Capitalism Is Digital Already

15. 3. 2017

An Interview with Dan Schiller by Maciej Nowicki

Internet companies and lobbyists claim that you cannot introduce regulations for it would kill the market. This is one big lie. Contrary to what most of us think, regulations already exist, only that all of them are advantageous for the business – says Dan Schiller in an interview with Maciej Nowicki.

We live in an age which you have called “digital capitalism.” What are the practical implications of that?

This is a new phase in the history of capitalism, where the world is simultaneously moving at two different speeds: a technological revolution is accompanied by an economic crisis. We see that the economy is in stagnation: a growing number of industries produces more than the market is capable of absorbing, growth is sluggish, and unemployment is very high. Added to that is a whole range of troubles on financial markets, with completely independent causes. It is quite likely that we are going to see a repeat—on an even larger scale—of the 2008 financial crisis.

But this is just one side of the coin…

Exactly. Stagnation continues. But at the same time, we observe an incredible dynamism and profitability mainly in one industry: ICT, or information and communications technologies. information and communication in today’s financial/ ICT has been developing rapidly for several decades. But with the emergence of the Internet, Photo: Lucy Schiller especially since 2003/2004, its growth has been constantly accelerating. And an ever larger part of the whole economy becomes dependent on ICT. Let us take, for example, the automobile industry. Until recently it was a completely separate branch of industry. But today, the success of a given company to a huge extent depends on whether it manages to integrate its products with ICT better than the others. Without that it has not much chance of survival.

Can we hope for a revival of growth in the entire economy around ICT?

This is not guaranteed. Today, ICT is faring very well. Still, even today one part of this industry, the printed media, is one big crash.

Our thinking about capitalism is based on the mythology of “creative destruction” – something must disappear for something new to emerge. The problem with Schumpeter’s theory is that the process of destruction is presented in it as something natural, which you cannot and should not try to avoid. Meanwhile “creative destruction” accelerates: changes connected with the development of ICT will soon assume unimaginable proportions. New solutions built around artificial intelligence will make employment prospects even gloomier. And even now this is the greatest problem in quite a big part of the world. ICT industry is gaining, but more and more people are losing. This is a capitalist economy – why should the profits of some people be shared with others? Let us take a simple example: take a taxi in any city and ask about Uber. You will always hear the same thing: that the taxi driver is fighting for survival. And he fears that he will lose this battle.

It is not like that in Berlin or Vienna…

Because a political answer was found and Uber was halted. However, the main direction is quite different: ICT invades successive branches of the economy. Sometimes completely unexpected ones. For example, there is nothing older and less associated with ICT in our minds than agriculture. And yet agriculture is also more and more clearly becoming part of ICT. A huge part of seed is designed, agricultural equipment is controlled by computers, and it is computers which decide how much seed per square meter should be planted or when you should start harvesting. There is a war between companies about who will have more control over all kinds of data – and thus over agriculture. The merger of the two giants, Bayer and Monsanto, the largest deal of this year, will only accelerate this process.

In Europe, things look a bit different. The role of ICT in agriculture is smaller. One reason is the fragmentation of farming land, the second reason is the attachment to high-quality regional products. In your country wine production controlled by a computer program is something normal, but in Europe it would not be accepted.

Just you wait ten years. Of course, Europe is unique. It’s just that in the United States and China incredible amounts of money are invested in information technologies connected with agriculture. And the competitive pressure is growing. It is not enough to blindly believe that nothing will change.

The way we speak about it you would think that these changes are by definition a bad thing. But, to give just one example, new types of seed, resistant to various scourges, have saved many countries from hunger in Africa or in Asia.

Let me repeat: I don’t want to paint a completely gloomy picture. But can anyone give us a guarantee that it is enough to rely on ICT for the world to become better? I don’t think so. For 70 years has General Motors been spending incredible sums on ICT – dozens of billions of dollars. And yet, when the crisis came, this did not save the largest US car manufacturer from the prospect of bankruptcy. In the end it had to be bailed out by the government. Why did it happen? Previously, GM reorganized its prediction production using networks. But this had not helped at all. Network investment only deepened the overcapacity problem, like in many other branches of the economy. Automation resulted in lower wages and hence a lower quality of life for the workers. The impact on the market was easy to predict – demand dropped. Last year, an average US car was two years older than a decade before. Large carmakers try to compensate that by penetrating the Chinese market. One third of their global sales was in China. But recently the Chinese economy has also slowed down. As a result, they had to reduce production in dozens of joint-venture factories in China. We are observing a growing stagnation of capitalism. You probably heard about Apple’s dispute with the European Commission?

The EC wants Apple to pay €13 billion that Ireland “gifted” to the company by means of tax breaks incompatible with the EU law.

But there is something more: we were reminded during this dispute that Apple holds over $230 billion in its bank accounts, mainly outside the country…

It has been written that if cash hoard Apple became a separate company, it would be the 11th biggest firm in the US.

Cash hoards have become the hallmark of the new stage of capitalism. Aggregated cash resources of American companies last year were assessed at $1.7 trillion, with Apple, Microsoft, and Google leading the pack. Seemingly this does not make any sense – would not it be better to invest this money in some way? Besides everything else, this would create new jobs, which still come in short supply. But ICT companies are unable to find a sufficient number of profitable investments in the economy. This shows the scale of stagnation.

We usually describe the development of the ICT sector from the perspective of an ordinary consumer, such as ourselves. We are much less interested in the business perspective.

This is a great misunderstanding, because the main function of the Internet – visible only when we use an adequately large scale – is deepening and modernization of capitalism. Consumer spending on digital services and products accounts for just 30% of global ICT revenues.

The second key player is China, and the EU is lagging behind. The European Commission tries to halt America a little. These are not radical actions. Nobody talks about expropriating Google or Facebook. The European Commission only wants the US to pay a bit more for the privilege of making incredible money and using personal data of European citizens, which today they get for free. In the US this modest response is presented as a huge scandal. We should not believe in this rhetoric. It only shows how big the stakes are in this game. Today, American companies depend on international networks much more than ever. And unlike in the past, this is not a matter of exports and trade, but of the minute-by-minute functioning of production and financial transactions. Any restraints imposed on networks threaten the profits like never before.

How did it happen that China became so important a player on the communications market? Is it only because it is huge and provides a sufficient market all by itself?

This is one of the reasons – the size of the domestic market. China today is the largest market for iPhones, and the principal market for such companies as Microsoft or Apple. Last year, six out of twenty ICT companies with the highest market value came from China. One of them was China Mobile, the largest mobile operator in the world. Another was Huawei, a great manufacturer of hardware. Europe has no such thing. Spotify, regarded as a symbol of European success, is almost fully dependent on the American market. Furthermore, the almost entire traffic in the business is going in the opposite direction – from the US to the EU. About 90% of web searches in the EU go through Google. This is more than in the United States itself.

Coming back to China: the US rely on digital expansionism. President Obama emphasized that the US invented the Internet and then restructured it. Economic diplomacy has played a great role in maintaining American hegemony. In turn, China has really been helped by stagnation in the rest of the world. Profit margins had become so low that large companies were desperately looking for new markets and agreed to conditions which in other times they would have rejected outright. Chinese success is not a coincidence, but one of the symptoms of today’s situation. Chinese authorities said to Western companies: “We will allow you to operate in our country. We will allow you to make quite big profits. But you have to accept in advance our very strict rules: we will dominate on our own market and you will never take control of it.”

Users associate the Internet mostly with a space of freedom. You describe it quite differently – as an area where companies acquire access to our data for free. And make huge money on that. Why such a difference of perception?

It is very simple. None of us reads the contracts we accept to get access to some software or service. And these contracts are very often incompatible with all kinds of democratic practices. As users of Facebook or Google we lose rights which should not be taken away from any citizen, like the right to privacy. When we use some application or search for something in Google, it seems to us that nothing is restraining us: we have instant access and great reach. We believe that we can do whatever we like. But we believe that only because the price contained in the contract is hidden.

I spoke recently with Jonathan Franzen, who is an ardent supporter of stronger regulation of the Internet. He says that if radio was once strongly regulated, there is no reason that Internet should be treated otherwise. How might such regulations look like?

Internet companies and lobbyists claim that you cannot introduce regulations for it would kill the market. This is one big lie. Contrary to what most of us think regulations already exist, only that all of them are advantageous for the business. We should reformulate them in such a way that they would support the interests of ordinary people. We can do it. To be more precise, we have to do it.

Maciej Nowicki

Maciej Nowicki is Deputy Editor In Chief of Aspen Review.

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