Archive for the 'Capitalism' Category

Cowardice, Hollywood style

[link] Friday, December 19th, 2014

George Clooney nails it in an interview with Deadline.

DEADLINE: How could this have happened, that terrorists achieved their aim of cancelling a major studio film? We watched it unfold, but how many people realized that Sony legitimately was under attack?

GEORGE CLOONEY: A good portion of the press abdicated its real duty. They played the fiddle while Rome burned. There was a real story going on. With just a little bit of work, you could have found out that it wasn’t just probably North Korea; it was North Korea. The Guardians of Peace is a phrase that Nixon used when he visited China. When asked why he was helping South Korea, he said it was because we are the Guardians of Peace. Here, we’re talking about an actual country deciding what content we’re going to have. This affects not just movies, this affects every part of business that we have. That’s the truth. What happens if a newsroom decides to go with a story, and a country or an individual or corporation decides they don’t like it? Forget the hacking part of it. You have someone threaten to blow up buildings, and all of a sudden everybody has to bow down. Sony didn’t pull the movie because they were scared; they pulled the movie because all the theaters said they were not going to run it. And they said they were not going to run it because they talked to their lawyers and those lawyers said if somebody dies in one of these, then you’re going to be responsible.

This is interesting because it suggests a promising new line for real and would-be ‘terrorists’: simply issue vague threats about nameless horrors to be visited upon public venues in the US and corporate lawyers will do the rest.

The hegemony of marketisation

[link] Friday, December 12th, 2014

Technically hegemony is “is the political, economic, or military predominance or control of one state over others” and in the world of realpolitik (e.g. Ukraine at the moment; or the cringe-making UK-US ‘special relationship’) it’s a grim reality. But it’s also a phenomenon in intellectual life, where it signifies that a particular ideology has become so pervasive and dominant that it renders alternative viewpoints/ideologies literally unthinkable. Since the 1970s, neoliberalism (aka “capitalism with the gloves off”) has increasingly acquired that hegemonic status, to the point where it now infects every aspect of public policy.

I came up against this yesterday when I had a conversation with someone who described the BBC as an “intervention in media markets”. I balked at this: the BBC, it seems to me, is a public service which existed long before there were media markets of any recognisable kind, and it was therefore not designed to be an “intervention” in anything other than the public sphere. And even now, when there are global media markets with which the BBC co-exists, it’s misleading — even for those who approve of the BBC and public service broadcasting services generally — to view it as an “intervention” to remedy market ‘failure’. The fact that the commercial media market doesn’t provide publicly-valuable services isn’t a ‘failure’ of that market. Commercial markets exist to make profits, and media markets are doing just fine at that. Any societal benefits they happen to provide — unbiased current affairs coverage, employment — are side effects of the core business.

But after the conversation I fell to brooding on the dominance of market ideology in the thinking of the policy-makers I meet — which is where the idea of hegemony came from. Since the 1970s we have all become like one-club golfers: whenever a policy issue arises we tend to think about it in terms of markets. We’ve seen that in the National Health Service in the UK; and in the 1980s and 1990s we saw it in the way the Birt regime that ran the BBC conceptualised the corporation’s alleged inefficiencies in terms of the absence of an “internal market”, which it then implemented under the banner of “Producer Choice”. (Which in turn led to celebrated absurdities, like the “£100 black tie” — of which more later.)

The truth is that markets are good at some things and hopeless at others. If you think about them in functional terms, they are self-organising systems which operate by transmitting price signals to their participants. These signals tell participants whether their strategy/tactics are working or not, and indicate the direction of change needed to rectify things. But when policy-makers reach for marketised solutions to operational or administrative malfunction in non-market institutions they have to distort the institution so that they ape market affordances. And since the only signals that markets send are prices, marketised non-market institutions have to invent pseudo-prices in order to function. Which often leads to absurd outcomes, and usually means that organisations that need to harness the synergies that come from departments working together become less than the sum of their parts, because the parts are now ‘trading’ with or against one another.

Just to take the BBC as an example. Pre-Birt, the BBC had a fabulous research library which was available — free — to every employee of the corporation. Similarly, it had a wonderful Wardrobe department, also available free to every producer. After the introduction of ‘producer choice’, these services were no longer free, so producers and researchers had to make a decision about whether the budget could afford a lot of library research, or whether to experiment with a range of costumes. As told to me by a BBC insider, the legendary £100 black tie episode arose as follows. The News and Current Affairs department used to periodically rehearse plans for covering the death of the then Queen Mother. To be realistic, these rehearsals had obviously to be unannounced in advance: staff would have to drop what they were doing and go into Queen-Mother-dead routine. This required the (all-male) News anchors to wear black ties. On one such occasion, none of them had a black tie, so a request was sent to Wardrobe. Wardrobe quoted an internal price that the producer regarded as exorbitant. So a production assistant was dispatched to M&S in a taxi in order to procure said ties. The cost, including taxi fares, came to £100 per tie.

I’ve no idea if this story is true or not. It does, however, illustrate something that I believe to be true, namely that phoney internal markets are an absurdly inefficient way of organising the feedback signals needed to make departments responsive to failure or inefficient performance. But a signalling system is essential to avoid the kind of stasis, complacency and conservatism that often characterises non-market institutions. The good news is that with computing and networking technology we now have lots of ways of signalling satisfaction/dissatisfaction — e.g. by means of online and instantaneous rating systems. They’re not magic bullets (witness the ways in which customer ratings of Uber drivers can be dysfunctional), but compared with the absurdities implicit in distorting non-market institutions to make them mimic markets, they’re likely to be much less damaging.

“Ruthless execution and total arrogance”

[link] Monday, November 24th, 2014

Which just about sums up the Silicon Valley ideology. And, as Sara Haider points out,

Emil Michael can say stupid things at a dinner, and garner exceptional attention because Uber is a $30 billion company in the brightest spotlight. And they’ll be there for a while longer. But the Uber attitude and behavior permeates our entire industry: an industry of new money, enormous power…and little accountability. Silicon Valley often criticizes Wall Street for its culture, and yet here we are. I want to be proud to work in tech, and this week I’m not.

Why social Darwinism is misguided

[link] Monday, November 24th, 2014

Snippet from a thoughtful essay by Patrick Bateson:

At the turn of the 20th century an exiled Russian aristocrat and anarchist, Peter Kropotkin, wrote a classic book called Mutual Aid. He complained that, in the widespread acceptance of Darwin’s ideas, heavy emphasis had been laid on the cleansing role of social conflict and far too little attention given to the remarkable examples of cooperation. Even now, biological knowledge of symbiosis, reciprocity and mutualism has not yet percolated extensively into public discussions of human social behaviour.

As things stand, the appeal to biology is not to the coherent body of scientific thought that does exist but to a confused myth. It is a travesty of Darwinism to suggest that all that matters in social life is conflict. One individual may be more likely to survive because it is better suited to making its way about its environment and not because it is fiercer than others. Individuals may survive better when they join forces with others. By their joint actions they can frequently do things that one individual cannot do. Consequently, those that team up are more likely to survive than those that do not. Above all, social cohesion may become a critical condition for the survival of the society.

Digital capitalism, red in tooth and claw

[link] Sunday, November 23rd, 2014

My Observer comment piece about Uber & Co.

The real lesson of the Uber exposé, though, is that it’s time to discard the rose-tinted spectacles with which we have hitherto viewed these Silicon Valley outfits. For too long, they have been allowed to trade fraudulently on the afterglow of the hippie libertarianism that supposedly infected the early days of the personal computer industry. The billionaire geeks who currently run the giant internet companies may look and talk like a new species of entrepreneur but it would be more prudent to view them as John D Rockefellers in hoodies.

And the economic philosophy that’s embedded in this new digital capitalism is neoliberalism red in tooth and claw, which is why they minimise the number of “ordinary” (ie non-geek) workers on their payrolls, outsource everything they can, despise trade unions, view regulators as barriers to “innovation” and are outraged by the temerity of European institutions that seek to curb their freedoms of action.

There’s a geopolitical angle to this too…

Read on

If you’re interested in the impact of digital capitalism, then the place to go is the work of Dan Schiller, particularly his new book, Digital Depression: Information Technology and Economic Crisis. If you’re pushed for time, here’s a useful short interview with him about the book, and an informative review by Richard Hill.

Bobbie Johnson has a terrific essay on Medium about why we are so steamed up about Uber. People use it because of its convenience, even though they are also aware of its disruptive impact on things we supposedly value.

The dick-swinging, the gluttony, the not-quite-lies and the full-on bullshit… All of these things, and in particular the spectacular combination of all of these things, are enough to dislike a company, and even to hate it. But it’s incredibly popular, too, because, man, if people vote with their feet — or in this case their fingers — then they keep voting, again and again, for Uber.

And that, in the end, is the real reason so many people hate Uber: Because whatever we do, we can’t stop ourselves from making it bigger and more successful and more terrifying and more necessary. Uber makes everything so easy, which means it shows us who, and what, we really are. It shows us how, whatever objections we might say we hold, we don’t actually care very much at all. We have our beliefs, our morals, our instincts. We have our dislike of douchebags, our mistrust of bad behavior. We have all that. But in the end, it turns out that if something’s 10 percent cheaper and 5 percent faster, we’ll give it all up quicker than we can order a sandwich.

How the network is evolving

[link] Sunday, October 26th, 2014

This morning’s Observer column:

Earlier this year engineer Dr Craig Labovitz testified before the US House of Representatives judiciary subcommittee on regulatory reform, commercial and antitrust law. Labovitz is co-founder and chief executive of Deepfield, an outfit that sells software to enable companies to compile detailed analytics on traffic within their computer networks. The hearing was on the proposed merger of Comcast and Time Warner Cable and the impact it was likely to have on competition in the video and broadband market. In the landscape of dysfunctional, viciously partisan US politics, this hearing was the equivalent of rustling in the undergrowth, and yet in the course of his testimony Labovitz said something that laid bare the new realities of our networked world…

Read on…

More…

Wired had an interesting series about this shift, the first episode of which has a useful graphic illustrating the difference between most people’s mental model of the Internet, and the emerging reality.

Krugman on Amazon’s abuse of market power

[link] Wednesday, October 22nd, 2014

Paul Krugman had an interesting column about Amazon the other day. He dives straight in:

Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America.
O.K., I know that was kind of abrupt. But I wanted to get the central point out there right away, because discussions of Amazon tend, all too often, to get lost in side issues.

Among those ‘side issues’ are the fact that Amazon is good for book buyers and good at customer service (which it is). Krugman is a Prime subscriber, as am I. “The desirability of new technology”, he writes,

“or even Amazon’s effective use of that technology, is not the issue. After all, John D. Rockefeller and his associates were pretty good at the oil business too — but Standard Oil nonetheless had too much power, and public action to curb that power was essential”.

Krugman sees Amazon’s tactics in its dispute with the publisher Hachette as an exact analogy to Standard Oil’s treatment of rail companies that refused to grant the company special discounts for shipping its oil. Amazon is delaying and impeding the sale of Hachette titles on its webssite, because Hachette won’t agree to give discounts to Amazon on the same scale as other publishers apparently do.

In economic jargon, Amazon is not acting like a monopolist (i.e. gouging customers) — not yet anyway. Instead it’s behaving like a monopsonist — i.e. a dominant buyer with the power to push down suppliers’ prices.

Way back in the 1920s, it was that kind of behaviour that triggered state action. “The robber baron era ended”, Krugman writes, “when we as a nation decided that some business tactics were out of line.” The question is whether analogous state action is now likely.

You only have to ask the question to know the answer. The neoliberal ideology has so entered our rulers’ souls that the concept of taking on Amazon is not only verboten, but unthinkable.

The unowned public corporation

[link] Sunday, April 27th, 2014

Good column by Will Hutton on why the notion of “shareholder control” is a myth. Sample:

Banks have grown this large, complex and profitable because, like all plcs in our times, they are not owned by a mass of responsible, long-term shareholders who care for their purpose, sustainability of business model or wider economic obligations. Their overriding concern is high returns on equity. Long-term investors such as Standard Life, which voted against Barclays bonus hikes, are now a tiny minority. The majority of shareholders are hedge funds or multitrillion global asset management groups. They don’t own companies: they either trade them like casino chips or use them as temporary ports of call for their money. A bank CEO such as Antony Jenkins at Barclays has to tread a path between appeasing these non-owners and creating a bank that builds long-term value: if he falls, be sure Barclays will be under enormous pressure to replace him with another Bob Diamond, who will go all out for short-term profits and sky-high bonuses come what may.

The emergence of the ownerless corporation seeking to maximise short-term profits is now the key feature of modern capitalism. But “unowned” banks, unlike other PLCs, engage in the unique business of creating money and credit, knowing that governments must ultimately stand behind them if anything goes wrong. This guarantee always meant there would be a bias to increase credit as a share of GDP: between 1950 and 2000, it doubled in the major industrialised countries.

But between 2000 and 2010, as short-term profit maximising banks became the norm, credit doubled again in scale. By the time of the banking crisis, returns on equity had more than doubled as all this lending had been supported with ever less capital – bankers trading on the implicit government guarantee but delivering the returns their shareholders wanted. Moreover, much of this credit has been directed to lend to property in every country, rather than risky new investment.

Modern banking, as Adair Turner pointed out in an important lecture at the Cass Business School last month, has become an engine for credit, leverage and property price inflation. Britain, with its companies uniquely “unowned”, uniquely focused on the share price and its economy uniquely organised to favour finance over industry, was inevitably going to be the most acute example of the trend.

What Zuckerberg is really up to

[link] Wednesday, April 2nd, 2014

Very perceptive post by Felix Salmon. The gist:

Is it too early to declare that Zuckerberg has ambitions to become the Warren Buffett of technology? Look at his big purchases — Instagram, WhatsApp, Oculus. None of them are likely to be integrated into the core Facebook product any time soon; none of them really make it better in any visible way. I’m sure he promised something similar to Snapchat, too.

Zuckerberg knows how short-lived products can be, on the internet: he knows that if he wants to build a company which will last decades, it’s going to have to outlast Facebook as we currently conceive it. The trick is to use Facebook’s current awesome profitability and size to acquire a portfolio of companies; as one becomes passé, the next will take over. Probably none of them will ever be as big and dominant as Facebook is today, but that’s OK: together, they can be huge.

Zuckerberg is also striking while the iron is hot. Have you noticed how your Facebook news feed is filling up with a lot of ads these days? Zuckerberg is, finally, monetizing, and he’s doing it at scale: Facebook’s net income grew from $64 million in the fourth quarter of 2012 to $523 million in the fourth quarter of 2013. At the same time, his stock — which he is aggressively using to make acquisitions — is trading at a p/e of 100. If you’re going shopping with billions of dollars in earnings multiplied by a hundred, you can buy just about anything you like.

Eventually, inevitably, Facebook (the product) will lose its current dominance. But by that point, Facebook (the company) will have so many fingers in so many pies that it might not matter.

Hmmm… We’ll see.

Michael Lewis on Lightspeed

[link] Tuesday, April 1st, 2014

Michael Lewis is, IMHO, one of the best long-form journalists around and his new book is well up to his usual standard. In many ways, it adheres to the classic Lewis formula: find a scandalous set-up of which most people are blissfully unaware; locate some smart guys who have detected the systemic scam and figured out a way to profit from their ingenuity; and then tell their story.

In this case, the story is basically about the speed of light – or, to be more precise, about how the time-difference (in millionths of a second) that it takes an electronic share transaction to traverse one fibre-optic connection rather than another can provide an exceedingly lucrative trading advantage to those who have the kit and the know-how to exploit it.

In the video clip he explains the nub of the idea but, as always, it’s not so much the story as the way Lewis tells it — which is why his book is a must-read for anyone who cares about this stuff.

Writing about it in Quartz, Matt Phillips quotes from another part of the TV interview

“If it wasn’t complicated, it wouldn’t be allowed to happen,” he says. ”The complexity disguises what is happening. If it’s so complicated you can’t understand it, then you can’t question it.”

“This problem”, Phillips says, “goes beyond stock markets: The US financial system is awash in unnecessary complexity. And the reasons are simple: Complexity is profitable and it keeps regulators at bay. ”The jargon of bankers and banking experts is deliberately impenetrable,” wrote economists Anat Admati and Martin Hellwig in their indispensible The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It. “This impenetrability helps them confuse policy makers and the public.”

There are some echoes of the sub-prime/CDO scandal in Lewis’s new book, in that the people who are supposed to understand how the system worked had little or no idea what was going on under their corporate noses. He recounts how the ‘good’ guys in his tale discovered this when they sought to enlighten leading figures in the financial world about flash trading:

The most sophisticated investors didn’t know what was going on in their own market. Not the big mutual funds, Fidelity and Vanguard. Not the big money-management firms like T. Rowe Price and Capital Group. Not even the most sophisticated hedge funds. The legendary investor David Einhorn, for instance, was shocked; so was Dan Loeb, another prominent hedge-fund manager.

This is an indicator of a really serious underlying problem in our networked world — the stupendous power that superior knowledge, IQ and technical understanding confers on some people. We are completely dependent on systems that are so complex that virtually nobody understands how they work — and how they can be manipulated and gamed by those who do understand them. The obvious rejoinder is “twas ever thus”, but I think that’s too complacent. What’s different now is that the level of technical expertise needed is beyond the reach or capacity of almost everyone. Which means that the elites who do ‘get’ it — and those who employ them — have colossal advantages.

LATER The book has made a BIG impact, to judge from the media coverage, and mostly the reactions have been complimentary. But there were a few contrary opinions. And Andrew Ross Sorkin, writing in the New York Times made some good points.

There is only one problem with Mr. Lewis’s tale: He reserves blame for the wrong villains. He points mostly to the hedge funds and investment banks engaged in high-frequency trading.

But Mr. Lewis seemingly glosses over the real black hats: the big stock exchanges, which are enabling — and profiting handsomely — from the extra-fast access they are providing to certain investors.

While the big Wall Street banks may have invented high-speed trading, it has gained widespread use because it has been encouraged by stock markets like the New York Stock Exchange, Nasdaq and Bats, an electronic exchange that was a pioneer in this area. These exchanges don’t just passively allow certain investors to connect to their systems. They have created systems and pricing tiers specifically for high-speed trading. They are charging higher rates for faster speeds and more data for select clients. The more you pay, the faster you trade.

That is the real problem: The exchanges have a financial incentive to create an uneven playing field.

Footnote: Readers on IoS devices may not be able to see the video clip, for reasons best known to the late Steve Jobs.