A friend asked me what I think about the interplay between governments and big-tech and whether governments should start regulating industries more. It was an interesting discussion, and I got the idea to jot down some thoughts and associations that I made. Most of the associations were happening in the economics of Adam West, a general understanding of Marx's theory and how it played out in Russia, and a general underlying optimism that the pursuit of knowledge and act of creation are our ultimate purposes in life.
Let's start with Capitalism; Capitalism is the form of market economics that incentivizes innovation through wealth creation and private ownership. Communism is the form where communities are the only owners, there is a central government that represents the interests of the communities and they own everything. Communism and Capitalism were the two most subscribed branches of governance and they clashed in a near nuclear attack during the Cold War. Capitalism won out, not just because of the US's higher defense budget but also, I believe because Capitalism was better able to align incentives.
Communism sounds awesome in theory, no poverty and everybody is able to live a certain quality of life irrespective of their economic contributions. Jobs that existed were in service of the governments, produce was traded to the government at a price set by the government, and the government took care of the distribution. Individuals had no bargaining power, who else were they going to turn and sell their products to if not the government. The government went so far as to make trading with anybody but themselves an illegal, punishable offense. Let's extend that farming example, say you were a farmer, a brilliant and observant one. You notice that the process of plowing the field is inefficient, and you come up with a design for a tractor, a mechanized automaton that would save you 50% labor costs. However, the idea is one thing, execution a whole other thing. Would you as a farmer be incentivized to go out of your lane, invest in this (and seek investment), build and iteratively test it and finally open it up so that others can benefit from it?
Well, not really right - even if you did all that and managed to build yourself a tractor (a big if), you most benefit from it if you keep the innovation to yourself. If you share it, the government will realize that farmers can now produce more at the same cost and so they will uniformly reduce prices. All your savings vanish and you're back to where you started, the government still takes 90% of your produce and gives you the same total amount. Another related problem that shows up is a fixed mindset. As an example, imagine you came up with a groundbreaking innovation that could generate power for much cheaper but requires an upfront investment to play the idea out. In a communist empire, the government controls energy production. The people who are in positions of power in these institutions are incentivized to maintain the status-quo because the alternative could grow big enough to strip them of their authority. Once you've tasted power, it's really hard to give up.
Let's play the above situations out with Capitalism, which, as we remember, is predicated on private ownership and subsequent wealth creation. If the farmer came up with the design of the tractor, he/she has all the incentives in the world to go out and raise money from willing investors who see the potential in the idea. This allows the inventor to go build-test-iterate till a fully-functioning and well-researched product is out in the market. The tractor achieves product-market fit, and soon every farmer in the US wants it; soon, word spreads and farmers in India and other countries want one too. In the process, the inventor is rewarded with wealth, status, and an ability to use their wealth to incentivize further innovation. It is more resilient too. In the case of a new cheaper power generation product, even if the government is not interested in funding your pursuit, that tractor owner with overflowing wealth sees the potential in it and decides to take a risk and back you. You now have the runway to build-test-iterate loop and, in the process, come up with a product that cuts the consumer's energy cost by 80%. The market loves your idea because you are saving them money, and as you hit critical mass, the government sees the benefits and contacts you to standardize your product more generally.
Big-tech is a massive, massive beneficiary of Capitalism. Companies like Amazon were so innovative that they cornered massive markets and in the process, generated enormous wealth, which they redistributed to more innovative profit-seeking endeavors. This is a close cousin of the idea of a perpetual motion machine of wealth creation. There are few industries worth disrupting that Amazon is not in (retail, space, films, healthcare, internet infrastructure, gaming, to name just a few successful ones). I both admire and fear their scale. Amazon is also not the only one in this hallowed category, some of the others worth mentioning being - Microsoft, Facebook, Apple and Google in the US, China has Alibaba, Baidu, Tencent and (newly) Bytedance. Left unchecked, these institutions may grow to become more powerful than a country's government, reaching a point where the power imbalance means that the US needs Amazon more than Amazon needs the US government on their side.
This is the part where benevolence comes in. An important point to remember is that tech induced wealth creation was so tremendously rapid that Amazon has generated $200B+ of personal wealth for Jeff Bezos in just over 25 years (started in 1994). These are all single lifetime wealths; most if not all of tech is first-generation wealth creation. The people who have stood these companies up and weathered the risk, financial burden, and market economics to become successful are uncommonly visionary (we can never have enough visionary people but that's just me). They also seem to be rational humanists who intend to use their acquired power to advance the human species. Pretty fortunate that these people are benevolent and out to do good right? Well, not exactly, and let me explain my rationale.
People who generate outsize successes, the kind that vaults them to the most successful or the richest, are a self-selecting set. The market acts as a forcing function, selecting those individuals who solve a problem on a wide enough scale and do it for impact rather than monetary gains. The bad apples, the Berni Madoffs, the Elizabeth Holmes and the Martin Shkreli's of the world, can sprint ahead but reality usually catches up. It's like the "great filter theory" of evolution (technically abiogenesis), used to explain Fermi's Paradox but for wealth. I do not know of the specific filter that catches the no-gooders and the insufficient visionaries, but it makes associative sense. It's almost like these people should be incentivized to run with their creativity and bring an opinionated world view into existence (see my post on The genius in world building). This is important for humanity's continued existence, or we may be wiped out by a great filter. So in a sense, the existence of these mega-companies with world-changing ambition is our attempt to create knowledge and stave off the great filter.
Ok so, the market chooses benevolent people to succeed, sounds like a win-win then? Well, no, not really and for a few reasons, but there are two main ones we will be focusing on. I'll write about that in the second and final part which I'll finish up soon.
Association points: