data (social media and search), governments and lobbyists first tried to restrict the level of data that could be collected by legislation forcing the companies (mainly Facebook and Google) to make it easy for customers to opt-out of (or, in Europe, opt-in to) services requiring data collection. The U.S. customers haven’t opted-out in any large quantity. What did the customers do in Europe? The opposite of what the authorities thought — a large number voluntarily opted-in. So, on one hand you have a battle going on, a constant bashing of Google and Facebook. On the other hand, the citizenry frustrates the gov’t by effectively saying, “we don’t care.”
“Except in order to stoke and accelerate growth, new, paradigm-busting inventions like smartphones, robots, and drones must not only keep coming, but keep coming faster and faster. The math doesn’t work: We are quickly approaching the moment when we will need a major, civilization-changing innovation to occur on a monthly or even weekly basis in order to support the rate of growth demanded by the underlying operating system. Such sustained exponential growth does not occur in the natural world, except maybe for cancer — and that growth ceases once the host has been consumed.”
Finally, as if you can’t tell by now, this conclusion relies on both iffy and, at times, completely indefensible claims. That doesn’t mean there aren’t problems, big ones, to address. It just means Rushkoff’s prognosis is based on premises so far removed from reality that anything he gets right will will not be very useful. There’s no meaningful, repeatable methodology to his arguments aside from “I’m good. They’re evil.”
Lastly, anyone writing or reading about this must sincerely consider where it’s coming from. Traditional media (print and broadcast) has been relentless in its attacks on Big Tech. That’s okay. They’re doing fine, but we have to ask why. It’s because they fundamentally threaten the incumbent business model. Amazon, Facebook, and Google just happen to be on top and the biggest threat right now. If it’s not Amazon Prime or Hulu or YouTubeTV, it will be others. The argument that any of these businesses have made people’s lives worse is quite the stretch. How so? And what net jobs have they taken? I am not stating this argument always come from traditional media, but they certainly don’t hesitate to pile on.
The real issue is do people want to address the real issues? Or would they prefer to simply persecute x, y, or z wealthy class (of people or business) as the cause of our problems? If we choose the latter, eventually no one is safe.
 Copeland, Brent Kendall and Rob. “Justice Department Hits Google With Antitrust Lawsuit.” Wall Street Journal, 21 Oct. 2020, p. A8, www.wsj.com/articles/justice-department-to-file-long-awaited-antitrust-suit-against-google-11603195203. Accessed 22 Oct. 2020.
 Rushkoff essay and the book Monopolized by David Dayen.