Entrepreneurs Turn Oligarchs


For a generation, most Americans, whatever their politics, have largely admired Silicon Valley as an exemplar of enlightened free-market capitalism. Yet, increasingly, the one-time folk heroes are beginning to appear more like a digital version of President George W. Bush's “axis of evil.” In terms of threats to freedom and privacy, we now may have more to fear from techies in Palo Alto than the infinitely less-competent retro-Reds in North Korea.

Once, we saw the potential unsurpassed human liberation available through information technology. However, Silicon Valley, as shown in the NSA scandal, increasingly has become intimately tied to the surveillance state. Technology has enabled powerful firms – including Verizon, Apple, Facebook, Microsoft and Google – to channel everyone's email and cellphone calls to the national security apparatus.

“It's as bad as reading your diary,” Joss Wright, a researcher with the Oxford Internet Institute, recently told the Associated Press, adding, “It's far worse than reading your diary. Because you don't write everything in your diary.”

Nor does the snooping relate only to national security. If my emails to friends and family arguably constitute a potential threat to national security, that's one thing. The massive monitoring and largely unapproved tapping into our data for profit is quite another.

Google, which, in the first half of 2012, took in more advertising dollars than all U.S. magazines and newspapers combined, has amassed an impressive list of privacy violations, notes the Huffington Post. Even the innocent-seeming Gmail service is used to collect and sell information; Google's crew in Palo Alto may know more about the casual user than most of us suspect.

Even Apple, arguably the most iconic Silicon Valley firm, has been hauled in front of courts for alleged privacy violations. For its part, Consumer Reports recently detailed Facebook's pervasive privacy breaches, including misuse of information as detailed as health conditions, details an insurer could use against you, when someone is going out of town (convenient for burglars), as well as information pertaining to everything from sexual orientation to religious and ethnic affiliation.

Despite ritual denials about such invasions of privacy, the new communications moguls have little reason to stop, and lots of financial reasons to continue. As for concerns over privacy, the new oligarchs take something of a blasé attitude. Eric Schmidt, Google's chairman, in 2009 responded to concerns over privacy with this gem: “If you have something that you don't want anyone to know, maybe you shouldn't be doing it in the first place.”

First came the engineers

These autocratic sentiments have evolved over time. Initially, Silicon Valley was dominated by engineers whose primary obsession was using information technology to make the physical world work better. Many of them from Midwestern schools, that early workforce came to the Santa Clara Valley for the same suburban, middle-class lifestyle that earlier brought millions to the aerospace hubs of the Los Angeles Basin and Long Island. They may have been nerds, but not a class apart.

The early Valley deserved our admiration for taking new technologies – semiconductors, in particular – and applying them to practical concerns ranging from machine tools to spacecraft and defense. The Internet itself was not invented by swashbuckling entrepreneurs but evolved from the Pentagon's Defense Advanced Research Projects Agency – DARPA. Eric Schmidt and Mark Zuckerberg did not pay to build the Internet; the taxpayers did.

The new Valley elite are simply the latest to refine and exploit information technology for their own, often enormous, personal benefit. Nothing wrong with making money, to be sure, but this ambition is no different than those of Cornelius Vanderbilt, E.H. Harriman, J.P. Morgan, Andrew Carnegie, John D. Rockefeller, Henry Ford and Thomas Watson. Each innovated in a key industry, established oligarchic control and became fantastically rich.

But even by the standards of bygone moguls, the new oligarchs' wealth has not been widely shared. Big Oil and the Big Three automakers created hundreds of thousands of jobs for a wide range of workers. In contrast, the tech oligarchs' contributions to American employment are relatively negligible.

Google, for example, employs 50,000 people; Facebook, 4,600; Twitter, less than a thousand, while GM employs 200,000; Ford, 164,000; and Exxon, more than 100,000. Even in the current boom, new job creation has been relatively insipid. From 1959-71, Silicon Valley produced 100,000 tech jobs; by 1990 it generated an additional 150,000 and, in the 1990s boom, another 170,000. After losing more than 108,000 high-tech jobs from 2000-08, there has been a net gain of no more than 20,000 to 30,000 positions since 2007.

The geographical area enriched by the oligarchs has also narrowed. In previous Silicon Valley booms, outlying areas such as Sacramento and Oakland also benefited; not so much this time. Nor is the population expanding much, as one would expect from an economic boom. Although the massive outflow of domestic migrants over past decade – more than 20,000 annually – has slowed, still, more domestic migrants are leaving than coming. Part of this has to do with having the nation's highest housing prices relative to income, more than twice that of competitor regions like Austin, Texas, Raleigh, N.C., or Salt Lake City.

Rather than a place of aspiration, the Valley increasingly resembles an extremely expensive gated community, with prices set impossibly high particularly for all but the most affluent new entrants.

What Needs to Be Done?

Americans need to wake up to the reality of this new, and increasingly ambitious, ruling class. “The sovereigns of cyberspace,” like the all-powerful Skynet computer system in the “Terminator” series, are only recently focused on politics, and have concentrated largely in the Democratic Party (where the price of admission tends to be cheaper than in the old-money-dominated GOP). And it's not just money they are throwing at the game, but also the skillful political use of technology, as amply demonstrated in President Obama's re-election.

Like the moguls of the early 20th century, who bought and sold senators like so many cabbages, the new elite constitute a basic threat to democracy. They dominate their industries with market shares that would make the old moguls blush. Google, for example, controls some 80 percent of search, while Google and Apple provide the operating system software for almost 90 percent of smartphones. Similarly, more than half of Americans, and 60 percent of Europeans, use Facebook, making it easily the world's dominant social media site. In contrast, the world's top 10 oil companies account for barely 40 percent of the world's oil production.

Like the Gilded Age moguls, the tech oligarchs also personally dominate their companies. Sergey Brin, Larry Page and Eric Schmidt, for example, control roughly two-thirds of the voting stock in Google. Brin and Page each is worth more $20 billion. Larry Ellison, the founder of Oracle, owns just under 23 percent of his company; worth $41 billion, Forbes ranked him the country's third-richest person. Bill Gates, the richest, is worth a cool $66 billion and still controls 7 percent of his firm. Newcomer Mark Zuckerberg's 29.3 percent stake in Facebook was worth $16 billion as of July 25, according to Bloomberg.

This combination of market and ownership concentration needs to be curbed. Taking a page from the Progressive Era, author and historian Michael Lind suggests that companies like Google, given their enormous market share, should be regulated like utilities. Others, within the European Union and elsewhere, look to apply antitrust legislation, once used to break up Standard Oil. One innovative approach, as Jaron Lanier suggests in his new book, “Who Owns the Future,” includes forcing companies to pay for the privilege of using your data, thereby “spreading the wealth” from a few hegemons to the wider populace.

Threat is bipartisan

These changes will require both Left and Right to change their attitudes. Progressives, for example, have tended to embrace the Valley's population for its generally “liberal” views on social issues and the environment. They have largely ignored the industry's poor record on hiring non-Asian minorities and the lavish, energy-consuming lifestyles of the oligarchs themselves.

Some on the left are seeing the light. Britain's left-leaning Guardian newspaper has been in the forefront unveiling the NSA scandals and the complicity in them of the tech giants. Credit belongs to the EU, which, particularly in contrast with our government, has been asking the toughest questions about loss of privacy and the dangers of oligopolistic control. With Barack Obama secure in the White House, some American leftists have also begun to recognize the extreme inequality that has accompanied, and likely been worsened by, the ascendency of the digital aristocracy.

Conservatives, for their part, can only face up to the new “axis of evil” by stepping outside their ideology strictures and instinctive embrace of wealth. The increasingly monopolistic nature of the high-tech community, and its widespread disregard for the privacy of the individual, should concern conservatives, as it would have the framers of the Constitution.

What needs to be accepted, by both conservatives and liberals, is that privacy matters, as does the threat posed to democracy by oligarchy. Until people focus on the potential for evil before us and discuss ways to curb abuses, this small and largely irresponsible class, likely in league with government, will usher in not the promised cornucopia but a gilded-age reign of Big Brother.

Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared in The Orange County Register.

Official White House Photo by Pete Souza.


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First, the saying is "hoist" with one's own petard, not "hosted". It means to be harmed by one's own action which is ironic given that you are berating the author for alleged idiocy. Anyway,

1 - You are naive and uninformed as to the importance and significance of the data being harvested and the private details it can inform about one's life. It's invasive and only tolerated because people do not care for the people against whom this surveillance is directed. But it is only a matter of time before it scans the internet for pedophiles, then gang members, then welfare fraudsters, then any other petty criminals... and then anyone who dares raise objection against any of this. This is how tyranny builds: by targeting one hated group at a time. Who can object if they have nothing to hide? And who would support the groups against whom such action is directed?

2 - Companies like Google and Facebook are incredibly powerful. They are not simply at the mercy of government as anyone else is. They have the power to shape public opinion and to motivate political action. They choose obedience willfully out of selfish greed because ultimately they want the same thing the NSA wants: to control information.

3 - That's true, though the internet did not spring from nowhere in the 90s. It was built upon decades of research funding that would not likely have resulted in the internet as we know it without government contribution.

4 - This is true also, but it is also true of more traditional companies. You're not comparing like with like. It is an almost impossible calculation to make for any particular company. New companies tend to both destroy and create jobs. Historically companies based on new technology have tended to create more opportunities than they destroyed. But there is a growing fear that the trend is not universal or will continue on indefinitely. For instance, employment in the US has tracked productivity fairly closely for the entire 20th century. But since 2000 there appears to be a decoupling with continued increases in productivity but not continued increases in employment. Consider also that in the 2020s we will really start to see automation take off with advanced robotics that will likely destroy every unskilled occupation there is (as well as many which are currently considered middle class jobs). The economy is being transformed from a commodity based economy to an information based economy. It is questionable whether high rates of employment can be sustained in the long term with the shift to an information (i.e. intellectual property) based economy.

5 - The tech community is made up of ordinary humans who are subject to ordinary human failings. They have their self-interest as we all do and it is important to know what those interests are. It is easy to see why the tech companies comply with widespread surveillance and it is important to remain vigilant.

corporate oligarchy

As a lawyer and entrepreneur in Silicon Valley for 25+ years, the article is accurate. In my view, granting corporate entities (mere juridical persons) the same First Amendment rights as human persons (i.e., people who live and breathe) is a fundamental flaw that has enabled the oligarchy, as described, to even more dramatically gain and consolidate its power.

In most languages and cultures, including Chinese, Japanese, as well as in Roman Latin and early Greece, there is a clear distinction between human persons and the artificially created juridical (legal) persons. It is absurd to think that corporations are entitled to "free speech" when they are merely statutory creations; are we also to provide corporations with the other Constitutional rights such as freedom from unwarranted search or the right to bear arms? Absurd on its face.

Unless we take steps to amend current laws and if necessary the Constitution itself, the entire political system will be permanently bought by these oligarchs.

Tech Moguls

Mr. Kotkin: Admittedly I don't read everything you write. But I have read enough to get the impression that - in general - you favor a government hands-off, bust-the-unions, death-to-the-blue-state approach to problems addressed in those of your articles which I have read. I don't know that I've seen you write anything against business interests except maybe to say that companies that are not competitive should die. So how do we counterbalance the power of these new business moguls without equally powerful institutions composed of many people? Do you suggest the Tea Party solution - 300 million John Galts against everybody else? Heckuva cage match. Your piece here seems out-of-line with other pieces you've written in that you are concerned about unchecked business power and actually suggest regulation. If I am misrepresenting your overall philosophy please accept my apology.

Interesting question.

I think I have tried to read everything Joel Kotkin posts here and elsewhere for some years now. I find him impossible to categorise as a raging Ayn Rand libertarian; more the point, is that he is wise to unintended consequences that hurt poor people.

Consider that Ian Abley, who has posted and commented here, is most definitely a man of the Left (in the UK, too) but he is implacably opposed to the urban planning that has caused such oppression of lower income earners and such inequitable wealth transfers. Does that make him a deregulation-mad libertarian? I could ask the same question about Richard Morrill and Robert Bruegmann.

Does being "of the Left" mean you care about poor people, or mean that you have blind faith in "planning"? Because these positions are mutually incompatible.

I can't speak for Joel Kotkin, but my own position is pretty much predictable along the following lines. Rent-seeking (crony capitalism): get rid of it whether by regulating or by deregulating. Genuine wealth creation the Adam Smith way (free market competition): encourage it whether by deregulation or regulation.

I also love Thomas Sowell's position on the welfare state: compassion and help where needed, good - trying to create "equality", bad. Kindness - good; envy, bad. The original Christianity-motivated welfarists on the left in democracies in the 1930's would mostly recoil in horror at what welfare has become today. Would that make them "right wing" if they came back today? Can't we have a "Left" with common sense? The Australian politician Kim Beazley senior famously raged a few years ago about how his Labour Party "used to represent the cream of the working class family man".

Joel Kotkin may fit into a position somewhat like that.