The internal-combustion engine has been dominant for over a hundred years—not because it’s the best possible engine, but because it gained an initial advantage through historical accident. The QWERTY keyboard layout was designed to be deliberately inefficient so that the mechanical keys of the typewriter would jam less frequently. That feature is no longer relevant, but it doesn’t matter—we’re still typing on QWERTY keyboards, because that’s what people are used to.
The same principle is what makes Google or Facebook or Amazon so massive. We use them because we’re used to using them. Google’s not just a search engine; it’s an e-mail address (Gmail), a conference-call maker (Hangouts), a document creator and editor (Docs). All are designed to maximize the advantages of sticking with Google: if you don’t have a Gmail address, you can’t use Google Hangouts. And so on.
Why is this a problem? Well, maybe because these giants are making huge profits from technologies originally created with taxpayer money. Google’s algorithm was developed with funding from the National Science Foundation, and the internet came from DARPA funding. The same is true for touch-screen displays, GPS, and Siri. From this the tech giants have created de facto monopolies while evading the type of regulation that would rein in monopolies in any other industry. And their business model is built on taking advantage of the habits and private information of the taxpayers who funded the technologies in the first place.
Apologists like to portray the internet giants as forces for good. They praise the sharing economy in which digital platforms empower people via free access to everything from social networking to GPS navigation to health monitoring.
But Google doesn’t give us anything for free. It’s really the other way around—we’re handing over to Google exactly what it needs. When you use Google’s services it might feel as if you’re getting something for nothing, but you’re not even the customer—you’re the product. The bulk of Google’s profits come from selling advertising space and users’ data to firms. Facebook’s and Google’s business models are built on the commodification of personal data, transforming our friendships, interests, beliefs, and preferences into sellable propositions.
The so-called sharing economy is based on the same idea. Instead of interacting with some kind of institution (like a travel agency), customers interact with each other. The role of a company, then, is not to provide the service but to connect sellers (like someone who owns a car and is willing to drive it) with buyers (someone who needs a ride). These so-called platforms are presented as a radical transformation in the way goods and services are produced, shared, and delivered. But they’re also an easy way for companies to avoid responsibility. When disabled users complain to Uber that their drivers refuse to put wheelchairs in the trunk, Uber says, well, we’re not a taxi company, we’re just a platform. Airbnb is similarly reluctant to take responsibility for the safety of the premises offered on its site, or for racial discrimination against renters by property owners. After all, Airbnb didn’t build the apartments and doesn’t own them—it’s just a platform.
And because of network effects, the new gig economy doesn’t spread the wealth so much as concentrate it even more in the hands of a few firms (see Rein in the Data Barons). Like the internal-combustion engine or the QWERTY keyboard, a company that establishes itself as the leader in a market achieves a dominance that becomes self-perpetuating almost automatically.
Google accounts for 70 percent of online searches in the US, and 90 percent in Europe. Facebook has more than 2 billion users, a quarter of the planet’s population. Amazon now accounts for around half of the US market for books, not to mention e-books. Six firms (Facebook, Google, Yahoo, AOL, Twitter, and Amazon) account for around 53 percent of the digital advertising market (with just Google and Facebook making up 39 percent). Such dominance means online giants can impose their conditions on users and customer firms. Book publishers, for example, might be unhappy with Amazon’s conditions, but they have no leverage—there are no other Amazons to turn to. By the same token, you might not be happy that Facebook is appropriating, storing, analyzing, and selling your personal data to third parties, but as long as all your friends are on Facebook, there is no equivalent competitor.
Historically, industries naturally prone to monopoly—like railways and water—have been heavily regulated to protect the public against abuses of corporate power such as price gouging. But monopolistic online platforms remain largely unregulated, which means the firms that are first to establish market control can reap extraordinary rewards. The low tax rates that technology companies are typically paying on these large rewards are also perverse, given that their success was built on technologies funded and developed by high-risk public investments: if anything, companies that owe their fortunes to taxpayer-funded investment should be repaying the taxpayer, not seeking tax breaks.
We should ask how the value of these companies has been created, how that value has been measured, and who benefits from it. If we go by national accounts, the contribution of internet platforms to national income (as measured, for example, by GDP) is represented by the advertisement-related services they sell. But does that make sense? It’s not clear that ads really contribute to the national product, let alone to social well-being—which should be the aim of economic activity. Measuring the value of a company like Google or Facebook by the number of ads it sells is consistent with standard neoclassical economics, which interprets any market-based transaction as signaling the production of some kind of output—in other words, no matter what the thing is, as long as a price is received, it must be valuable. But in the case of these internet companies, that’s misleading: if online giants contribute to social well-being, they do it through the services they provide to users, not through the accompanying advertisements.
This way we have of ascribing value to what the internet giants produce is completely confusing, and it’s generating a paradoxical result: their advertising activities are counted as a net contribution to national income, while the more valuable services they provide to users are not.
Let’s not forget that a large part of the technology and necessary data was created by all of us, and should thus belong to all of us. The underlying infrastructure that all these companies rely on was created collectively (via the tax dollars that built the internet), and it also feeds off network effects that are produced collectively. There is indeed no reason why the public’s data should not be owned by a public repository that sells the data to the tech giants, rather than vice versa. But the key issue here is not just sending a portion of the profits from data back to citizens but also allowing them to shape the digital economy in a way that satisfies public needs. Using big data and AI to improve the services provided by the welfare state—from health care to social housing—is just one example.
Only by thinking about digital platforms as collective creations can we construct a new model that offers something of real value, driven by public purpose. We’re never far from a media story that stirs up a debate about the need to regulate tech companies, which creates a sense that there’s a war between their interests and those of national governments. We need to move beyond this narrative. The digital economy must be subject to the needs of all sides; it’s a partnership of equals where regulators should have the confidence to be market shapers and value creators.
Mariana Mazzucato is a professor in the economics of innovation and public value at University College London, where she directs the Institute for Innovation and Public Purpose. This article is an edited excerpt from her new book The Value of Everything: Making and Taking in the Global Economy.