Dominic Cummings’ trillion dollar tech fantasy

We all got a laugh a couple of weeks ago upon learning why Dominic Cummings, the Dick Cheney of Boris Johnson’s government, wants the UK government free to provide state aid to companies (it’s one of the principal reaons for wanting to violate the EU Exit Agreement Johnson had pushed through Parliament just last year). The reason, as Robert Peston quotes Cummings, is:

Countries that were late to industrialisation were owned/coerced by those early (to it). The same will happen to countries without trillion dollar tech companies over the next 20 years.

The most obvious response to Cummings is best put by the inimitable Marina Hyde, who asks us to imagine a friend of Cummings looking him in the eye and saying ““Mate, with the best will in the world, what on EARTH about the last six months makes you think you can build the next Apple?”

Others have allowed mere doubt about Cummings’ competence rather than denial of it, and then given him the benefit of that doubt; instead, they criticise his trillion-dollar tech company scheme on the grounds that the countries usually classed “late industrializers” – from Germany and the USA in the late 19th century to Korea in the late 20th – are often reckoned to have done pretty well for themselves, and to have avoided ownership and coercion by Britain. In this regard, though, I think Cummings assertion is entirely correct, even if (for reasons I’ll get to) his idea is bad. Britain did use its position as the first industrial power to both own and coerce much of the world, and it did so successfully for over a century. And Britain’s success in this does offer some parallels with America’s, and the trillion-dollar tech companies of the Silicon Valley and Seattle, today. But does that mean Britain can, or should, try to follow that model today? Let me tell you why not.

From the late 18th century through the early 20th, Britain strove to keep its industrial head start by protecting the position of its manufacturers in international markets, in ways familiar to any student of history. For many decades, when it was the workshop of the world and controlled most of the cutting edge technologies, it forbade both the export of industrial machinery and the emigration of people who knew anything about making it. Eventually, the secrets leaked out anyway and Britain began to lose its manufacturing monopolies to rivals like Germany and the USA. Britain responded by building a larger empire, so that the sun never set on its captive market. Within the empire there was a strict division of labor, with manufactured products coming from the home country; parts of the empire had already developed internationally competitive manufacturing industries, and those had to go – India’s textile and shipbuilding industries, for example, were destroyed so that they would no longer threaten Britain’s industrial (and military) monopoly. So, yes, plenty of control and coercion, as Cummings says.

Today, the international monopolists are American the tech giants. These giants – the trillion or near-trillion dollar companies – are not the foremost technological innovators, but are companies which have become as rich by carving out monopolies in software and the Web, digital gardens large or small with walls to keep competitors out. Google dominates search, Amazon online retail, Microsoft office applications and personal computer operating systems, Google and Facebook online advertising, Google and Apple phone apps, and so on.

It is important to distinguish between what these tech giants have done, and technological innovation. There are many, many tech companies in the world, but only four (Google, Apple, Amazon and Microsoft) at or near the trillion dollar mark in market capitalization (Facebook is also very valuable, the fifth most valuable tech company, but in this league it’s mini-me). Take phone apps as an example. Google’s and Apple’s phone operating systems are based on sophisticated open source software others have written and given away; the phones, marvels of electronics and miniaturization, are made by others; the apps on the phones are written and sold by thousands of individuals and companies around the world; Google and Apple, in their positions as gatekeepers, take generous cuts from each sale of an app. Many, many tech companies are involved in phones, phone software and phone apps, but only two are anything close to being trillion dollar companies; that’s because they’ve established strong monopoly positions, just as Britain did for its world-serving workshop about two hundred years ago.

When he says “trillion-dollar tech companies”, that is the sort of business Cummings wants to get.

Cummings’ fascination with trillion-dollar tech companies, then, does fit nicely with the characteristic Brexiteer’s nostalgia for empire; he is seeing, accurately, today’s analogue. The question then is, should the UK try to join in the game America is playing?

Some would say not on the grounds that, in the long run, the imperial-monopoly strategy left Britain weak. To succeed in a world dominated by Britain, its late-industrialist rivals devised superior industrial systems: Britain was out-produced by the USA, out-engineered by Germany, out-managed by many countries; sheltered behind its imperial market and the returns from previous overseas investments, it clung to a strong pound to prop up the value of a diminishing stream of income from overseas. Many would say that the US is doing something analogous today, its considerable diplomatic powers devoted to protecting Silicon Valley and a few other sectors, at the expense of hollowing out the rest of its industries (see Dani Rodrik on this point). But is that really failure? Nothing lasts forever; Britain had a very good run, as now America has had as well.

But Britain is not going to be able to do it again.

One thing Cummings has right is that if the UK were to attempt this strategy, it’s probably good that it’s left the European Union, because Brussels – the European Commission and all those nasty bureaucrats – are the only force on the planet making a serious effort to tame and regulate the monopoly power of Big Tech. That’s not the game Cummings wants to play.

But, being out of the EU leaves the UK with the problem of having a relatively small domestic market. The classic late industrializer response to Britain’s power was to use a protected domestic market as a greenhouse in which to develop new firms, which can then compete globally when they’re big and strong. China is doing exactly that for its own web giants. The UK domestic market, however, is nowhere near big enough to do what China is doing.

An alternative version says that the UK’s imagined tech titans would neither be exposed at birth to the fierce storms of global competition, nor confined in the UK’s too-small domestic market, because the post-Brexit UK will somehow become part of a new Atlantic or Anglo-zone economy – Airstrip One, as Orwell had it. This vision of course gets a reality check every time Nancy Pelosi has to remind the British government that it won’t have any trade deal with the US if it allows its Brexit extremism to undermine the Good Friday Agreement. But let’s say for the sake of argument that the government can solve the problem of creating a hard border around the UK without creating one on the island of Ireland and, following further triumphs of diplomacy, the UK’s emerging tech companies find themselves within a very large protected market which includes the United States.

Now, one place Cummings’ thinking does make contact with reality is in understanding that the UK – and in particular, London, Cambridge and the Southeast of England generally – does have great strengths in the tech giants’ sectors – software, web applications, business services; it has the skills, the financing, the start-ups, and the very close links with the American tech giants themselves. It is already part of that industrial eco-system. Surely all it lacks is to itself be the home base of couple of very rich companies? Perhaps, as the West Coast becomes uninhabitable due to smoke from forest fires, opportunities to form the next generation of tech monopolies will shift back to the mother country?

Many places, though, offer themselves up to become the new center of tech gravity, should it ever shift; if there were a new center and it were not in Asia, it would more likely be someplace else in the United States; Boston, New York, or even North Carolina would be more likely than London, even if the UK were part of a seamless Atlantic market. That’s because UK has never been good at building big businesses. From the late nineteenth century onwards, the US, Germany, Japan, the Netherlands, France, Sweden, and Switzerland all have been better at building big companies with sustained internal programs of innovation and investment, and with global reach; in recent decades, Korea and China have joined those ranks. We have seen this in steel, chemicals and electrical equipment in the 1870s-1890s; in automobiles and other mass production industries in the early to mid twentieth century; the computer, semiconductor and telecommunications industries in the late twentieth century. We see it again in the software, web and business service giants of today.

The roots of Britain’s relative weakness at building and sustaining big companies lie in institutions which served it well as an empire: powerful financial institutions which invest with a focus on short-term gains; financial and govenment decisions in the hands of a narrow national elite with generalist educations and little grounding in the particulars of any industry – but born to rule; companies which stay light on management, on capital investment, on training, and on research and development.

That these proclivities stay stubornly in place is a classic problem of path dependency, of the interlocking and mutually supporting nature of any set of established institutions which restrict the range of choices as things change. However you understand the reasons, however, the fact is that the US is far, far better at building and sustaining big companies than the UK, and if the UK is operating within the US sphere it is not the UK that will be the home of the trillion dollar companies.

Is it a bad thing that the UK will not become the home of several trillion dollar tech companies? Not really. America’s tech empire, like Britain’s empire of yore, is a system of appropriation which makes one corner of the world rich at the expense of the rest. And it can’t even be said that it makes the US, as a country, rich: within the US, these tech monopolists and their financial and political enablers enrich particular places – particular cities and regions – at the expense of the rest of the country, as Maryann Feldman, Simona Iammarino and I discuss (with lots of nice maps) in this paper. There’s a similar pattern in the UK, with divides between South and North; between those paid well enough to live well in overpriced gentrifying tech+finance cities, and everybody else. Becoming home to one or more trillion-dollar tech companies would only exacerbate these divides. Cummings and his ilk would do well in that bargain, but for the UK as a whole it would not be a good thing, so we can be glad that Cummings is wrong.

Unfortunately, with Cummings’ strategy out the window, we are left with the question of what sort of post-Brexit economic strategy would work for the UK. I can’t answer that one.

 

San Francisco, New York, Washington: Iron Triangle of Rent

This map show where the higher paid jobs in the USA were concentrated in 2016.

top20incwage_2016

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Is Trump really alone in supporting Putin? Sadly, no.

Will Putin’s victory in Helsinki sink his friend Trump back home? Jeremy Shapiro thinks so – interesting article in Foreign Policy (retweeted by Mark Leonard, then by Branko Milanovic who for some reason thinks “hysteria” over the Trump-Putin connection threatens war, like the nationalist hysteria in Yugoslavia in 1987-88 & in the US post 9/11 – go figure).

IMO, however, Shapiro underestimates support for the Russian oligarchy within the US power structure. This because he frames Russian state interests and objectives in a very abstract, general way. Russia today is not a superpower but a fossil fuel power which happens to have a legacy nuclear arsenal: net fuel exports are 17% of Russia’s GDP, extraordinarily high for such a large country. Stabilizing earth’s climate requires leaving fossil fuels in the ground, and that would shatter the Russian oligarchy. Putin’s interests thus align with the know-nothing, no-action position taken by the GOP, and Trump, on climate. That is the material basis for a political relationship between the Russian state and conservative US politicians, which has been developing for some time. The historic antipathy of the Republican Party to Russia is based on anti-communism, not anti-petro-fascism.

Trump, Putin, CO2 and EU, redux

Open Democracy has just published a my piece on Trump, Putin, climate change and the EU (the connection is perhaps not blindingly obvious – I hope that list of items has piqued your curiosity. You can read more here). Continue reading

Email from Ouaga, plus Charlottesville

This morning my friend Sabrina, in Bukima Faso for work on sustainable irrigation, circulated this by email:

the horrible terrorist attacks took place in a hotel less than a km away.

I am fine, and have been advised not to go out today, as the office is near an area that was cordoned off for a search for perpetrators.

It’s strange to be here in this situation – I am for now confined, but to a calm and lovely guest house, surrounded by trees and birdsong, and yet so close by, there was such unspeakable carnage. Continue reading

Trump & Putin would break EU to block climate action

The Trump-Putin connection can seem just a lurid sideshow in Trump’s horrific circus of racial and religious profiling, misogyny and authoritarianism. And, when that special relationship does catch our attention, the most obvious thing linking the two men (possible videos and blackmail aside) is their common political language of aggressive nationalism.

But this is no sideshow, and much as Trump would like it to be all about him, it is not his personal foible: the agendas of the Republican Party’s petro-backers coincide perfectly with those of the Russian oligarchy, and that is why Trump’s links to Russia were tolerated even before he was elected. The nationalist postures of Trump and Putin, which might seem to be simply ways of rallying some segments of the aggrieved masses to the banners of the countries’ respective caudillos, are instrumental for reshaping the international order in a way favourable to the oil interests.

The overriding need of the oil interests is to block anything that would cut the demand for oil – which is to say, to stymie any serious steps to mitigate climate change. International cooperation is necessary to fight climate change, and aggrieved nationalism undermines international cooperation. The cohesion of the EU is particularly important for international action on climate, and so European integration has become the enemy not only of Moscow, but also of Republican Washington.

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India’s tax reform: tortoise of regional integration inches ahead

Ajit Ranade in The Hindu
Economist Intelligence Unit
BBC
Concerns of India’s manufacturing states – A Sarvar Allam in Economic and Political Weekly

Regional economic integration is something usually associated with international trade blocs – the European Union, ASEAN, and so forth. But two of the most important cases aren’t international – they are happening within India and China. Both countries are more populous than any international “region” (excluding of course regional groupings which include either India or China), and both have had very poorly integrated national markets, for reasons to do both with internal transport infrastructure, and the protection of sub-national markets by various means.

Global economic integration – quick, and institutionally shallow – is the hare; regional integration is the tortoise.