Hedge
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Such concerns about technological change lead to startup-busting politicians, lobbied by all the Rousselets of the world, erecting barriers in the name of nostalgia. Elected officials, corporate executives, scholars, and journalists prefer to see entrepreneurs as the new “Barbarians at the Gate”[3] and slow them down rather than supporting them. They simply don’t see (or refuse to see) the better world that the paradigm shift could bring about. And so the tech industry will prosper only if it helps reveal that perspective and participate in imagining new institutions for the new age.
Ultimately, imagining what I call a Greater Safety Net for the Entrepreneurial Age will prove beneficial for all tech entrepreneurs in the West. It will offer a more inclusive and reassuring perspective on what they are trying to achieve. It will also contribute to setting up the institutions these entrepreneurs need to maximize their venture’s success. After all, most social and economic institutions built in the age of the automobile and mass production ultimately became pillars that enabled the Fordist corporate world to thrive — a sort of providential gift from union leaders, consumer advocates, and liberal and socialist politicians to the embattled corporate executives of the day.
That gift, which mostly dates back to the 1930s, has now been exhausted. And so we must imagine a new safety net that is more in line with today’s economy. It’s a long road ahead, and there’s no reason to delay the departure any longer. Those who are willing to take the ride face an uphill battle. This book, Hedge, has been written for them.
Part 1
The Ticking Clock
Chapter 1
The Tech Backlash
“Mr. Obama’s campaign, conceived outside the party establishment and built on a platform of online membership, felt like a high-tech reimagining of politics. It seemed to presage an age of government that could champion both individuality and community, a government that made programs more responsive and flexible without eroding our sense of shared responsibility.”
—Matt Bai[4]
Do middle class workers dream of tech companies?
Technology is not popular nowadays. As I write these words in early 2018, it even appears to be an enemy of our entire way of life: it disrupts whole industries; it displaces jobs; it widens the inequality gap; it endangers our privacy; it undermines the economic security that was at the heart of the post-war social compact; it even threatens democracy as we know it.
In a way, it all started with the 2008 financial crisis. We all remember that year as the bursting of the housing bubble, followed by the cracking of the global banking system. Less remembered is the fact that the iPhone had launched the previous year, with the App Store following on July 10, 2008. These two unrelated events, the crisis and the iPhone, ended up reinforcing each other. The potential of using the Internet through smartphones instead of desktop computers was realized thanks to the post-crisis context. Businesses started to consider technology as a lever to become more competitive. And households needed to find new ways to make ends meet.
As a consequence, the crisis contributed to boosting a new breed of technology company. Airbnb was first launched in 2008; its early success was due to people having difficulties paying the rent. Uber started operating the following year; it relied on the smartphone as the most convenient device to order a ride, but also on the reserve army of would-be drivers—all those who, for lack of a better job, were ready to go work on the new platforms of the “gig economy”. 2008 was also the year when Facebook passed the threshold of 100 million users and Barack Obama was elected president.
With its growth fueled by the crisis, technology was now understood through a different narrative. Gone were the days when we thought, as once did the US Bureau of Labor Statistics[5], that technology would create more jobs than it would destroy. Now it came to be seen as a driver of the crisis: a new paradigm that made us suffer, worsening the hardships of the day rather than solving them. Once a motive for hope, technology came to inspire fear. The ebullient optimism all but disappeared. It left room for a new set of feelings that ranged from indifference to suspicion to outright hostility.
One front in the war around technology was fought over corporate taxation—a topic I know well, having co-authored a 2013 report for the French government on taxing the digital economy[6]. Starting in 2010, economic hardships created difficulties for governments trying to balance their budgets. It prompted a new line of questioning: were multinational corporations paying their fair share? A thundering article by journalist Jesse Drucker triggered a global conversation on corporate tax planning and the particularly low rate of taxation of large tech companies[7]. The G20 and the OECD started working on countering aggressive corporate tax planning. American states sought ways to force online merchants to collect sales tax, fueling a controversy over the so-called “Amazon Tax”[8].
Then came the war around privacy, which was started by Edward Snowden. When he fled to Hong Kong on July 20, 2013 and then revealed hints of a massive surveillance system powered by technology, it was a sudden blow for the entire tech industry. From then on, it was not about making the world a better place, but rather about invading people’s privacy. I can testify that the Snowden revelations changed the tone of the conversation around technology. Those of us working in the tech industry in Europe had to make our apologies before we could continue promoting technology as a positive agent of change.
Then starting sometime in 2015 came the fear for jobs. It’s unclear why automation suddenly became such a hot topic in the global media. But authors such as Erik Brynjolfsson and Andrew McAfee were writing about the progress of robotics[9]. There was a general weariness from years of unsuccessfully fighting unemployment. The rising spectre of the gig economy suggested that technology would put an end to the Fordist experiment of the steady job. Above all, progress in artificial intelligence led many people to realize that white-collar jobs in fields such as law and medicine were technology’s for the taking, too. And if educated workers aren’t safe, then nobody is.
2016 was a turning point. Until then, a generation of powerful and well-respected policymakers such as Barack Obama and David Cameron had sided with the tech industry, realizing its transformative power and burnishing its image for the general public. But then those politicians left the stage, being replaced by much less tech-friendly successors.
This was when everybody realized the impact technology was having on our democracy. Donald Trump unexpectedly won the US presidential election due to his masterful ability to manipulate attention, the support of online communities fueled by a populist sentiment, and an intrusion of foreign agents in the democratic process—all facilitated by social media. A few months earlier, in rather similar conditions, the British people had voted to leave the European Union out of fear that the new world was making their lives so much worse.
The question that led to writing this book was, “How did we end up here?”. Things were so different when I first became interested in technology back in 1992! True, I was a teenager then, and I firmly believed that the US was that terrible country presided over by the arch-conservatives Ronald Reagan and George H.W. Bush. Viewed from Europe, this was a country where sick people died in the streets because no one would lift a finger to help them.
But then Bill Clinton, “The Man from Hope”, rose from Arkansas with an agenda that included making the tax system more progressive, setting up universal healthcare coverage, and supporting new solutions to make the government more efficient and effective. I was intrigued by that more liberal version of the US and the forward-looking vision personified by its new leader.
In particular, following his running mate Al Gore’s inspiration[10], Clinton was pursuing the deployment of what was then called the “information superhighway”. At the time I mostly got news from Le Monde diplomatique, a radical, left-wing French magazine. This crowd was very suspicious of Clinton, a pro-business moderate. But they were also sensitive to the extraordinary promise of the Internet, a new infras
tructure whose architecture and philosophy were rooted in the counterculture of the 1960s. It looked as if the Internet inspired optimism across all sides of the political spectrum.
My interest in that “information superhighway” eventually led me to specialize in technology. From 1996 onwards I studied telecommunications, electronics, and computer science. I was fortunate enough to access the Internet with a broadband connection when most of the world was still stuck with 56k modems. Computer science students like me would code their personal web page in HTML, send emails, chat on IRC, read newsgroups. We were thrilled to be taking part in that “new economy” that was bound to change the world. It only helped that in my home country of France mathematics and technology attract many of the best students. There, becoming a technologist is rewarded with a promising career, handsome salary, and privileged social status.
However the ebullient optimism of the mid- to late-90s didn't last. The Internet fueled a speculative bubble that eventually burst in 2000. A few months later, Al Gore himself lost that year’s bitterly fought US presidential election, leaving the stage to a Republican administration that cared more about oil and steel than technology. Then 9/11 happened, which led most officials around the world to focus on the more pressing topics of fighting terrorism and ensuring national security.
In retrospect, the period from 2001 to 2008 was about more of the same rather than the radical change envisioned during the previous decade. The view was that technology would not disrupt everything after all. Increasing global trade made it possible to maintain a productive apparatus that served the same old mass consumption. The final dismantling of the Glass-Steagall Act in the late 1990s led to widespread access to credit, keeping consumers happy while fueling the emergence of a housing bubble[11].
For a time, the impact of technology was contained within a narrow segment of the economy. The only ones to be unnerved were executives in the advertising and media industries. The Napster trial was the first showdown between a fast-growing startup and incumbents dominating an old industry. Then Google began its rise from being a better search engine to becoming a tech powerhouse. That was hardly a surprise. Music, advertising, and media were all about intangible assets. Technology was bound to eat those industries someday—as it was expected to leave the rest intact.
But now ten years have passed since the financial crisis, and the tech industry has eaten much more than that. As a result, it now has a big problem: the “tech backlash”. As tech companies are perceived as destroying good jobs and weakening liberal democratic values, they’ve ended up encountering a powerful adversary: not only the backward-looking elite, but the entire Western middle class. Many people now wonder if technology brings about progress, or if it’s here to prolong the stagnation that has long reigned in Western societies, actively destroying their way of life in the process.
For me, this is all a huge disappointment. I was brought to technology by the extraordinary optimism that buoyed the Western world back in the 1990s. And I think it’s become urgent to reconnect with this optimism as threats to our way of life are looming from so many directions. This is as much a challenge for Western governments as it is for the tech industry itself.
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Big chances missed in the tech world
The problem with the “tech backlash” is that it provides those who’ve always hated technology with a fair amount of ammunition. Many in power circles are turning fiercely against tech companies. And this is a problem when you feel optimistic as to what technology can bring about. It's hard enough to convince non-tech people that technology is about making the world better. In the current context, it has become near impossible. The attitude of kind indifference or curiosity that entrepreneurs could count on in the past has now been replaced by mistrust and, in many cases, active resistance. In the US as in Europe, the idea of “regulating” tech companies has become a code word to suggest that we’ve had enough of technology. And as techno-skeptics of all kinds now have the upper hand, complacent incumbents and well-connected rent-seekers can finally seek their revenge against tech entrepreneurs.
To reverse the trend, my belief is that large Western tech companies—that is, US companies—should commit to building new institutions designed for economic security and prosperity. These companies are the ones that reveal the new techno-economic paradigm as they grow. And among their executives are leaders who best understand what is required to make it all work better. Thus they have a role to play as catalysts and enablers of a much-needed effort at radical imagination.
This is not to say that tech executives should replace governments when it comes to public policy. After all, it wasn't Henry Ford or Alfred P. Sloan who designed and implemented the New Deal. But nor was the New Deal the novel brainchild of Franklin D. Roosevelt—who in 1932 ran with essentially no program except for repealing Prohibition, balancing the budget, and an attitude of “bold, persistent experimentation”.
Roosevelt’s eventual legacy was the result of a complex multi-player game running throughout an unexpected sequence of events. The first version of the New Deal revolved around founding the ill-fated National Recovery Administration (NRA). Inspired by Owen Young, then CEO of General Electric, it essentially consisted of a corporatist program to end deflation and raise prices by restricting supply. However it was soon declared unconstitutional by the Supreme Court for exceeding congressional power under the Commerce Clause of the US Constitution.
Following this major setback, the Roosevelt administration sought to regroup and started looking for new allies. Recovery and growth were eventually made possible, leading to Roosevelt’s reelection in 1936, because capital-intensive industries and financiers made an alliance with labor to provide support for an upgraded New Deal. What they gained in exchange was the commitment of the US government and trade unions to support free trade. The lowering or disappearance of tariffs was critical for those industries as access to larger markets was needed to make the most of their massive investments[12].
And so trade unions, capital-intensive industries and finance (and a few other parties, such as segregationist Democrats in Southern states[13]) reached a compromise. This diverse, opportunistic coalition managed to circumvent the resistance of business executives opposed to worker-friendly policies and getting rid of trade barriers.
During the war, big corporations even became involved in covering social risks. The combination of a reduced workforce and wage controls forced them to compete for workers using healthcare and pensions, whose costs were tax deductible, rather than higher wages. Most US business executives ultimately turned against the Second New Deal’s most liberal components. But this unique sequence of events reveals the corporate world’s transient role in imagining and building the institutions that made the post-war boom possible.
As of today, what strikes me is that the same kind of alliance between capital-intensive, global-reaching corporations and liberal politicians almost succeeded with the Obama administration. Just as tech companies were becoming the largest in the world (in terms of market capitalization), they started throwing their full support behind Obama's agenda.
Until then, the Democratic Party had long relied on alliances that were less about building the future than preserving the past. Democrats forged an enduring bond with labor to perpetuate the New Deal, lasting approximately until Lyndon B. Johnson left the White House in 1968. Then, after two decades of uncertainty, they allied with Hollywood and Wall Street simply because they needed the money. Obama, despite the innovation brought about in his 2008 campaign, was no exception in that regard.
The shift between 2008 and 2012 can be explained by the financial crisis. Wall Street became discredited by its excesses, the fall of big investment banks (Bear Stearns and Lehman Brothers), and the widely unpopular bailout of the banking sector by the Bush administration in 2008. Then the Obama administration toughened banking regulations with the Dodd-Frank Act, upsetting its supporters on Wall Street. Vexed by thei
r newly infamous image and angry at fresh regulations that they said made their business more difficult to operate, Wall Street power brokers abandoned the Democrats[14]. Now financiers were firm supporters of the Republican Party[15].
Fortunately for Obama’s Democrats, Silicon Valley took over. It already had a bond with Obama himself following the 2008 election, in which the campaigning had become more technology-driven and startup-like[16]. But with Obama’s campaign for a second term in 2012, Democratic fundraising from Silicon Valley exceeded that from Wall Street and Hollywood for the first time[17]. Tech companies — CEOs as well as employees — went on to become the party’s strongest and most decisive supporters. And they brought a lot to the table: skills to win electoral campaigns[18]; the brand power of widely used consumer products; talent to reinvent the government and try to turn it into a platform[19]; the idea of building a better future; and a tremendous amount of money.
In exchange, Obama’s second term was a boon for Silicon Valley. Large tech companies stood to gain from free trade, which Obama consistently pushed for during his presidency. They lobbied effectively to preserve net neutrality and prevent backward-looking copyright laws. There was widespread government support to financially hedge entrepreneurs and investors against failure while they wandered in relatively unknown technological territories such as solar power and electric cars.
Even the Affordable Care Act, the signature legislation of the Obama era, had a positive impact on Silicon Valley. Separating access to healthcare from stable employment effectively benefited entrepreneurs and self-employed workers finding gigs on technology-driven platforms[20]. And this is without mentioning the opportunity that the major overhaul of the US healthcare system represented for aspiring entrepreneurs in that particular industry[21].