Customer happiness isn't enough

April 28, 2019 (1407 words) :: The typical goal of antitrust enforcement is to ensure better outcomes for consumers. But customer happiness is not the most important factor when it comes to tech companies.
Tags: gig-economy, big-tech, intellectual-property

This post is day 118 of a personal challenge to write every day in 2019. See the other fragments, or sign up for my weekly newsletter.

I recently listened to episode 166 of Exponent, Fence-building vs axe-wielding, which broadly discusses Elizabeth Warren’s proposal to break up tech companies. It’s an interesting analysis, even if my political views differ strongly from the hosts’ (Ben Thompson and James Allworth, who write about tech & business from a decidedly non-anticapitalist perspective). Their take on Warren’s antitrust proposals essentially boils down to: antitrust can be a useful tool, but Warren’s proposed new regulatory framework for the tech industry is based on a poor understanding of how the industry works. Her proposals would cause unintended harm, and wouldn’t necessarily solve the problems they’re trying to solve. The hosts depict her proposals as a metaphorical axe, chopping away bluntly and erratically at the problem, whereas it would be better to build a fence.

I actually agree with their criticism for the most part - I’m glad Warren is starting a conversation around breaking up Big Tech, but I don’t think her proposals are very good, as they lump together some very different tech company tactics all under the name of anti-competitive behaviour. If your goal is to restore competition, you’re going to need a more nuanced understanding of how competition is currently being limited in various parts of the tech ecosystem. So her proposals might be a step in the right direction, but they’re extremely crude and will need to be heavily refined if they’re going to actually be effective in restoring competition.

But is restoring competition really such a worthy goal? Warren’s Medium post doesn’t explicitly mention Uber, but it’s worth considering here, as it’s scheduled to go public in less than two weeks with a valuation of around $90 billion. Uber’s largest competitor is Lyft, which went public last month at a valuation of $24 billion (its market cap has since slumped to around $16 billion, most likely due to the buzz around Uber’s upcoming IPO). Although Uber is pretty far ahead of Lyft in terms of market share (at least double, according to one report), it still has to treat Lyft as a viable competitor. As James Allworth noted during the podcast episode, Lyft’s presence in the market keeps Uber honest. Who needs regulation when you can rely on free market competition to deliver corporate accountability, ensuring that the companies keep innovating and delivering a decent service to customers?

That may be great for customers, but what about drivers? There is no mention of them in this episode - the fact that their wages and working conditions have been gradually worsening as these companies have matured. The presence of competition between Uber and Lyft has done little to improve the well-being of these workers. Power ultimately rests with the companies rather than the drivers, for the simple reason that many drivers need to work in order to stay financially afloat. In the absence of a coordinated collective bargaining strategy among drivers, they are limited to switching back and forth between the two apps, all the while being subject to terms over which they have no control.

If your only metric for evaluating the trajectory of a company is whether it serves its customers, then sure, competition might work reasonably well as a disciplinary mechanism. But that would be an extremely narrow and, frankly, stupid way of analysing the prospects of a company like Uber or Lyft. A customer of ride-hailing services wants shorter waiting times and lower fares; if the company were to focus single-mindedly on fulfilling those needs, they would try to flood the streets with drivers to minimise waiting time while also lowering driver payments as quickly as the market can bear, and using their massive VC cash injections to subsidise the low prices when necessary.

This is, of course, exactly what these companies have done. And the negative externalities of their single-minded focus on customer happiness are becoming clear. It’s bad for cities: having so many cars driving idly around, waiting for pickups, causes congestion and is much more wasteful in terms of driver time and fuel usage. It’s also bad for drivers, who are facing unbearable financial prospects, to the point where many plan to strike on the day of Uber’s IPO.

Under the current consumer-focused economic paradigm, where workers’ rights are often an afterthought (if not deliberately suppressed), more competition is not necessarily going to mean better outcomes for workers. It’s also not going to necessarily mean better outcomes for other parties that might be affected, like people living in cities being reshaped by the selfish actions of tech companies. The market, in its current iteration, is not going to address these externalities; forcing it to do so will require deliberate efforts on the part of policymakers and/or coordinated actions by workers and consumers.

Going back to Warren’s antitrust proposals: my overarching problem with her proposals comes from having a fundamentally different conception of what competition is for. Warren seems to see antitrust policy as a means of achieving a more competitive industry, which is taken for granted to be the best possible outcome. But why would it be? In the case of the tech industry, Warren’s proposals (limiting acquisitions, preventing private-label product placement) are crude enough that they might actually break the things about the industry that make it good, without tackling the things that make it bad.

Fixing the problems of monopolistic behaviour in the tech industry will require a much more careful application of antitrust strategies. It will also require regulatory approaches not rooted in antitrust, and that may be specific to individual business models. For example: preventing tech companies from being able to underpay workers, by strengthening laws protecting workers’ rights. Or: severely limiting the prevalence of digital advertising, and ensuring that endeavours currently funded through advertising (like journalism) receive funding through public sources instead. And: establishing a much freer intellectual property regime, so that software and data which might be useful to the public aren’t merely hoarded by corporations that collect rent from gatekeeping its access.

Maybe I’m just cynical, but I really don’t think markets are a sustainable way of shepherding technology development. Markets are only useful under very specific conditions, and when they fail to deliver the most optimal outcomes, we have to look to other systems to step in and improve things. Government policy is one potential avenue, and historically (especially during the Keynesian golden ages), it has been the job of the government to shelter citizens from the caprices of the market. Antitrust law may be one component of any such strategy, but it’s a comparatively small one compared to (e.g.) improving social services, strengthening workers’ rights, reclaiming innovation for the public good, etc.

In conclusion, I think we need a very different conception of competition than merely as a mechanism for improving consumer happiness. The welfare of consumers is not the most important thing, and it is certainly not the only thing we should care about, especially given that not everyone has the same amount of power as a consumer. If we’re going to have competition in the tech industry at all, it should be oriented towards creating intellectual property that will then be publicly, rather than privately, owned. In this view, competition would be a means to a dramatically different end: a world where technology is directed to serving society, rather than maintaining tech companies’ high margins.

Breaking up the tech companies won’t make this happen. Instead, we should be thinking about how to socialise them. That can mean a plethora of things: unionised workforces, decentralised services run as co-ops or municipal-level public services, stronger regulation to ensure sustainable outcomes for consumers and the environment.

This might sound like a massive paradigm shift from where we are now, and it is! On the other hand, if we’re going to talk about paradigm shifts, think about how much these tech companies have upended our lives in the last few decades. How much has the iPhone, or even the personal computer, changed the way we live, work, communicate, etc, in ways that couldn’t even be imagined before? All these changes are (I think) achievable - they’re just going to need a hell of a lot of political will.

Recommended reading: The only way to rein in big tech is to treat them as a public service by Nick Srnicek for The Guardian, and Monopoly’s Fallacy by Hettie O’Brien for New Socialist.

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