Sunday, July 21, 2019

The New Octopus: An anatomy of today’s tech monopolies, and a proposal for how to tame them.

From Logic Magazine, volume 4, Scale:

Technology has spawned new corporate giants. Their control of society’s digital infrastructure threatens our democracy. What should we do about it?
Over a hundred years ago, the upheavals of industrialization gave rise to what Louis Brandeis famously called the “curse of bigness.” The modern industrial economy increasingly came to depend on new technologies and infrastructures: railroads, modern finance, oil, and the like. Yet these infrastructures remained largely in private hands.

For Brandeis and his fellow Progressive Era reformers, the result was a fundamental threat to liberty, opportunity, and democracy. By virtue of their control over these foundational goods and services, private firms could extract greater profits from the public. If the essence of arbitrary, authoritarian governance was the concentration of unchecked power, then these firms represented a profoundly oligarchical mode of social order, where the public good remained dependent on the will and whims of chairmans and chief executives.

A hundred years later, the fear of bigness is with us once again—from the aftermath of the 2008 financial crisis, which introduced “too big to fail” into the vernacular, to growing concerns about corporate concentration in healthcare, airlines, and innumerable other industries. But nowhere is this anxiety about modern-day bigness more alive—and more difficult to address—than in the domain of technology.

As in the Progressive Era, technological revolutions have radically transformed our social, economic, and political life. Technology platforms, big data, AI—these are the modern infrastructures for today’s economy. And yet the question of what to do about technology is fraught, for these technological systems paradoxically evoke both bigness and diffusion: firms like Amazon and Alphabet and Apple are dominant, yet the internet and big data and AI are technologies that are by their very nature diffuse.

The problem, however, is not bigness per se. Even for Brandeisians, the central concern was power: the ability to arbitrarily influence the decisions and opportunities available to others. Such unchecked power represented a threat to liberty. Therefore, just as the power of the state had to be tamed through institutional checks and balances, so too did this private power have to be contested—controlled, held to account.

This emphasis on power and contestation, rather than literal bigness, helps clarify the ways in which technology’s particular relationship to scale poses a challenge to ideals of democracy, liberty, equality—and what to do about it.

Taming the Beast
Starting in the late nineteenth century, scale became the central focus for Americans concerned about emerging forms of corporate power. But what’s notable about the intellectual ferment around scale is the degree to which these debates turned not on bigness, but rather on issues of power and contestability. How much and what kinds of power did these new corporate entities exercise? And how could these concentrations of power be minimized, contested, and held accountable?
Power, crucially, could manifest in “good” and “bad” forms. Just because a firm acted benevolently did not change the fact that it possessed power. The key, then, was not outcomes but potential: so long as the good effects of corporate power relied on the personal decisions of corporate leaders, rather than on institutionalized forms of accountability, it remained a threat.

Perhaps the most famous front in this debate was the clash between Brandeis and other progressives like Herbert Croly and Teddy Roosevelt. For Croly and Roosevelt, corporate bigness was a problem, but one that could be addressed through government oversight. For Brandeis, by contrast, concentrations of corporate power had to be broken up through measures like antitrust laws.

While this is usually seen as a clash between bigness skeptics like Brandeis and bigness optimists like Roosevelt, much of this debate boiled down to a different set of disagreements: not about how big the government should let a company be, but about the best way to contest corporate power and hold it accountable. Roosevelt and Croly believed in the social and economic value of these corporate giants, and had faith in the capacities of public-minded, expert regulators to manage these concentrations, extracting the public goods and minimizing the public evils.

Brandeis shared many of these views. He was after all a classic progressive, who celebrated the importance of expertise and the emerging regulatory state. Nevertheless, he expressed skepticism towards concentrated corporate power, which in his view necessarily spilled over into political power as well. Economic influence could so easily be leveraged into political influence that the more prudent route would be to reduce concentration itself.

Furthermore, Brandeis, like many classical liberals, saw the marketplace itself as a machine for enforcing checks and balances. Once cut down to size, firms would face the checks and balances imposed by market competition—and through competition, firms would be driven to serve the public good, to innovate, and to operate efficiently. By making markets more competitive, Brandeisian regulation would thus reduce the risk of arbitrary power.

Around the same time, the architects of modern corporate law were trying to solve the same problem from another angle. In 1932, Adolf Berle and Gardiner Means published The Modern Corporation and Private Property, a landmark work that laid the foundation for modern corporate governance. For many modern defenders of free markets, Berle and Means are seen as architects of the idea that shareholders and other market actors could hold corporate power accountable through the “discipline” of financial markets. This would defuse the problem of corporate power and assure the economically efficient allocation of capital.

But this is misleading, because Berle and Means shared the Brandeisian unease with corporate power. In fact, their analysis highlighted a serious obstacle to holding that power accountable: the structure of the modern firm. Since a public corporation was nominally “owned” by a diffuse and inchoate set of shareholders, they couldn’t effectively assert control over it....