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The Republic of Big Tech

Conversion Insights

In the last 500 years, there are few choices for the most important legal treatise beyond the Declaration of Independence – the only arguable contender might be the Peace of Westphalia born in 1648, which created the foundation of the modern nation-state. After a period of significant political volatility, the eighty years war, the treaty recognized the full sovereignty of the states in the Holy Roman Empire: domestic policy would now be set by a single sovereign government. 

Since then, there has been a clear hierarchy of power; the separation of church and state and the state’s dominance over local corporations and citizens. This largely remained the case until the rise of the internet and ex post, the creation of momentous corporations that produce more revenue than the vast majority of most countries’ GDPs – they have become sovereign nations unto themselves. Is Amazon merely a company, or will it become Amazonia, a sovereign nation inside the US?

Post-covid and with incredible earnings reports, Big Tech has had an extraordinary surge in the price of their stock. In fact, Apple’s market valuation is roughly equal to the national net worth of Denmark, the 28th wealthiest nation in the world. Another example might be Facebook’s user base of 2.7 billion monthly active users; if it were a country, Facebook would be the largest, and their revenue outpasses the GDP of most nations. The stock market has decoupled from the economy, witnessing record gains as more than 40 million people are unemployed. The biggest winners of late in the stock market have been technology stocks, and of those stocks – Apple, Amazon, Netflix, Facebook, and Google – have led the pack growth-wise.

Because they don’t fully understand the new wave of technology, politicians are puzzled as to how these rules apply to the rise of multinational technology companies that govern the way many of us spend our days – online and over products made by FAANG. When Mark Zuckerberg was brought to testify before congress in 2018, Sen. Orrin Hatch (R-UT) asked him: “How do you sustain a business model in which users don’t pay for your service?” Of course, the reply was, “Senator, we run ads.” Certainly, our leaders cannot regulate, much less properly regulate what they don’t understand.

Big Technology companies (FAANG) are now powerful enough to challenge governments and overrule them – effectively operating as mini-cities that can shape domestic policy. But as the US retreats from the global order, will they begin to resemble sovereign nations and offer a more valuable substitute in a post-covid world where we value security, stability, and connectivity above all else?

Digital Nation-States

The largest and powerful companies, both historically and of the current S&P 500, are technology companies based in America. Unlike past empires, Rockefeller’s Standard Oil and Carnegie’s United Steel, the technology giants today have the money and power to influence their users and governments alike. Standard models of antitrust, and therefore regulation, fail to apply when nearly one in three Americans have Amazon prime memberships – technology, pioneered by these companies, underpins every moment of our lives. If regulation doesn’t apply or unwisely handled like the EU’s enforcement of GDPR, then these companies will only become more powerful. 

For the discerning eye, this trend was clear even before the coronavirus. In the pre-covid world, big technology companies offered a stable alternative –  simply live inside their ecosystem with prepared lunches, massages, and napping pods, and you never have to leave the office. Add in private security and a better healthcare system, a sector in which they are all pursuing, and employees never have to leave the office again. 

In fact, this has been the end-state of big technology companies all along; in 2013, Christopher Coleman, Google’s global design director, wrote a piece titled How to Create a Workplace People Never Want to Leave.’ When it’s a question between ensuring one’s health and safety to a bloated bureaucracy versus an efficient and secure organization, many will choose the latter. While in the pre-covid era, many preferred trite benefits like exclusive concerts and free food, the post-covid era might see an emphasis on state of the art advances in health technology like covid testing and private security. Political conditions will perhaps force people to remain inside Big Technology’s inner sanctum, whether they want to or not.

Slowly and then suddenly, these companies transformed into utopias. As San Francisco saw ever greater levels of homeless and crime, technology corporations became hyper-efficient and hypersleek, a remarkable contrast to the environment that lay outside their walls. After all, this was to be expected: technology now makes up over 25% of America’ stock market; but, these companies are currently moving from the world of bits into the world of atoms and changing the governance structure of the cities they inhabit.  

Technology Sees like a State

Within big technology companies, both Apple and Amazon are the two most valuable for a good reason – they solve complex problems through top-down control – prizing efficiency and quality above all else. More than Google and Facebook, they already embody nation-states as a result of their intricate and global system of logistics, user base, and employees; as a consequence, they must be political. As behemoths in the physical world, Apple and Amazon are powerful enough to challenge and shape government policy – they already set their own rules.

In their respective hometowns, FAANG companies already have an outsized influence on local policy, effectively acting as cities unto themselves due to their aggrandized employee base and control over office space in America’s largest cities. In 2018, Amazon funded a non-profit lobbying group named No Tax on Jobs to successfully avoid paying a $13 million bill that would have gone towards fighting Seattle’s homelessness crisis, the third-worst in America. One could say that Amazon has this grasp over the political structure because they are the largest employer in Seattle and growing.

Still, if local governments don’t comply with their demands, Amazon is undoubtedly willing to leave and start anew. Due to repeated tax battles with the Seattle City Council, Amazon announced last week that it will move its worldwide operations to Bellevue so that employees will not be subjected to Seattle’s new tax on employees who make $7 million or more annually; thus, Seattle will lose out on millions of revenue. So it’s obvious to most that cities need big technology rather than vice versa; this allows companies like Amazon to move elsewhere if they can’t change local governments or start from scratch in a new area by engineering their own rules.

And in the case of the federal government, Apple famously refused to work with the FBI in the San Bernadino shootings in 2016; when the presiding judge ordered the company to open the San Bernadino’s shooter’s phone, Cook responded with a 1,100 word letter arguing why unlocking their privacy protection would derail the company’s reputation. Indeed, as Tortoise Media reports: “Apple’s emphasis on privacy was dramatised by its refusal, in early 2016, to help the FBI unlock the iPhone of one of the San Bernardino terrorists. Back then, this put the company on a collision course with the state; prompting the question: who sets the rules?”

Certainly, within Cupertino and the federal government, Apple sets the rules through enormous levels of corporate lobbying. According to Open Secrets, Apple has nearly doubled the number of its lobbyists since 2010 and its lobbying spend. These proceeds permit Apple to build its ‘Spaceship’ campus, thereby raising property prices and traffic congestion at the expense of Cupertino’s population as well as lowering its corporate tax rate: in 2017, Apple paid 24.6 percent down to a stark 15.9 percent now. 

Apple’s flavor of realpolitik matches that of Israel or Singapore: the importance of secrecy and a culture that desires results trump all else. To ensure the quality and pervasiveness of its products, there is a certain importance to making sure Apple is removed from political harm. Earlier in 2020, there were reports that Tim Cook persuaded Trump to avoid placing tariffs on iPhones – Apple escaped unscathed.  

While Apple and Amazon are relatively open about their goals, Facebook is also trying to maneuver around America’s monetary policy through Libra, their digital currency initiative. Facebook’s Libra was designed to be a global currency de novo, one that would reduce the demand for US dollars and which would seemingly be backed by a variety of currencies. Since America harnesses the dollar as a policy tool, Facebook’s Libra is perhaps the clearest example of superseding America’s power abroad. In a post-covid world, people are aching for political and financial stability; with Libra, Facebook believes that it can create a new monetary system and act as the buoy for those who cannot get access to dollars. 

Facebook’s goal is that in a few decades, with population growth largely arising from developing nations, they will be the authority on currency settlements through their technology. While it’s unclear whether or not they can pull it off, Facebook is seeking to profit from an isolationist America, one that does not want to get involved with international squabbles. And it was Zuckberg who stated at a Startup school event, “I don’t want Facebook to be an American company. Like obviously, we’re in America, but I don’t want it to be this company that just, like, spreads American values all across the world.” His love of the classics, ‘Instagram Delenda Est’, suggests that he knows power can only be displaced with power, but this is true for the CEOs of all these tech behemoths – they are merely waiting on the sidelines for the government to make a fatal misstep. 

The New Normal

Certainly, the landscape around company-building has changed. If mega-technology corporations become their own nations, how will they govern in a world after covid? In an era of political volatility, the biggest change might be that large companies eventually have their own laws inside their campuses versus that of the states they inhabit. States or governments that fight back will see an incredible loss of tax revenue, so they are forced to comply. 

To that end, these big technology companies like Amazon are vertically integrating inside the cities they inhabit to generate their own cities. Take Amazon Go, Amazon’s foray into grocery stores. They were outsiders to the grocery store model, but it’s a strong move in  Amazon owning the entire customer experience from top to bottom. Everything Amazon creates is first beta-tested by internal employees and later rolled out to the public, whether it’s Amazon Go, AWS, or Project Haven – their healthcare partnership with Berkshire Hathaway and J.P. Morgan. Amazon will be able to test out the future of healthcare on the 1.2 million employees within the partnership, along with the 5 million sellers and 310 million active customers on their site. Healthcare incumbents should be nervous: Amazon’s partnership gives it access to a fertile bedrock with which it can iterate across all levels of the healthcare stack on its own employees first and foremost. 

The vertical integration model means that everything works seamlessly – every product they make is designed to work with the others. This extends not only to software, but to everything a city needs in order to function: roads, architecture, and waste disposal.

And they have been tinkering with various ways to build this self-sustaining community of Amazonia. While Seattle is witnessing riots, Amazon employees are enjoying the fruits of their own labor and technology. At their Day I campus in Seattle, they were the world’s first company to recycle waste heat from data centers for their own buildings and Amazon, separately, helped kickstart the trend of alternative transportation like streetcars. Bezos remarked about the Day I building:  “We could have built a suburban campus, I think it would have been the wrong decision…our long-term commitment to an urban campus can bring some of the best and the brightest right here to downtown Seattle.”

Yet despite the benefits, the rapidity of these developments and the connotation that they were made by and for the rich have left a poor taste in the eyes of the community. Amazon is additionally the first tech company that has built a homeless center inside its offices; this is much to the chagrin of Sara Rankin, a lawyer for homeless rights in Seattle, and many others who believe Amazon has been a net-negative force for the city . “It’s not bold and it’s not significant, at least with respect to the crisis,” she claims. “It’s not as significant as it needs to be. It’s certainly not systemic.” The question remains why technology companies would continue to deal with immoderate city officials when they can eventually create their own cities – if they’re not appreciated, they’ll build elsewhere. 

Like Aldous Huxley said, “sometimes ending is better than mending.” If federal and state governments fail to see the power dynamics shifting underneath their feet, they are bound to face a stark reckoning when these companies see no reason to work with governments writ large. Even regulation at this point may be too late, does it make sense to break apart Amazon et al. – what would that resemble?

The trend is apparent; big technology corporations already have sovereignty in their hometowns, yet their reach is deepening across domestic and foreign policy each day. Their actions around influencing domestic policy lead one to suspect that they aren’t only on track to build their own cities, but nation-states that operate within America while undeniably pursuing their own agendas.

–  Anirudh Pai

This piece is part of a two-part series about how Big Technology giants are changing the political and technological landscape. In the next installment, we will be discussing how their rise will likely be met with increased regulatory oversight, and the subsequent impact on early-stage innovation to follow.

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