Digital Feudalism: How Tech Giants Became the New Lords of Capitalism
AInvestSaturday, Aug 24, 2024 9:00 am ET
4min read
AAPL --
GOOGL --
TETE --
In Brown's view, while Marx reminds us that competition is the foundation of capitalist development, the highly developed digital capitalism has gradually shifted its focus to market dominance and monopoly, rather than further enhancing innovation. The trend among tech giants to avoid or even bypass competition has sparked significant debates about platform power. How have tech giants evolved into the "feudal lords" of the new era? The following excerpts are authorized by the publisher from "Technological Feudalism."Digital data is often compared to digital gold mines, but the extraction of this data is not unlimited as there is an absolute scarcity of raw data. The acquisition of high-quality data streams requires significant investment. Bringing these data streams to life requires the "Other"—algorithms and services capable of processing and using this data. Take Google, for example—it acts as a super data processor, collecting data globally and using it to provide search and advertising services. Control over these data extraction points grants control over information.Unlike traditional resources such as land, digital resources have unique characteristics. Land is limited—taking one part reduces the available land for others. However, once raw data is collected and processed, its application can be expanded at nearly no cost. This is akin to writing a bestselling book; while the writing process is demanding, the cost of selling each additional copy is minimal. Large companies often enhance their competitiveness by absorbing startups, like Siri—a virtual assistant developed by Stanford, which became more powerful after being acquired by Apple and integrated into its ecosystem. Large companies have more data resources and technical capabilities to better apply and promote these technologies.This phenomenon reflects an economic principle: in the digital age, large digital organizations outperform the market. These organizations can integrate diverse data sources and algorithmic processes, achieving synergistic effects and creating more value. Digital technology combines the scarcity of raw data with the minimal cost of replication, breaking traditional resource limitations, and disrupting market competition processes that drive capitalism.People are willing to trade personal privacy for the convenience and efficiency brought by algorithms, such as more accurate recommendations and prompt services. This creates a feedback loop: more data makes algorithms smarter; smarter algorithms provide better services; better services encourage people to provide more data, accelerating the digital world's development. Google epitomizes this by building a vast user network that continuously contributes data, allowing Google to constantly optimize its services. This synergy and user interdependence make Google's services increasingly indispensable. Economists call this "cross-subsidization," where some users pay high prices to attract more users who enjoy low-priced or free services. For instance, free recipes or Google searches are funded by advertisers who can reach a vast number of potential customers through these platforms.However, this large-scale logic also poses issues. Our dependence on digital services can make them difficult to abandon, similar to how medieval peasants found it challenging to leave their manors. For producers, this dependence is more evident. Whether they are large corporations or small platforms, they all operate within a digital environment. Their activities generate data, which supports their operations. While switching platforms or retracting data is possible, the high switching costs and strong network effects make it a tough decision. Overall, big data and algorithms have woven deeply into our lives, creating new production relationships and control structures. Understanding the economic dynamics and social conflicts behind this relationship is essential for addressing the challenges and opportunities of the digital age.Marx's theory highlights that capitalist survival and profitability necessitate continually reducing commodity prices to attract consumers, often at the cost of worker exploitation. Interestingly, while competition is the core of capitalism, many successful entrepreneurs strive to escape this competition. Peter Thiel from Silicon Valley has said that creating value is crucial, but capturing and retaining that created value is more important. In full competition markets, the scramble for limited profits often dilutes and even erases these profits. Therefore, for entrepreneurs, finding ways to avoid direct competition and ensure stable profits is critical.Duncan Foley further explores the contradictions behind this competition. He notes that surplus value in capitalist societies is generated through labor exploitation but is not equally distributed among all capitalists. Instead, a fierce battle over these surplus values occurs among capitalists, with some creating more through innovation and efficiency, while others gain through unfair means like rent and financial speculation.Feudalism typically refers to those who profit by exploiting others rather than direct production. Now, this "rent over production" logic applies to intangible asset-intensive companies, particularly platform enterprises. These companies may prioritize capturing and occupying value rather than creating new value. In the digital era, numerous platforms sprout, offering diverse services. But as they start monopolizing the market, their focus might shift from improving services or innovating products to extracting more profit from existing users. At such times, system dynamism may decline due to reduced competition and innovation impetus. However, if the possession activities become too rampant, monopolizing excessive capital, the production sector will see new profit opportunities, attracting new investments.Thorstein Veblen, in "The Theory of the Leisure Class," delves into the issue of exploitation. He posits that in capitalist societies, maximizing capital returns doesn't always rely on maximizing production but rather on controlling the entire economic system. This control is often achieved by holding strategic elements like intangible assets or proprietary knowledge, bringing significant wealth to the owner without necessarily benefiting society.Veblen suggested that economic management power be given to engineers to ensure general prosperity. However, he was concerned engineers might also be influenced by the special interests of production owners. He recognized that the main business activities were not organizing production but extorting others through various means. Veblen's profound insight was that when economic efficiency and innovation reach certain levels, exploitative norms might flourish because a prosperous society offers more space and opportunity for exploitation.In today's rapidly advancing digital technology landscape, exploitative regulation has become a concerning phenomenon. Imagine two forest foragers: a hunter with weapons and a gatherer with bare hands. If the hunter not only captures animals but also takes the gatherer's fruits, this constitutes exploitation. In capitalist competition, resources are cumulative and renewable, unlike feudal competition, more like a zero-sum game over limited land. In digital technology, exploitative regulation acts as a powerful hunter using technology and data to control and monitor its prey—users or businesses. This exploitation can include direct value transfers and additional costs and disruptions during the process.Large tech companies might monopolize the market and abuse data to exploit user privacy and interests, harming users and potentially impacting society. Furthermore, dependence on digital technology makes it harder to escape exploitation. As we cannot now live without smartphones and the internet, personal and organizational reliance on digital technology grows, along with high exit costs. Consequently, captive situations become common, hindering competitive dynamism.From a macroeconomic perspective, investing more in protecting and expanding digital rent control rather than productive investments hinders the development of emerging production methods. It resembles spending more on building walls and hiring guards to protect territories rather than cultivating new fields and growing more crops. Though this seems safe and stable short-term, it weakens productivity and competitiveness long-term. To address this, production should be prioritized over exploitation, aiming to maintain a fair and sustainable socio-economic system.
Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.