The problem with greed

Tim Wu’s latest book is The Age of Extraction: How Tech Platforms Conquered the Economy and Threaten Our Future Prosperity.

The 21st century – if you hadn’t noticed – has been a pretty rocky ride. We’ve already been through several economic crashes, a global pandemic and an affordability crisis, not to mention wars in Europe, the Middle East and Africa. Nor is the political landscape much cause for joy: of the democracies around in the 1990s, more than 25 have slid back to dictatorship or authoritarian semi-democracy, while China and Russia are once again ruled by autocrats. The United States every day looks more like the Roman Republic near its end, run by a President openly seeking Caesar’s perpetual dictatorship with even less deference to the Senate.

It wasn’t supposed to be this way. Back in the ’90s and ’00s many were looking to the 21st century with a broad sense of optimism. The coming age of perpetual good vibes was captured by Francis Fukuyama’s famous 1992 claim that we were witnessing not just “the passing of a particular period of postwar history, but the end of history as such.” We’d figured it all out: everyone would enjoy peace, prosperity and democratic government forevermore. The “third way” described by Tony Blair, Bill Clinton and Canada’s Paul Martin seemed to mix the best parts of capitalism and socialism into one happy 1990s cocktail.

Unfortunately, as we all know, things did not go according to plan. The promised prosperity for all turned into an accumulation of wealth at the top and hard times for many more, breeding deep resentment even in wealthy countries and worse political instability elsewhere. In poorer parts of the world, economic despair yielded mass migrations, feeding a rise in xenophobic populism.

Can we, nonetheless, regain some of that lost optimism? Can we find a way that offers hope for our collective future, beyond resisting authoritarian takeover? We can, but not without squarely facing the most pernicious development that governments of the ’90s and ’00s failed to prevent: the spread of extractive business models and monopoly across much of the world economy. The age of extraction is upon us, and we cannot progress without overcoming it.

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What precisely is meant by the term “extraction”? It refers, technically, to the taking of wealth far in excess of the value provided by goods and services. It is the experience of paying an outrageous price for a last-minute airline ticket, paying huge rent for a tiny apartment or working for low wages at a highly profitable corporation. It is sellers on Amazon paying over US$57-billion a year to show up in the “sponsored results,” a new example of valueless extraction. It is the unrestrained exertion of economic power, and as it has spread, it has become the curse of our age.

Consider the story of the internet economy, a clear example of where things went wrong over the last 25 years. In 2000, it was widely assumed that this new and marvellous technology was going to make everyone rich and spread democracy to every country on Earth. At a minimum, it was going to be the rising tide that floated all boats. Part of that was thanks to a magical invention called “the platform” – the neutral host that would help everyone run their own businesses or help creators find their audiences. “Here comes everybody” was how pundit Clay Shirky put it back in 2008.

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No one will deny that the platforms are incredibly useful and convenient. And there have been those who, over the last 25 years, have managed to convert their hobby into a successful business or at least record some fun videos. But by and large the winners of the platform age were the tech platforms themselves. The platforms that were originally meant to host and catalyze the economy became engines of extraction on a scale and with an efficiency never seen before – not just of money, but also data and precious time and attention.

But the extraction economy is not limited to the internet. Across industries, businesses now follow the same playbook. If the old idea was to make a great product and sell it, the new idea is to find a position of power over your consumers or others in the chain and exploit it to the maximum extent possible. It works best in industries like housing, telecommunications, pharmaceutical drugs and other essentials, but the approach is everywhere.

The rise of these business models yielding sustained corporate profitability and private wealth accumulation has revealed the great hole in the “third-way” thinking of the 1990s and 2000s. The good part of that approach was the provision of social safety nets – something Canada still does better than most. But the bad part was the idea of blindly allowing some firms and individuals to accumulate unseemly profits and wealth, based on the premise that taxation could fix inequality later. You might call it the “tax later” fallacy.

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Using an economic metaphor that transfixed a generation, many said it would be better to grow the pie first and redistribute it later. That metaphor was irresistible, as it relieved politicians of any guilt associated with allowing the unrestrained growth of a new billionaire class. But the pie was never cut, and the redistribution never came. The reason was simple: those who accumulate wealth and economic power rarely give it up willingly. Given that wealth yields political power, the more accumulation, the less likely redistribution becomes.

By the 2010s it had became obvious that many of world’s economies had become unfair and top-heavy. When I worked in the Obama White House, our economists first began taking the inequality problem seriously in 2015 or so, just as one might notice a hole in the ozone layer.

All this may sound dispiriting, but understanding where the third way went wrong is key to our future. It makes clear that good intentions are not enough. We need greater structural limits on the extractive power of essential businesses – to allow others to thrive. What is needed can best be termed an architecture of equality.

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The tech platforms provide a good test case. While providing undeniably useful services, they are taking too much from the rest of the economy. Legislation should prevent discrimination and self-preferencing, and put a price on data extraction – and in some cases cap excessive fees. The idea is not just consumer protection, but also to provide incentives for other businesses, including Canadian businesses, to make a better return. Less take by the platforms will incentive investments by local business with greater confidence that they shall reap what they sow.

But the problem is not limited to tech. Every industry haunted by extractive monopoly needs countermeasures to prevent an unlimited take. We would never allow private toll bridges nor electric utilities to charge any price or discriminate between customers. That same spirit needs to animate a new age of limits to private power.

Voters everywhere –not just in New York City – feel the affordability crisis and feel the economy is unfair. Yet there remain some in Canada, Great Britain and the United States who think the old Clinton/Blair/Martin approach still works fine. They would tolerate monopolistic accumulation of wealth and hopefully, one day, redistribute that money. Unfortunately, the last 25 years have shown that approach a failure that risks fuelling the rise of populist dictatorship.

The 2012 classic How Nations Fail correctly predicted that extraction by a wealthy elite is a path to downfall and dictatorship. That’s why a government devoted to the long-term prosperity of its people must limit and balance economic power, in an equivalent to political checks and balances. By doing so, we can offer hope and prosperity to a new generation that would like a fair chance at being at least as well-off as their parents.