When we think of the Goliath companies during the past century – from the Ford Motor Company to Standard Oil, from Proctor & Gamble to Kelloggs – what is noticeable is that now companies don’t need to profit from natural resources, commodities or even their own goods to sell. The likes of Uber and Airbnb often do not directly and legally own the assets that are controlled and employed to produce earnings which eventually filter into their profit and loss. It is the ingenious use of technology, consciously planned and molded to tackle problems, which has made them prosperous.
Technology has made Alphabet (Google), Amazon, Facebook, Alibaba, big banks, Apple, and Microsoft incredibly valuable, and only the latter two explicitly sell their technology as goods as part of their primary enterprise. The rest use technology as a function of their business model to solve end-user problems in a timely, efficient and smart manner. In other words, it’s not manufacturing which provides the value, but the innovative business model and the technology that drives it.
We’re living in the world of artificial intelligence, automation, programming, blockchain, bitcoin, and the internet – a period which historians will note as another industrial revolution; a new digital wave. And just as readily as we may dismiss the anxious critics of the late 18th and early 19th-century industrial revolution as Luddites and economically mistaken, so too will those who fear human redundancies as a result of automation be found to be mistaken.
The fear is real, causing some thought leaders such as Bill Gates to even propose charging a tax on robots. Labourers are expensive due to, in many countries, having to pay social securities bills, minimum wages, national insurances, employee pensions, wage inflation and so forth. Should there be a level playing field by taxing robots as well?
No! – Not if we want to use technology to keep prices low. Not if we want to encourage technology to find solutions to simplify people’s lives. Not if we want to encourage innovation in companies. Not if we want employees to need less money to afford items due to technological efficiencies. During the French Revolution, people couldn’t afford bread. Now factories enable the price of bread sold at Walmart (USA) or Tesco (UK) to be much less than a dollar, pound, or euro. Taxes may enable governments to provide benefits to people who can’t afford items. However, reducing the prices of those items through the encouragement of technology helps solve that same problem without distorting the market demand for technology.
As with every industrial revolution, the nature of jobs changes – we now have fewer miners and more programmers, diagnosticians, strategists, troubleshooters, etc. Centuries ago, in many countries, most people were farmers – now they earn money by looking at spreadsheets in offices, with more free time, more things to spend money on, and a better quality of life. Reduced mortality rates, higher GDP per capita, and a host of pleasing metrics may be cited to support the basic thesis: disrupted markets have benefited societies because societies have adapted to disrupted markets.
But doesn’t the list of tech-companies outlined above show that technology inevitably leads to monopolies?
This was the question tackled by Friedrich Hayek in Chapter 4 of his ‘Road to Serfdom’ (1944), on the ‘Evitability of Planning’:
“The conclusions that the advantage of large-scale production must lead inevitably to the abolition of competition cannot be accepted. It should be noted, moreover, that monopoly is frequently the product of factors other than lower costs…. It is attained through collusive agreement and promoted by public policy.”
The use of intellectual property right laws and copyright can enable monopolies. However, there is still nothing stopping someone from creating their own social media website to challenge Facebook – to provide better services than Amazon – to build better computers than Apple. The Fintech market is flourishing with competing providers of software as an example. Ultimately, consumers have the power to choose how these companies affect their lives, or seek alternative options in a free market. Consumers vote with their sign-ups, with their wallets, and with their actions to enable these companies to be successful. They’re big because they’re popular. It’s not because they happen to have carved up a natural resource and claimed it as their own to sell like the oil barons of yesteryears.
There is, of course, one entity which gets its monopoly handed to it without any individual contracts, consent or consumer choice – the State. A majority should not force a minority to hand over all manners of data unless that individual has provided their own individual consent. That’s the standard we apply to private markets, so in absence of a coherent argument, our attitudes to public entities should be no different.
And at a time when “Big Data” can be stored, when governments have debated the use of Identity Cards, and when we know that foreign powers are engaged in cyber-attacks against vulnerable centralized systems, Hayek was prescient in providing the following advice:
“While it is true, of course, that inventions have given us tremendous power, it is absurd to suggest that we must use this power to destroy our most precious inheritance: liberty. It does mean, however, that if we want to preserve it, we must guard it more jealously than ever and that we must be prepared to make sacrifices for it.”