Ruptures: Much has been said about how Jeff Bezos, the world’s richest man, has passed the baton to his successor, Amazon CEO Andy Jassy. The media paid almost as much attention to Facebook founder Mark Zuckerberg’s surfboard outing and display of the American flag on July 4. And a few months ago, there was an unprecedented media barrage over history’s most expensive divorce involving Microsoft founder, Bill Gates, and his wife, Melinda. With all eyes riveted on the COVID-19 crisis or trivial stories, are we covering up up a profound economic shift?
How can we capture the height and the depth of a period whose dimensions were curtailed in an unprecedented way, reducing our attention at best to a few weeks, or even a few hours, while the COVID-19 pandemic took over?
This is probably one of the questions that economist Jan Eeckhout attempts to answer in his much discussed and well researched analysis, published by Project Syndicate on June 25. The Barcelona professor and author of “The Profit Paradox: How Thriving Firms Threaten the Future of Work” argues in favor of a thesis which is counterintuitive, to say the least, that aside from the benefits of escaping endless debates over vaccines and restrictions, there is an immense advantage from imposing a regulatory code on the fearsome influence of the tech giants.
Winner Takes All
One indisputable factor must be noted at the outset: The new market laws of the digital age are similar to a poker game in which the winner takes all. Companies used to compete for a market share; now they try to control the whole thing. All efforts to prevent abuse of market dominance, whether made by the European Union or other bodies, have been reduced to failure caused by friendly deals that barely affect the tech giants’ massive funds. Eeckhout claims this phenomenon is completely understandable because it is consistent with consumer behavior, consumers who naturally prefer to remain with a platform that offers them the widest range of choices. Clearly then, Google, Apple, Facebook and Amazon, known as GAFA, derive their strength from the unlimited confidence of the consumers they have ensnared.
Unlimited Market Power?
The second aspect of this growing economic distortion is the outsized value of these companies on the stock exchanges. They have taken off over the past 40 years, increasing pressure on large enterprises to continually raise their product prices to keep pace with the market’s demand for profits. This pursuit produces an infernal spiral that paradoxically results in products whose prices would naturally have fallen drastically with technological advances, but have instead become more expensive. For instance, less than 15 years ago, the price of the most advanced mobile phones did not exceed 500 euros (currently about $590), yet now they are often more than 1,000 euros (currently about $1180) and consumer demand for them is undiminished. As a consequence, all of the market share accrues to a handful of giant companies whose influence and power to wipe out anything in their path is far beyond anything we previously knew.
New Capital Is Uninterested in Labor
The third aspect is probably the most troubling. Despite exploding unemployment levels during the pandemic that increase the momentum of the oldest dynamic of the Fourth Industrial Revolution, the stock markets have seen a rebound and new stability. There are two reasons for this. On one hand, the big tech companies have implemented cost-cutting strategies to increase their profit margins; on the other, consumers have vastly increased their screen time during confinement, thus raising GAFA profits, too. In sum, the rules of the new market are finishing what the digital revolution started, namely the complete separation of new capital from labor.
A troubling cross trend is also apparent in the tempting appeal to technocracy for a resolution to fundamentally political problems. To appease the waves of populism, there is the random practice of calling in “economic technicians” to take the controls from executives. Italy first tried this strategy in 2013 with Mario Monti, and then with Mario Draghi in February 2021. Meanwhile, we see the emergence of more and more people from public service, banking and finance who declare themselves ready to “serve” in whatever small capacity they are asked to do so. Perhaps this is about a bigger error than the one allowing the market to “devour” the economy.