Don't Be Evil

by Rana Foroohar

  Amazon already has vastly more market data than the public sector or any competing retail company, and now, thanks to the sealed bids and nondisclosure agreements that it required officials to sign as part of the HQ2 process, it also has a huge proprietary body of information about the competing cities that it can leverage in whatever way it likes, to whatever financial advance.

  Workers Strike Back

  Amazon has a big stick. But the one wielded by populists in years ahead may be bigger. Uber has already felt the sharp end of that stick. Its expansion sparked violent protests in Mexico City and Paris, but Kalanick, known for both his detailed grasp of regulatory barriers and the zeal with which he’s willing to take them on, was typically unfazed by all of it. “There are a lot of rules in cities that were designed to protect a particular incumbent, but not to move a city’s constituents, a city’s citizens, and the city itself, forward. And that’s a problem,” he told me in 2015. “We need to figure out how to merge political progress with actual progress.” Uber’s idea of progress is simple and sweeping: transportation as ubiquitous and reliable as running water, everywhere, for everyone.

  Rewriting the rules for how cities operate, by running roughshod over them if necessary, is, of course, part of that vision. “Who gave the government the right to create monetary value because of scarcity?” said Eric Schmidt to me back in 2015 when I interviewed him for the Kalanick profile. (Google Ventures had invested a whopping $258 million in Uber in 2013, pretty much giving Kalanick a blank check for whatever terms he wanted.)32 “Cab drivers can’t afford million-dollar medallions, so they end up working for financing companies.” It’s a fair point; while Uber and Lyft have taken much of the blame for the disruption in the taxi industry, recent New York Times reporting has also shown that city officials themselves have for years been in cahoots with dicey lenders to drive up the prices of official Yellow Cab medallions, which have since crashed, leaving many drivers in the lurch.33 Schmidt told me four years ago that he believed people like Kalanick were necessary to disrupt the system. “He fights from a weak position against industrial structures. He is the sort of person that can take nothing and make it into something. People like him are disagreeable in the sense that they disagree [with the status quo].”34

  Certainly, that’s true. Four years ago, I watched Kalanick give a speech to local business leaders in Boston, during which he boldly proclaimed, “I see a world in which there is no more traffic in Boston in five years.” Uber’s current CEO, Khosrowshahi, has continued to laud the potential traffic- and pollution-reducing effects of the company’s reign in urban areas. Yet today, there is disturbing research that shows that ridesharing, while possibly reducing car ownership, may also increase the number of miles traveled in cities, thus having the effect of increasing transit and pollution issues.35

  Such issues were starting to be apparent when I began covering Uber years ago. Yet Kalanick himself, in typical move-fast-and-break-things mode, wasn’t interested in discussing them. In fact, he wasn’t terribly comfortable when any such topics were brought up. Like many Silicon Valley types I’ve known, he would quickly flip into fight mode if you tried to draw him out on some contentious part of the Big Tech debate. His body language would shift and his eyes narrow when I asked about critiques about him and his company, even within the Valley.

  “Those people don’t know me,” he said. “What drives me is a hard problem that hasn’t been solved, that has a really interesting and impactful solution. And for me it doesn’t even matter what the problem is. I just gravitate toward it. Maybe that results in a style that’s a little different,” he added, a bit reluctantly. “I’m learning how to be as passionate as I am but understand that when you get bigger, you have to listen more and be more welcoming. And step on toes more lightly.” In a particularly revealing moment, he told me he sometimes felt like he was “driving in the fog. I’ve got my hands on the wheel and I’m going too fast to look behind me, but I can’t see very far in front, either.”

  It was an apt metaphor, and one that could apply to Big Tech as a whole. After all, Uber alone didn’t cause the seismic economic shifts roiling the lives of workers everywhere. But, for better or worse, it has benefited from them. Ironically, the shifts wrought by the gig economy are having a positive effect on another group: the labor movement. The labor share of the overall economic pie is at a post–World War II low, which is an enormous problem in an economy that is 70 percent dependent on consumer spending. The demise of the traditional union, where dues are collected by law and workers tend to be in public service or blue-collar areas like building trades and manufacturing, is one of the biggest contributors to that problem. With unions representing only 10.7 percent of the American workforce—half of what it was in the early 1980s—labor simply has no bargaining power these days, an issue exacerbated by the gig economy and automation.

  Yet there are signs that a new kind of labor movement may be brewing, one that is broader based, more flexible, and more digital. New York recently launched a $2 million fund to help develop digital cooperative companies such as print shops, neighborhood cafés, and artisan makers of high-end goods. The Freelancers Union, which caters to higher level service workers (writers, graphic artists, photographers) who are being disrupted by the gig economy, now represents some 375,000 workers and is helping to offset declines in traditional unions.

  This underscores the changing nature of what it means to be “working class” in the world wrought by Big Tech. If you consider it merely in terms of a dollar per hour figure, many white-collar freelancers would not count. But if you consider it in terms of job security and benefits, as many left-wing economists increasingly do, then these workers absolutely have similar challenges and concerns, from a lack of pensions and health insurance to an increasing vulnerability to being undercut by job-replacing technologies, which are moving higher up the economic food chain.

  The economic and political potential of that mix appeals to Freelancers Union founder Sara Horowitz. “Ideologically, I come out of the Jewish labor movement of the 1920s, which included not only garment factory workers but also small entrepreneurs,” she says. Indeed, she has brought an interesting mix of entrepreneurial zeal and strategic thinking to her community. The Freelancers Union was, for example, instrumental in getting a law passed in New York City that allows independent contractors to sue for double damages and legal fees when clients fail to pay. Horowitz’s group subsequently developed an app to help members find lawyers who would take on their cases, and since most of those legal professionals were independent or working for small firms, she began organizing them, too. (She plans to take this strategy into other areas, including the accounting profession.) “I get concerned when the labor movement is defined narrowly,” says Horowitz, who wants Democrats to better address the shared concerns of a full range of workers of all incomes.

  It could be an opportune moment to do so. A Pew Foundation study shows that millennials have different views about unions than their parents do. Favorable feelings about unions have been growing steadily since they hit their low point around 2010; today, 48 percent of the population believes that unions are a good thing, and millennials have the most positive view. As Kashana Cauley, a writer for The Daily Show with Trevor Noah, wrote in The New York Times, millennials are heeding the call to fight back at a time when “the government wants to disembowel public and private healthcare and when wages are on the decline,” by joining “existing unions or unionizing ourselves.” Interestingly, this view has traction among young people on both sides of the political aisle. Half of conservative millennials actually support organized labor, compared with only 24 percent of older Republicans. This presents a major opportunity for Democrats in 2020 if they can keep their party from being captured by the coastal libertarians of Silicon Valley or Wall Street.36

  When I last spoke with Kalanick, he’d gotten interested in another period o
f labor disruption: the late 1800s, better known as the Gilded Age. Appropriately, he told me he was currently reading biographer Ron Chernow’s book on John D. Rockefeller, Titan. Rockefeller was, like Kalanick, a self-made man who eventually created the world’s largest and most powerful monopoly, Standard Oil, beating down regulators, unions, and political officials in the process.37 It’s a story that many politicians and regulators are now looking to, as they grapple with the new monopolists of Big Tech.

  CHAPTER 9

  The New Monopolists

  After my brief flirtation with the idea of working at Google nearly a decade ago, the next time I’d visit the company’s New York office was in 2017, shortly after taking up my position as the Financial Times’ global business columnist. The food was just as good, but the cognitive dissonance between how the Googlers viewed the company and how many others viewed it had grown more extreme. When I brought up the issue of monopoly power with the public policy staffer I was meeting with, she seemed genuinely surprised. “We feel like we are under threat all the time, from other big technology companies,” she told me. “We just don’t understand the argument that there’s not enough competition in the marketplace.”

  I could see it from her perspective—as we’ve already learned, Amazon has become a major competitor for Google. The problem is that two or three behemoths competing against each other doesn’t really count as a competitive economic landscape. For that, you need a wide variety of firms of all sizes able to enter and thrive in a marketplace. But increasingly, that’s not happening. That’s because Big Tech enjoys several natural advantages that breed monopoly power: information asymmetries, the network effect, the ability to easily copy the ideas of smaller competitors in an open-source environment, gatekeeper rents (even if they are in the form of data, not dollars), the advantages of both owning a platform that others must use as well as being able to conduct commerce on that platform, and the legal and political muscle the largest players can exert at will in Washington. I would witness that political power firsthand later that year, as I watched Eric Schmidt, one of the largest funders of the New America Foundation, an influential Washington think tank, squash a policy wonk whose ideas he found threatening.

  I had known of the scholar Barry Lynn because of his prescient work on supply chain economics, in which he’d examined how the United States had lost manufacturing competitiveness to China.1 Lynn, who like me was an advocate for localism and small business, had recently begun looking at the way in which Big Tech firms were dominating the economy, and hindering entrepreneurial vibrancy and growth as a result. When Lynn’s research group, the Open Markets division, posted an article on the think tank’s website in praise of the EU antitrust ruling against Google, Schmidt (who was at the time still executive chairman of Alphabet, Google’s parent company) called up the head of New America, Anne-Marie Slaughter, a former director of policy at the State Department under Hillary Clinton, and voiced his disapproval.

  That was when Slaughter told Lynn that “the time has come for Open Markets and New America” to part ways. Not because of his work, she stressed in an email that was reviewed by The New York Times, but because his “lack of collegiality” was imperiling the organization as a whole. The episode called to mind an email that Slaughter had sent him a year earlier, in 2016, in the run-up to a well-received conference on the market dominance of Google, Amazon, and Facebook, which Lynn had organized. Apparently, Slaughter indicated, Google was concerned that its position wouldn’t be represented. “We are in the process of trying to expand our relationship with Google on some absolutely key points,” Slaughter wrote to Lynn. She urged him to “just THINK about how you are imperiling funding for others.”2

  Lynn was eventually pushed out of the think tank (both Google and Slaughter deny this was due to Schmidt’s pressure)3 and ended up starting what has become an even more influential stand-alone think tank, the Open Markets Institute (full disclosure: I sit on the advisory board of the new entity). And his concerns about Big Tech’s monopoly power have come to the forefront of the policy conversation in Washington, influencing liberals and conservatives alike. One of the most influential pieces of work associated with the think tank was by a young legal scholar named Lina Khan, whose paper, “Amazon’s Antitrust Paradox,” published in January 2017 by the Yale Law Journal, laid out why the old ways of thinking about monopoly power are no longer adequate for the digital era.4 (Khan worked with Open Markets for two years before law school and a year afterward as well.)

  It’s hard to believe that Khan, an unassuming thirty-year-old scholar, working in the long-neglected field of antitrust law, is currently public enemy number one for the world’s tech titans (or perhaps number two, just behind EU competition commissioner Margrethe Vestager, who has taken some of Khan’s ideas on board). Khan’s breakthrough came from her “interest in the economists who were actually studying power….That’s something that gets channeled out in the contemporary version of economics,” she said during an interview with me in 2019.

  Academic papers don’t tend to go viral, but this one received a near-unprecedented level of interest from policy makers. In fewer than one hundred pages, Khan made the case that current interpretations of U.S. antitrust law, which is meant to regulate competition and curb monopolistic practices, are utterly unsuited to the architecture of the modern economy.

  For roughly four decades, antitrust scholars—taking their lead from Robert Bork’s 1978 book The Antitrust Paradox—have pegged their definitions of monopoly power to short-term price effects; so if Amazon is making prices lower for consumers, the market must be working effectively. Khan set out a simple but powerful counterargument: that it doesn’t matter if companies such as Amazon are making things cheaper in dollars if they are using predatory pricing strategies to dominate multiple industries and choke off competition and choice. “I was fascinated by Wall Street’s view of Amazon, and how much it differed from what conventional economic theory would say about the company,” Khan said.

  Her reframing of the problem was revelatory, and is now at the core of a number of Big Tech antitrust actions on both sides of the Atlantic. Experts have been telling us for years that the concentration of power in a few corporate giants was a crucial factor in everything from wage stagnation to rising inequality and political populism.5 Now, suddenly, with Khan’s paper, there was a road map for understanding the problem, and a potential legal tool for dealing with it, too.

  “At a basic level, I’m interested in imbalances in market power and how they manifest. That’s something you can see not just in tech but across many industries,” said Khan, who has written sharp pieces on monopoly power in areas as diverse as airlines and agriculture. “A lot of people talk about markets as these forces that are the product of globalization and technology and these things that are totally unrooted, that are totally separate from laws and legal institutions.” Khan, like many in her cohort, believes otherwise. “If markets are leading us in directions that we, as a democratic society, decide are not compatible with our vision of liberty or democracy, it is incumbent upon government to do something.”6

  The paper focused, as the title indicates, on Amazon, which is by many measures the most powerful and dominant of the FAANGs. Today, Amazon controls the largest single chunk of e-commerce in the United States, and lives up to the title of Brad Stone’s book: The Everything Store. But as many will recall, the company began as a mere purveyor of below-cost books, one that threatened to bring down publishers—not to mention brick-and-mortar bookstores—with pricing techniques that could only be described as predatory. The tactics Amazon employed in its full-frontal assault on the book business would soon become standard operating procedure as the company went on to launch similar offensives in countless other industries and markets.

  The Illusion of “Cheap”

  If there’s one thing Amazon’s approach in taking on the book business wasn’t, that word would
probably be subtle. As Stone laid out in his book,7 Bezos directed employees to “approach these small publishers the way a cheetah would a sickly gazelle.”8 The Gazelle Project, as it was named, involved deeply discounting bestsellers to establish dominance in the ebook market, in a way that is similar to how Apple came to dominate digital music. Amazon also sold its Kindle reading device below cost; both techniques helped to build a network of consumers that would then be drawn back time and time again to the e-tailer. At the same time, the company would discount print books sold online, too, using exactly the sort of predatory pricing techniques that Khan lays out in her paper. The company may have been earning razor-thin margins on each ebook sale, but the strategy worked. By 2009, roughly two years after the Kindle launched, Amazon was selling around 90 percent of all ebooks.