In her early memoir Abolish Silicon Valley, Wendy Liu recounts her experience as a Startup CTO working 60-80 hours per week. In retrospect she rationalises her behaviour as an attempt to escape the “nameless dread of imprisonment” in a nine-to-five job.
Despite the fact that she and her colleagues earned practically no money, the prospect of an acqui-hire (neologism of “acquisition” and “hiring”) for a couple of million US$ kept them running beyond reason. Celebrities like Peter Thiel and Elon Musk had already proved that it is possible to join the Billionaire class starting with a garage business.
What Liu describes here — the desire to be extraordinarily rewarded for hard work, coupled with contempt for people who don’t try hard enough — is a structural problem in ‘Big Tech’.
‘Big Tech’ and its brand of platform capitalism can only be vaguely described as a business model that includes IT, data and/or the Internet — paired with the promise of a more flexible, smarter, disruptive and intelligent production. Behind the curtain, as a closer analysis shows, lurks a profitability crisis of global capitalism, which only has gained momentum after the 2008 financial crisis. The “techlash” — as the hypothetical backlash of omnipotent tech companies, such as Google or Facebook, was originally coined — went viral for the first time as a result of the Snowden revelations in 2013.
Since then, the focus has been on data and privacy protection and, since the Cambridge Analytica scandal, on the dubious role that social networks such as Facebook and Twitter play in the democratic process. The European General Data Protection Regulation (GDPR), which came into force in 2018, was the first response by European policymakers to regulate the global flow of data. However, the relevance of data protection remains not only difficult to communicate, but is also practically unfeasible at the individual level. It is time to extend the analysis of Big Tech and Platform capitalism to the economic field in order to understand the structural changes taking place and what this means for wage earners and society in general. The trend toward monopolisation in the digital economy was already evident in the so-called Dot-com bubble between 1995 and 2000.
Back then the promise of exceptional returns on investment attracted US$ 256 billion in financial capital. Returns from the real economy were no longer attractive enough for international investment funds. This trend intensified again after the financial crisis in 2008, when central banks fired up the hunt for more lucrative investments with their low interest rate policy (Interest rates fell from 5% to 0.5% in the months following the crash). The monetary policy of Quantitative easing also intensified growing demand for riskier forms of investment.
Another reason for the growing appeal of the Digital economy is the fact that its assets can be moved more quickly, thus facilitating tax evasion. According to the US Securities and Exchange Commission, 92.8% (US$ 200 billion) of Apple’s capital reserves have been stored abroad in 2016. Microsoft had 93.9% (US$96.3 billion), followed by Google with 58.7% (US$42.9 billion). Amazon and Facebook are also high on the list.
“The growing share of income from financial investments and thus the decline in income derived directly from the sale of work products such as cars, sports goods or the like can be seen as a shift in bargaining power, a change in the weight that could be asserted in wage negotiations,” states philosopher and sociologist Aaron Sahr in his book Keystroke Capitalism. “The process of financialization thus upgrades a few top earners and renders the majority of employees obsolete.”
Wendy Liu intuited this dilemma and started looking for C-Level positions early in her life. During her visits to San Francisco in the 2010s, she quickly noticed the glaring inequality in the distribution of income. The shuttle drivers who transported her to the Google campus in the morning, the gardeners and service staff did not seem as hip and satisfied as her fellow developers. But then they didn’t really belong to the Google family either, right?
In the digital economy, the low-skilled workforce has no right to fair wages.
A peek at the annual report of the Takeaway.com group shows what the business model of a Platform company looks like. Takeaway.com — currently present in Germany with the brand name Lieferando — dominates the German market for online food delivery after the pullback of its competitor Deliveroo. The company acquired the brands Lieferheld, Pizza.de and Foodora, and generated a gross merchandise value of EUR€ 1.45 billion in the 2019 financial year. This represents a gross revenue of EUR€ 211 million. The remarkable thing about this is that most delivery drivers do not work for Takeaway.com, but are paid by the participating restaurants. Takeaway.com thus makes its money by providing an online platform, marketing, PR, management and customer support. The Platform has to be protected from competition constantly, which is ensured through aggressive takeover policies, cross-subsidization and the exploitation of the Network effect.
The so-called Network effect is a characteristic of online platforms: The more users use a platform, the more attractive it becomes for all other users. In order to dominate the market, companies like Takeaway.com are prepared to waive the Return on Investment for years to come. According to their own reports, business in Germany became profitable for the first time in 2019 — five years after market launch.
The case of Takeaway.com demonstrates how much Platform companies are dependent on capital injections and how little the majority of employees benefit from the success of the companies.
By collecting data from each transaction—as well as tracking data from delivery drivers and similar relevant transactions—Takeaway.com can continue to expand its monopoly position. In technical jargon this goes by the term: Extractive minimum — the control over the platform is sufficient to skim off the monopoly rent.
Most companies in the Digital economy are platform providers in one form or another, i.e. the central sources of business activity are training algorithms, outsourcing labor, optimizing production processes and generating new data to further expand market position. Whether it is advertising platforms such as Google or Facebook who gain more than 89% of their revenues from (online) advertising, Cloud platforms such as Amazon Web Services which form the backbone of the global digital infrastructure, or Industry platforms that optimize internal processes, the basic mechanisms are the same. The service providers Uber, AirBnb or Lieferando, are among the “lean platforms”, as they generally do not possess the offered commodities and even outsource computing and hosting to other Cloud platforms.
In a nutshell, Platform capitalism seems to be less of a rebound of the economy than a form of jobless recovery.
This has created a large informal labor market. Especially “lean platforms” are ideal assets for venture capital because they promise attractive performances in the short term.
It is by no means a historical necessity that technological innovation is linked to such a high degree to speculation on the financial market and declining wages for workers.
On technological sovereignty.
In theior policy paper ‘Technological Sovereignty — Democratization of Technology and Innovation’ DiEM25 has written a set of proposals to deal with the impending threat of platform capitalism.
The paper primarily focuses on the regulation of Platform companies — by further protecting citizens from data extraction and by demanding obligatory interoperability between different platforms (similar to the development on the mobile phone market) — in order to counteract the monopolistic tendencies that e.g. Network effects create.
It also advocates for stronger antitrust regulations that take into account the international position of a company and not only the profits of the respective national subsidiaries. It would also be conceivable here that a part of the private data collection is published and made available to public institutions committed to the common good. Furthermore, they propose to bring Data unions into discussion, strengthen the model of Platform cooperatives and confine the private appropriation of public research. Public money becomes public code, as the Free Software movement, among others, calls it.
I am convinced that the democratization of technological innovation is an important contribution to a solidary society and does not belong exclusively in the hands of venture capital and shareholders. Also to make sure that talented young people like Wendy Liu do not waste their talent and commitment in an industrial sector that is working on optimizing the online advertising market with hundreds of billions of euros.