Tag Archives: technology

Internet empires – their rise and decline?

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Has the American Empire simply moved online? That’s the argument made in an enjoyable polemic by Sean Ennis, World War 3.0: The Hidden Internet War. It’s a book with two strands. One about wars and empires through history: what motivates conflict, how empires grab territory when the economic advantages outweigh the costs of maintinaing the colonies, why empires either collapse or survive.

This is braided with an account of how the US (and, thanks to protection of its domestic market, China) won near-global dominance of the internet and the money to be made from the internet for its own companies. Marvellous technology, an economic system favouring enterprise and investment, and active policy support from successive US governments have created the market-dominant players who shape modern life.

Hence, “The core thesis of this book is that the modern-day internet structure is economically equivalent to what, in prior times, would have been an empire acquired through aggression into new territories.” The aggression this time has involved weapons such as effective lobbying/political blackmail over tax and trade policies, control of domain names, non-enforcement of antitrust policies to enable the giants to grow, and so on. It’s an interesting analogy although I’m not persuaded that commercial and actual conflict/conquest are really similar.

The US succeeded where France’s earlier Minitel system did not, the book argues, because Minitel was a closed interface system run by a state-owned incumbent telco – whereas in the US, AOL tried this approach in the early internet days but dropped this when the attractions of the open internet to users became both evident and available through browsers and the web. “The unquestionable French lead in the release of digital technology was squandered by the country.”

This prompts two reflections. One is that the book – in asking with Europe has no internet giants – ignores the advantage of scale. When there are high fixed costs and netwrok effects, the bigger the addressable market the better.

The other is that if open beats closed in the end, are the current internet giants undermining their own success? For what they are trying to do is tie users in ever-more tightly, and exploiting this captive market to degrade their services – just think how much search results have deteriorated on Google or Amazon. Meanwhile Mr Musk is similarly degrading the attractiveness of Twitter. The width of the open goal they are presenting to newcomers with their own great technology is increasing by the day. Regulators and competition authorities can help by mandating more, much more, open data and interoperability – as the Bundeskartellamt seems to be doing.

Still, as the book concludes, we can all do something. It ends with a list of To Dos: use multiple platforms – click away from Google. Buy direct from sellers even if it’s a bit less convenient. Go to the local high street to shop. Pay for a newspaper. In short, give up just a bit of the convenience and cost-saving to keep the digital giants on their toes and maybe open the way for new ones to come along. I’m sceptical individual action will make a big difference although happy to encourage the use of Hirschman’s Exit and Voice disciplines. It’s going to take policy choices, and almost certainly by the EU, to reshape digital markets.91D594otuiL._AC_UY436_QL65_

 

Against social media?

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Anti-social Media: How Facebook Disconnects Us and Undermines Democracy by Siva Vaidhyanathan was published in 2018; I can’t remember how it came to be in the in-pile. Anyway, it’s an interesting analysis that does what it says in the subtitle, and does so far better than the massively over-hyped and underwhelming Surveillance Capitalism by Shoshan Zuboff the following year. The chapter each focus on a theme: surveillance, attention, privacy, protest etc.

Despite the title – and indeed the conclusion – each is quite measured and nuanced. For instance, I like his definition of privacy: “The word more accurately describes the ways we manage our reputations within and among various contexts,” rather than the all-or-nothing way it’s usually discussed. I’ve been using a similar concept, of “privacy in public,” the wish to reveal specific information to specific people for a purpose. Similarly his co-ordination problem argument for regulating social media rather than leaving it to companies themselves. Or his masterly debunking of the Cambridge Analytica claim to being all-effective at winning the Trump election.

So there’s a lot to like in the book. It doesn’t quite add up though. Although it’s mostly about Facebook, other Big Tech firms slip in as miscreants – so why were they left out in the first place? I suppose attention has turned now to the Musk-ing of Twitter so we’re less focused on Facebook than was the case in 2018, and that doesn’t mean the issues have gone away.

More than that, the regulators and politicians should be part of the story. It has taken until late 2022 for competition authorities to start to get tough, and in the UK the patchy Online Safety Bill is still chugging through the legislative process. Why was the policy world so slow to act? I sometimes wonder what would have happened if social media companies had been regulated as publishers right from the start – an option that was discussed and rejected back in the day. Now there’s an alternative history.

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Money stuff

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Modern money is intangible, electrons whizzing around – unlike older forms of money, whether paper and coin, or wartime cigarettes, or huge stone wheels. Paid: Tales of Dongles, Checks and Other Money Stuff, edited by Bill Maurer and Lana Swartz, is a reminder that even the 1s and 0s have a material basis – such as credit card machines, dongles, mobile phones, and indeed the whole physical infrastructure of the wired and wireless networks and the electricity network. What’s more, the less tangible the tokens of exchange, the more important the accounting system recording transactions. This explains the emphasis crypto folks put on the blockchain, but as one of the essays in the book points out, this has its drawback as nothing is reversible, not even transactions that ought to be reversed. There is no substitute for trust in a co-ordinating institution that keeps record.

The book is a nicely illustrated collection of essays by money afficionados from different disciplines, and spanning the Inca civilisation to Dogecoin. As a collection, there’s no central argument – except that we would do well to remember the physical and social embededness of money. There are lots of, “Well, who knew?” moments, which makes it an enjoyable read – at least if you have a fact-magpie mind like mine. I particular enjoyed Keith Hart’s reminiscence of becoming a fence and money lender during his PhD fieldwork in Ghana – which gave rise to the notion of the informal economy; I’ve met Keith (a fellow Mancunian) and love his book The Memory Bank.

Also Swartz’s essay about cash, and the notion that technological innovation in money – the Diners Club card and later credit cards – was forced by the postwar economic boom and associated travel. It reminded me of my first job at the Treasury in the 1980s, trying to find a monetary aggregate that wouldn’t grow too damn quickly for a monetarist government, at a time when rapidly increasing use of ATMs and credit cards was affecting the velocity of money and making monetary aggregate control a hopeless task.

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Use it or lose it – semiconductor version

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I highly recommend Chris Miller’s Chip War: The Fight for the World’s Most Critical Technology. It starts with the history of the development of semiconductors, which might be familiar from other Silicon Valley histories (such as Margaret O’Mara’s also excellent The Code). But the book then goes on to less familiar and more recent territory, encompassing the technological changes needed to manufacture ever-more precise chips and the huge scale, complexity and sophistication of their fabrication. This introduces companies that have recently become familiar (AMSL in the Netherlands, making the machines that are needed to do the fabrication, and TSMC in Taiwan, which produces more than 90% of the most advanced chips) – and also others key to the process that are still not very well known in general.

The narrative arc is a steady shift from US leadership in both technology and manufacturing, to Asian leadership in manufacturing and rapid catch-up – especially in China thanks to large-scale subsidies and IP theft – in some slices of the technology. The result is an extraordinarily complex global supply chain with a number of very narrow 1 or 2 firm bottlenecks. The best to hope for seems to be a version of the Mutually Assured Destruction doctrine: no country can afford disruption. The worst? Massive disruption of all aspects of modern economic life.

That there would be some shift seems inevitable: as East Asian economies developed in the late 20th century they would always try to move up the value chain into more sophisticated sectors. However, the book is quietly but strongly critical of the pro-globalisation philosophy of the US (and rest of the west) that gave up on retaining core manufacturing and engineering competencies at home – their loss didn’t matter until it really did, with the re-emergence of geopolitical strife. As the book puts it, there was a “liberal internationalist ethos that guided officials of both political parties amid America’s unipolar moment.” Yet Andy Grove’s paranoia was valid, when he said in the early 2010s: “Abandoning today’s ‘commodity’ manufacturing can lock you out of tomorrow’s emerging industry.” (One of the best summary articles making eactly this point is Gregory Tassey in JEP in 2014.)

There is a lot of interesting detail. For example, I hadn’t realised how much Darpa focused on educational infrastructure – funding students and workshops, and university computer equipment, as well as futuristic tech research. There are lots of great examples of the difficulty of copying advanced chip technology because of the necessary tacit knowledge: for instance, every AMSL photolithography machine comes with a lifetime supply of AMSL technicians to tend to it. This is either hopeful – China will find it hard to catch up fully –  or not – the US or EU will not be able to catch up with TSMC because of the latter’s vast embedded know-how. Another example is the fact that defence dollars bought 72% of all integrated circuits produced in 1965, but Robert McNamara’s deffence budget cuts led Robert Noyce of Fairchild to bet on the consumer market and slash chip prices from $20 to $2. Annual US computer sales went from 1000 in 1957 to 18,700 a decade later.

All this and much more. The book has no easy policy solutions but is an essential contribution to current debates about industrial policy.

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Goliaths everywhere

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James Bessen’s The New Goliaths is one of my books of the year so far (with a fashionably chatty subtitle). Indeed, I’d been looking forward to it because I liked his previous one, Learning By Doing, so much. Based on his impressive research on technology over a number of years, and on his prior experience as the founder of a successful early digital startup, the core of the argument is that a small number of (generally) large companies have built IT systems that can manage immense complexity in their operations. Sophisticated software and massive flows of data enable them to co-ordinate in previously unimaginable ways, delegating decisions to where the information can go. The complexity – say of a new model of software-laden car or a major retailer’s logistics system – increases the cost of entry for potential competitors. The Goliaths are to be found not just in ‘Big Tech’, but in many sectors of the economy.

What’s more, “The investment in software is only part of the total investment in these systems. The entire technology investment that firms make in these proprietary systems goes well beyond software code to include data, workforce skills and investments in alternative organizational structures.” An example used throughout the book is Walmart – which McKinsey found accounted for a substantial proportion of the US 1990s productivity boost. Somewhat counter-intuitively, at least for those who see Big Tech as the main competition problem, Bessen sees Walmart as the unassailable incumbent in US retail, whereas Amazon is the one example of successful entry, and one offering a platform to other retailers.

This dynamic, of superstar firms in many industries from retail to autos to finance with a widening productivity advantage, has consequences for income inequality: the workers in those firms are paid more because they gain invaluable experience simple by working in the superstar companies, so wages are dispersing within sectors. The skills are scarce because you have to work for a big, sophisticated complex firm to get the skills, which are thus in short supply. It has led to less dynamism – fewer entries and exits in many markets. Small firms simply can’t match the spending on R&D of the big ones: one example given is voice recognition software, where pioneer Nuance was a massive commercial success, but still couldn’t match the spending of big firms: Amazon (again) has more than 10,000 engineers working on Alexa products, more than ten times the number Nuance had at its peak. “Proprietary information technology is exacerbating economic and social devisions. It is widening the gaps between the pay of workers at different firms. It is leading to greater segregation of skill groups across firms and cities.”

The complexity dynamic has implications too for competion policy – which becomes challenging, because after all the superstars generally offer great services – and regulation more broadly – because the information asymmetry between company and regulator grows ever wider.

So what to do? The book advocates for mandating open standards, morecompulsory licensing, and for reforming IP law to tilt the incentives for big companies to do more voluntary unbundling of their services, clamping down on worker non-compete agreements to spread skills. All excellent, and ultimately inevitable policies, as the inequalities are socially and politically unsustainable. But there’s much devil in the detail, and there will be massive lobbying against change. So this is a political struggle rather than a technocratic one.

But that’s to wander off into the future. I highly recommend The New Goliaths. It synthesizes a growing body of research into how firms use technology, how that interacts with organisational structures and markets,  and what the consequences are. It’s also really well-written, with lots of examples and a grounded understanding of the realities and limits of technology policy.

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