Lecture notes: The digital world economy

Intro

not something economics textbooks would talk about

  • definitely international economics
  • also also clearly political

the early history of the internet — greatly admired

  • successful
  • mavericks
  • ushering in a new and better world

the Big Five, GAFAM

  • Google
  • Apple
  • Facebook
  • Amazon
  • Microsoft

History of the Internet

  • I actually had a Bitnet account

DoD and Silicon Valley

create the kinds of security applications it needs

  • and then give them a commercial application

example:

  • driverless cars will incorporate technology that is used in unmanned drones
  • facial recognition software — obvious military uses — and now used in IPhones
  • Google Streetview — originally DoD technology

the US govt uses The Small Business Innovation Research Program, SBIR

all security depts of the US govt have their own venture capital funds

In-Q-Tel

  • sole investor in start-ups, or invests together with the Big Five
  • the US shoulders all the risk, and the companies reap all the gain

the US govt invests in a startup which then is swallowed up by the big companies

the US supports their monopoly position

  • source of international soft power

 Issue 1: Monopoly capitalism

Are we OK with one company winning capitalism?

Amazon

  • revolutionized commerce
  • everything that is admirable about Amazon is also something we should fear

Jeff Bezos

  • Princeton graduate
  • D.E. Shaw, on Wall Street, looking for data

started with books

  • we are going to have more books than anybody else
  • July, 1995, the company starts
  • selling every object in the universe

focusing on the customer experience

  • understand exactly how customers behave — all interaction with the page was tracked — also important data

predict future choices

  • study customer behavior
  • if you have the data, you are king
  • we thought of it as a way to help customers

but didn’t make money for years

  • 20 years got money from Wall Street
  • “it’s all about the long term”

put other companies out of business who cannot afford to lose money — I have a strategy to ruin competitors and get a monopoly

  • no sales tax compared to ordinary shops — everyone buys on Amazon

begins to expand beyond books

  • other businesses eager to sell online

Retail platform

Hundred of thousands of companies

  • big and small
  • great for companies and even better for Bezos

he owns the platform, can control the market

  • everyone competes on his terms
  • they start by demanding concessions from book publishers
  • Amazon wants an additional 4% — they are asking for kickbacks

Kindle

  • more power for Amazon — lower prices

cheetahs and gazelles

  • playing the vendors against each other
  • identifying the weakest companies
  • monopoly capitalism

Amazon Prime

  • two-day shipping for free
  • 150 million people signed up for free shipping
  • it keeps bringing you back as a company
  • hiring 100,000 of workers

Amazon has access to data of competitors

  • increased fees
  • forced to use Amazon shipping
  • can take your business away from you at any moment
  • third-party sellers constitute 50% of the sells

spending a lot of money on lobbying

  • invest in newspapers — Washington Post

Cloud computing, AWS

  • server farms around the world
  • rent out parts of the digital infrastructure — including the US government
  • computing cloud contract for the CIA

everyone else should trust them

  • a million different businesses are taking part
  • he owns the infrastructure of how businesses are done
  • a company that does everything

Artificial intelligence

Alexa — personal assistance

  • seamlessly integrated into our lives
  • listening and learning — gathering information

they listen and transcribe the recordings

  • humans are listening in

Various scifi horror stories

NYT article on the use of Alexa

Streaming services

  • competing with Netflix etc.

A digression on monopoly capitalism

more about monopolies

how they are created

  • natural advantages
  • advantages of scale

for example:

  • no need for immediate returns
  • buy up competitors

what the problem is

  • there is no competition
  • the company can dictate the pries
  • lower the quality
  • stifle the competition

actually worse than state monopolies

  • there is no accountability
  • the oversight function of shareholders doesn’t always work — agent/principal problem

US legislation etc.

Meet Big Tech’s Tormenter-in-Chief

taxes

Global tax rate, 15%

  • G7 and the G20, and OECD implementing these tax rules
  • you need to change legislation in order to go after them

we need fair competition — we need this for innovation

all about anti-monopoly

  • they benefit from not paying taxes — most companies do
  • tax planning, aggressive tax planning — tax avoidance

attitude of the Biden administration is crucial

the Europeans always felt this way

  • there is no global taxman
  • global companies, but no global jurisdiction

but at least now there is regulation going on the same direction

  • there is no chance for international regulation
  • but we need help now to regulate these companies that limits competition

anti-trust

Facebook — Ebay trade

the use of data for advertising purposes

bad advertising — there is no competition

Apple gives preference to its own products on the Apple store

  • how they treat competitors to their own production — 30% commission fee
  • Apple has 30% of the market — but 100% of the market once you have an Iphone

they should allow for other app stores on their phones — we should not accept that on their phones — legislative proposal before the European parliament

Epic complaints — https://www.cnbc.com/2021/09/10/epic-games-v-apple-judge-reaches-decision-.html

Apple claim that they are providing security etc

  • they are providing the operating system — we are stuck — “gate keepers”
  • digital market things are moving fast

how can you make the court system work faster

regulation is the way to do it

difficult to prove that companies are dominant

  • and set rules for what they can do

you cannot lean into a neighboring market

  • the big 5 acquire 800 companies over the last 30 years
  • working with monopoly regulators in European countries

take the kind of responsibility that comes with the power they have

  • democracy needs to catch up with technology
  • politicians can set the framework — democracy can regulate

Privacy

regulated by the European Commission

  • can’t sell the data of users
  • Google fined 50 million
  • the market is not helping users enforce their rights
  • Europeans are badly protected
  • Digital markets act , dma

anti-trust legislation

  • “ensure a higher degree of competition in the European Digital Markets, by preventing large companies from abusing their market power and by allowing new players to enter the market”

For example:

  • prohibitions on combining data collected from two different services belonging to the same company (for example Facebook and WhatsApp)
  • provisions for the protection of platforms’ business users (including advertisers and publishers);
  • legal instruments against the self-preferencing methods used by platforms for promoting their own products (preferential results for Google’s products when using Google Search
  • articles concerning the pre-installation of some services (Google Android
  • regulation related to bundling practices;
  • provisions for ensuring interoperability, portability, and access to data for businesses and end-users of platforms

Digital services act , dsa

In practice, this will mean new legislation regarding illegal content, transparent advertising and disinformation — address concerns of online harassment, including doxing and gender-based harassment faced by users on social media

  • content moderation
  • to make sure that what you get offline is also what you get online
  • that the products are safe
  • if your profile is taken down, there is somewhere you can go and complain about it

how do you balance freedom of speech and illegal content

  • while keeping stuff up that is contentious etc
  • there must be a complaints procedure — an independent body

liability

  • platforms are not liable — Facebook should not be liable for crimes, etc

We want a system for discussing these kinds of decisions

Facebook oversight board

  • there should be legislation about this — not just private company rules
  • it’s very troublesome of course
  • your take on technology is also a take on democracy

Issue 2: Surveillance capitalism

one-way mirror

  • this is why it works
  • connected to every aspect of our experience
  • smart phone — reporting back

smart objects — TV, washing machine, your walk in the park

  • 6 million predictions of our behavior per second

a loyalty prediction service

Issue 5: Changing nature of work

  • not just the internet though …

We talked about automation before

  • automation of working-class jobs

but now automation is coming for the professional middle-classes

  • doctors, bankers and lawyers

and professors!

  • ChatGPT
  • “Is automation a threat to university professors?”

Working for Amazon

work environment

  • incremental invention
  • warehouse robots
  • shipping robots

fulfillment center

  • a lot harder work
  • you have to pick and pack too quickly
  • they are constantly raising the rates
  • security cameras checking you out all the time
  • scanners are tracking you at all times — you are never good enough
  • you can’t talk to other people

collecting data in order to control the work force

  • 600,000 employees — no unions
  • 2013, its own delivery system — relying on outsiders, not regulated by federal legislation
  • lot’s of crashes and deaths
  • always blaming the contractors

inviting more sellers onto the site

including Chinese products

  • Amazon is not legally responsible for the insecure things that third parties sell
  • 60% of sales are by third parties
  • dangerous products
  • banned, unsafe, products
  • millions of sellers and 100 of millions of products

streaming service

  • second headquarters
  • 50,000 new jobs
  • invited cities to pitch themselves
  • all these companies offering tax breaks, offering land, infrastructure investments
  • Arlington, VA, and New York get the investments
  • why give tax breaks to a trillion dollar business?

but New York wanted unions

  • Amazon pulled out of New York

Metaverse

Huawei

Twitter

@Jenn_Abrams

Ezra Klein on Twitter

TikTok

download pdf

Mac and Che – 2022 – TikTok%u2019s C.E.O. Navigates the Limits of His Power-compressed

  • immense troves of personal data about their users
  • ways of persuading them

no control over the information that is spread this way

  • we are too dependent on the good will of a few billionaires
  • they don’t profit from the truth
  • they are unaccountable

Political consequences

targeting voters — change the outcome of elections

  • 11.4 million Americans saw Russian ads in favor of Trump in 2016
  • another 126 million Americans saw Russia backed posts on Facebook

threat to national security

DDos, distributed denial of service attacks

cyber-war, cyber-terrorism, cyber-espionage

a threat to national infrastructure

Privacy

Obama, International Strategy for Cyberspace, May, 2011

the US needs to pretend that it is all for a free and open internet — but the reality often goes against that

the internet as a site of potential conflict — and the US has sought control over it

Russian Kaspersky Lab

Issue 5: Changing nature of work

  • not just the internet though …

We talked about automation before

  • automation of working-class jobs

but now automation is coming for the professional middle-classes

  • doctors, bankers and lawyers

and professors!

  • ChatGPT
  • “Is automation a threat to university professors?”

Working for Amazon

work environment

  • incremental invention
  • warehouse robots
  • shipping robots

fulfillment center

  • a lot harder work
  • you have to pick and pack too quickly
  • they are constantly raising the rates
  • security cameras checking you out all the time
  • scanners are tracking you at all times — you are never good enough
  • you can’t talk to other people

collecting data in order to control the work force

  • 600,000 employees — no unions
  • 2013, its own delivery system — relying on outsiders, not regulated by federal legislation
  • lot’s of crashes and deaths
  • always blaming the contractors

inviting more sellers onto the site

including Chinese products

  • Amazon is not legally responsible for the insecure things that third parties sell
  • 60% of sales are by third parties
  • dangerous products
  • banned, unsafe, products
  • millions of sellers and 100 of millions of products

streaming service

  • second headquarters
  • 50,000 new jobs
  • invited cities to pitch themselves
  • all these companies offering tax breaks, offering land, infrastructure investments
  • Arlington, VA, and New York get the investments
  • why give tax breaks to a trillion dollar business?

but New York wanted unions

  • Amazon pulled out of New York

Metaverse

Huawei

Twitter

@Jenn_Abrams

Ezra Klein on Twitter

TikTok

download pdf

Mac and Che – 2022 – TikTok%u2019s C.E.O. Navigates the Limits of His Power-compressed

  • predict when a consumer might be disloyal to your brand — and then prevent this
  • offer a discount, free shipping

surveillance dividend

superfluous information

Cambridge Analytica

  • same mechanisms for controlling political attitudes

subliminal keys to tune us, and herd us, in the direction that benefit the companies

private experiences as the last virgin wood

  • transforming our daily lives
  • challenges social contracts
  • challenges human freedom

democracy is the only possible remedy

rushing down the rabbit hole … we ended up in Wonderland — everything is upside down

  • we can search Google — but Google is searching us
  • we are not using social media, social media uses us
  • we think of the services as free, but it is we who are free
  • privacy policies are surveillance policies

the mistakes are the innovations

  • we thought we had access to knowledge — but it is knowledge that as access to us

economies of scale — totalities of information

  • we need varies sources of data — economies of scope — different kinds of data

the mobility revolution

  • a small computer in your pocket
  • where you are going, who you are with
  • face recognition

intervening in your behavior

  • nudge, herd, tune you in the direction of our profits

global information, at scale, totally unprecedented

not sending people off to the Gulag

  • not totalitarian power
  • new, unprecedented, form of power

instrumentarian power

  • comes secretly, quietly
  • greets us with a cappuccino and a smile
  • global means of behavior modification
  • engine of growth

but they are not actually solving our problems?

  • instead all these intelligent people are using their abilities to generate corporate profits

Social Credit System

China:

  • like an open air prison
  • everything is controlled

easy to determine

  • who are good citizens and bad?

New regulations are needed

  • interrupt the incentives for the surveillance dividends
  • we open up competitive space for millions of people who want to produce actual knowledge, new entrepreneurship
  • interrupt supply — it should be illegal to transform surveillance into data — sold to military
  • interrupt demand — eliminate the incentives to sell predictions — we make markets that trade in human futures are illegal — other markets are illegal — they have predictably destructive consequences

they fear law and law-makers

  • they fear the people
  • a digital future that we can call home

What we consciously give away is the least of it

  • most of the information is not what we knowingly give away
  • where we are, what we think

“residual data”

  • but it is in the waste that all the good data is

we collect data to improve services

  • but even more of it is to train models — patterns of human behavior

predict what you are likely to

“behavioral surplus”

  • more data than is needed to improve the services

predict what food you want

  • sell off an ad, and send you a discount

buying shampoo

  • determine that a woman was pregnant
  • and the father sent baby-products

predict personality, emotions, political views

  • photos on Facebook can give predictive signals — study muscles in the face
  • the predictions are sold off to businesses

they operate in stealth

  • engineered to be undetectable
  • our ignorance is their bliss

Facebook, massive scale contagion experiment

  • using subliminal cues — to make people happier
  • we can change real world emotions
  • we can use these methods while bypassing user awareness

Pokomon Go

  • started in Google
  • but sells itself as a funny game
  • foot fall, get real bodies into shops
  • “lure module” — things that lure customers to you — Starbucks, McDonalds, everyone was making money
  • herd you through the city to the places that paid for your body

you don’t notice, because you are too busy being entertained

Huawei

“the internet of things”

  • linking all objects to all others
  • my washing machine

simultaneous action over a distance

  • surgeons operating by means of a robot

Huawei is providing the digital infrastructure

  • but blacklisted in the US
  • US companies are not allowed to deal with them

for example: access to power-grids

  • you have to have complete trust in those who organize the infrastructure
  • cf. bridges etc.

very opaque ownership structure

  • supposed to be owned by the employees
  • there is no need to answer to share holders
  • it is not listed on international stock exchanges
  • but clearly the Chinese government is involved

Undermining state autonomy

  • MNEs are not bound by a time and place

but China

  • “Great Firewall of China
  • blocking traffic

a way to impose censorship

but also a way to privilege domestic companies

  •  which the government has control over

Problems for countries like Germany that fail to keep up

Issue 3: Political interference

Russian meddling in US elections

Issue 4: Military applications

Use of personal information

US govt — essential national security assets

  • immense troves of personal data about their users
  • ways of persuading them

no control over the information that is spread this way

  • we are too dependent on the good will of a few billionaires
  • they don’t profit from the truth
  • they are unaccountable

Political consequences

targeting voters — change the outcome of elections

  • 11.4 million Americans saw Russian ads in favor of Trump in 2016
  • another 126 million Americans saw Russia backed posts on Facebook

threat to national security

DDos, distributed denial of service attacks

cyber-war, cyber-terrorism, cyber-espionage

a threat to national infrastructure

Privacy

Obama, International Strategy for Cyberspace, May, 2011

the US needs to pretend that it is all for a free and open internet — but the reality often goes against that

the internet as a site of potential conflict — and the US has sought control over it

Russian Kaspersky Lab

Issue 5: Changing nature of work

  • not just the internet though …

We talked about automation before

  • automation of working-class jobs

but now automation is coming for the professional middle-classes

  • doctors, bankers and lawyers

and professors!

  • ChatGPT
  • “Is automation a threat to university professors?”

Working for Amazon

work environment

  • incremental invention
  • warehouse robots
  • shipping robots

fulfillment center

  • a lot harder work
  • you have to pick and pack too quickly
  • they are constantly raising the rates
  • security cameras checking you out all the time
  • scanners are tracking you at all times — you are never good enough
  • you can’t talk to other people

collecting data in order to control the work force

  • 600,000 employees — no unions
  • 2013, its own delivery system — relying on outsiders, not regulated by federal legislation
  • lot’s of crashes and deaths
  • always blaming the contractors

inviting more sellers onto the site

including Chinese products

  • Amazon is not legally responsible for the insecure things that third parties sell
  • 60% of sales are by third parties
  • dangerous products
  • banned, unsafe, products
  • millions of sellers and 100 of millions of products

streaming service

  • second headquarters
  • 50,000 new jobs
  • invited cities to pitch themselves
  • all these companies offering tax breaks, offering land, infrastructure investments
  • Arlington, VA, and New York get the investments
  • why give tax breaks to a trillion dollar business?

but New York wanted unions

  • Amazon pulled out of New York

Metaverse

Huawei

Twitter

@Jenn_Abrams

Ezra Klein on Twitter

TikTok

download pdf

Mac and Che – 2022 – TikTok%u2019s C.E.O. Navigates the Limits of His Power-compressed