By Frank Pasquale, a Professor of Law at University of Maryland Francis King Carey School of Law. Originally published at Law & Political Economy; cross posted from openDemocracy
As digital firms move to displace more government roles over time, from room-letting to transportation to commerce, citizens will be increasingly subject to corporate, rather than democratic, control.
Economists tend to characterize the scope of regulation as a simple matter of expanding or contracting state power. But a political economy perspective emphasizes that social relations abhor a power vacuum. When state authority contracts, private parties fill the gap. That power can feel just as oppressive, and have effects just as pervasive, as garden variety administrative agency enforcement of civil law. As Robert Lee Hale stated, “There is government whenever one person or group can tell others what they must do and when those others have to obey or suffer a penalty.”
We are familiar with that power in employer-employee relationships, or when a massive firm extracts concessions from suppliers. But what about when a firm presumes to exercise juridical power, not as a party to a conflict, but the authority deciding it? I worry that such scenarios will become all the more common as massive digital platforms exercise more power over our commercial lives.
A few weeks ago, the Friedrich Ebert Stiftung (a think tank affiliated with the Social Democratic Party in Germany) invited me to speak at their Conference on Digital Capitalism. As European authorities develop long-term plans to address the rise of powerful platforms, they want to know: What is new, or particularly challenging, in digital capitalism?
My answer focused on the identity and aspirations of major digital firms. They are no longer market participants. Rather, in their fields, they are market makers, able to exert regulatory control over the terms on which others can sell goods and services. Moreover, they aspire to displace more government roles over time, replacing the logic of territorial sovereignty with functional sovereignty. In functional arenas from room-letting to transportation to commerce, persons will be increasingly subject to corporate, rather than democratic, control.
For example: Who needs city housing regulators when AirBnB can use data-driven methods to effectively regulate room-letting, then house-letting, and eventually urban planning generally? Why not let Amazon have its own jurisdiction or charter city, or establish special judicial procedures for Foxconn? Some vanguardists of functional sovereignty believe online rating systems could replace state occupational licensure—so rather than having government boards credential workers, a platform like LinkedIn could collect star ratings on them.
In this and later posts, I want to explain how this shift from territorial to functional sovereignty is creating a new digital political economy. Amazon’s rise is instructive. As Lina Khan explains, “the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it.” The “everything store” may seem like just another service in the economy—a virtual mall. But when a firm combines tens of millions of customers with a “marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house…a hardware manufacturer, and a leading host of cloud server space,” as Khan observes, it’s not just another shopping option.
Digital political economy helps us understand how platforms accumulate power. With online platforms, it’s not a simple narrative of “best service wins.” Network effects have been on the cyberlaw (and digital economics) agenda for over twenty years. Amazon’s dominance has exhibited how network effects can be self-reinforcing. The more merchants there are selling on (or to) Amazon, the better shoppers can be assured that they are searching all possible vendors. The more shoppers there are, the more vendors consider Amazon a “must-have” venue. As crowds build on either side of the platform, the middleman becomes ever more indispensable. Oh, sure, a new platform can enter the market—but until it gets access to the 480 million items Amazon sells (often at deep discounts), why should the median consumer defect to it? If I want garbage bags, do I really want to go over to Target.com to re-enter all my credit card details, create a new log-in, read the small print about shipping, and hope that this retailer can negotiate a better deal with Glad? Or do I, ala Sunstein, want a predictive shopping purveyor that intimately knows my past purchase habits, with satisfaction just a click away?
As artificial intelligence improves, the tracking of shopping into the Amazon groove will tend to become ever more rational for both buyers and sellers. Like a path through a forest trod ever clearer of debris, it becomes the natural default. To examine just one of many centripetal forces sucking money, data, and commerce into online behemoths, play out game theoretically how the possibility of online conflict redounds in Amazon’s favor. If you have a problem with a merchant online, do you want to pursue it as a one-off buyer? Or as someone whose reputation has been established over dozens or hundreds of transactions—and someone who can credibly threaten to deny Amazon hundreds or thousands of dollars of revenue each year? The same goes for merchants: The more tribute they can pay to Amazon, the more likely they are to achieve visibility in search results and attention (and perhaps even favor) when disputes come up. What Bruce Schneier said about security is increasingly true of commerce online: You want to be in the good graces of one of the neo-feudal giants who bring order to a lawless realm. Yet few hesitate to think about exactly how the digital lords might use their data advantages against those they ostensibly protect.
Forward-thinking legal thinkers are helping us grasp these dynamics. For example, Rory van Loo has described the status of the “corporation as courthouse”—that is, when platforms like Amazon run dispute resolution schemes to settle conflicts between buyers and sellers. Van Loo describes both the efficiency gains that an Amazon settlement process might have over small claims court, and the potential pitfalls for consumers (such as opaque standards for deciding cases). I believe that, on top of such economic considerations, we may want to consider the political economic origins of e-commerce feudalism. For example, as consumer rights shrivel, it’s rational for buyers to turn to Amazon (rather than overwhelmed small claims courts) to press their case. The evisceration of class actions, the rise of arbitration, boilerplate contracts—all these make the judicial system an increasingly vestigial organ in consumer disputes. Individuals rationally turn to online giants for powers to impose order that libertarian legal doctrine stripped from the state. And in so doing, they reinforce the very dynamics that led to the state’s etiolation in the first place.
This weakness has become something of a joke with Amazon’s recent decision to incite a bidding war for its second headquarters. Mayors have abjectly begged Amazon to locate jobs in their jurisdictions. As readers of Richard Thaler’s “The Winner’s Curse” might have predicted, the competitive dynamics have tempted far too many to offer far too much in the way of incentives. As journalist Danny Westneat recently confirmed,
Chicago has offered to let Amazon pocket $1.32 billion in income taxes paid by its own workers.
Fresno has a novel plan to give Amazon special authority over how the company’s taxes are spent.
Boston has offered to set up an “Amazon Task Force” of city employees working on the company’s behalf.
Stonecrest, Georgia even offered to cannibalize itself, to give Bezos the chance to become mayor of a 345 acre annex that would be known as “Amazon, Georgia.”
Note that these maneuvers–what Tracey Kaye calls “corporate seduction” via tax and other incentives–are not new. But as they accelerate, they mark a faster transfer of power from state to corporate actors. The mayors are in a weakened position because their tax revenues are not high enough to support high quality municipal services, and now they’re succoring a corporate actor with a long history of fighting to push taxation even lower. Similarly, the more online buyers and sellers are relying on Amazon to do their bidding or settle their disputes, the less power they have relative to Amazon itself. They are less like arms-length transactors with the company, than they are like subjects of a despot, whose many roles include consumer and anti-fraud protection.
Even the federal government may soon privatize critical procurement functions, relying on Amazon’s giantism to extract deals that the Defense Department is itself unable to demand. Procurement premised on public purpose could contribute to a Green New Deal. When it is, instead, premised merely on the cheapest cost, it’s an open invitation to continue the same unethical sourcing that has plagued so much government purchasing.
Solutions to Amazon’s power will, no doubt, be hard to advance as a political matter—consumers like 2-day deliveries. But understanding the bigger picture here is a first step. Political economy clarifies the stakes of Amazon’s increasing power over commerce. We are not simply addressing dyadic transactions of individual consumers and merchants. Data access asymmetries will disadvantage each of them (and advantage Amazon as the middleman) for years to come. Nor can we consider that power imbalance in isolation from the way Amazon pits cities against one another. Mastery of political dynamics is just as important to the firm’s success as any technical or business acumen. And only political organization can stop its functional sovereignties from further undermining the territorial governance at the heart of democracy.
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Whenever I think of Amazon, I ask myself “Did Jeff Bezos actually enjoy reading books?”. Then I find lists like this:
https://www.bookicious.com/jeff-bezos/
and know the answer is “no”.
But The Mythical Man-Month and Black Swan are classics.
“Consumers like 2 day deliveries”
Yes, in pursuit of convenience, consumers will trade/are trading their democratic freedom in return for corporate totalitarianism. Classic “governor governing with the consent of the governed” scenario. I’m reminded of a line I once read about power being “something that’s given, not taken” and with respect to ushering in an era of said corporate totalitarianism, consumers are giving power hand over fist to corporate behemoths in pursuit of, I say again, convenience. I get convenience, I hand over power, what could go wrong?
Who knew that all it took to become king of the world was offering the peasants cheap toilet paper delivered within hours? Alexander the Great must feel pretty dumb about now.
I find it extremely hard to believe that my fellow citizens are so willing to allow people like Bezos to grab so much power when all they need to do to stop it is not click the little button on their phone and go to the damned corner store. But here we are.
Because those little buttons on the phones seem to make people lose their minds. People think that if it’s done by clicking a button it must be revolutionary, even though for example the actual service Amazon provides is basically just a giant catalog and Uber’s, a cab service. Nothing new here, just the platform you use to order. Even Charlie Stross, who is one of the smartest guys I’ve read, fell for this a little bit in the article linked to yesterday about breaking the future. In the beginning he claims that all the dog food ads that follow him around are wasted because he’s a cat person, and yet later in the piece he claims algorithms are going to decide our politics for us because everyone is so easily duped by them – everyone except him that is. Yes politicians dupe people all the time – that’s what they do – but it isn’t revolutionary just because the propaganda was delivered by clicking a button to get to a phone app.
I really don’t know what the solution here is – critics of Amazon are beginning to feel more and more like modern day Cassandras.
And yet we should continue to warn – beware of geeks bearing gifts.
“Those whom the gods will kill, they first make mad”… and such is our madness with rushing to embrace every new shiny bit of technology that it might just foreshadow our civilization’s eventual demise, killed as it was by its God, technology. The solution may just start, as you mention, with going to the damn corner store but how many people, once sucked into the world of copious amounts of convenience, served on time every time, are going to do that? My guess is not many.
I find it extremely hard to believe that my fellow citizens are so willing to allow people like Bezos to grab so much power when all they need to do to stop it is not click the little button on their phone and go to the damned corner store. But here we are.
This choice becomes less and less available the more that Amazon’s dominance prevents brick and mortar stores from competing. A couple weeks ago I went to three stores trying to find a particular product. I found that the stores only sold the product online. So I sold out my principles and bought it on Amazon because it was $20 cheaper.
Note, however, that thousands of products available on Amazon aren’t actually sold by Amazon, but by third-party sellers. Amazon skims off the top by charging fees, but another company or individual is also profiting. I can’t decide whether that makes it OK.
A friend of mine sells DVDs on Amazon and makes more money doing it than she made as a VP level exec. On the other hand Amazon is making it much harder to do in various small but cumulative ways and she is probably going to be driven out of business before much longer.
If the little clicky-buttons are keyed into results which result in ever-more brain-pleasure dopamine releases, then the button clickers become brain-physically addicted to the dopamine releases. Dopamine is not an opiate, obviously. But it can become a cerebrally-produced bio-addictogen. And the designers of the clicky-button devices appear to be programing, coding and engineering to foster that multi-barbed hookfest of addictogenesis.
At some point the clicky-button dopamine addicts don’t have any free will any more. They will just have to hit bottom in their millions or billions. And we will see what happens next.
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The non-addicted will have to make very sure that influence-by-example runs very rigidly one way only, from the non-addicted to the addicted. The non-addicted may well have to air-gap their lives from the addicted, including from the addicted friends and loved ones whom the non-addicted may know personally. At the very least, the non-addicted may have to create survivalist safe-room life-kernels into which they can silently retreat . . . unseen, unknown, unreachable, unfindable.
The operation has been a complete success doctor, the transition from citizen to consumer is complete. The outcome should not surprise given the advertising-propaganda machine’s century of escalating indoctrination now at saturation point. Mad men indeed.
Early on in the last century when it was considered wise to turn the public’s airwaves over to for-profit-broadcasters and let advertising revenues drive programming the seeds of destruction were sewn. The ubiquity of advertising is now so dominant and invasive we must train ourselves not to see.
Willful blindness becomes a necessary component of survival in the capitalist world; we block out the flashing ads, step over the homeless and maintain an oblivious ignorance regarding the swathes of destruction visited on other parts of the world by the great war machine.
As a deliberate protest against this outcome, I refuse to use the word “consumer.” I will use “people” as a broad generic, and “citizens” in more specific situations where citizenship is a relevant matter.
We are human beings, and defined by human functions and needs, not simply mindless eaters.
I’m glad I’m not the only one offended by the constant use of “consumer” to rob people of agency.
Absolutely, consumer implies some one passive
as in only purchasing what is available, why citizen
implies some one active as in making a point of voting
and taking part in civic affairs. Thee oligarchs and their minions
would be much more happier if we saw our selves as the former.
You are a citizen, till you need toilet paper, a suit case, a blender, or some retail therapy. Then you are a consumer!
Fraibert, That’s excellent. And the noun to describe the collective of citizens?
Civic, civics? society, societal?
And what is deleterious to it?
How about “Civic Decay”, which is a verb that nicely describes what the techbros like Bezos et al are doing to our society. That seems better than “Societal Rot”…
I would suggest a third word as well. Something like “conserver”. Or “de-consumer”.
>Willful blindness becomes a necessary component of survival in the capitalist world
https://undenial.files.wordpress.com/2016/01/my-desire-to-be-well-informed.jpg
Two clever dudes, Ajit Varki and Danny Brower came up with the MORT (Mind Over Reality Transition) theory and wrote a book about it in 2013: https://www.scientificamerican.com/article/mind-reviews-denial/ (Danny has since died)
So, in broad strokes: What separates a human brain from a corvid, cetacean, or other primate brains? Why are none of them so successful (if that is the term)? There are two factors, that individually are detrimental to evolutionary success, but taken together are selectively advantageous:
An advance Theory of Mind – too advanced leads to realization of personal mortality. That takes the zing out of spreading genes! Those other candidate species have a pretty good theory of mind, so why are we alone?
Denial of Reality – duh, not good in general, but if you can deny death, then the advance TOM is pro adaptive.
More here: https://un-denial.com/2017/06/16/by-ajit-varki-mind-over-reality-transition-the-evolution-of-human-mortality-denial/, including an entertaining twenty minute exposition by Dr. Ajit Varki.
What separates a human brain from a corvid, cetacean, or other primate brains? Why are none of them so successful (if that is the term)?
If we’re talking evolution I find the half jest theory that humans evolved towards a certain kind of stupid, interesting. The curious ancestors who wanted to know what made saber tooth tigers tick or thought they might want to see what the stars looked like over the next hill rather than sit around the campfire picking over yesterday’s bones, were the ones more likely not to pass their genes on.
And that’s how humans populated the whole world? Went from one end of the Americas to the other, on foot in new territory, in maybe a thousand years?
I don’t think so.
In reading this article I was put in mind of the future as depicted in the 1975 film “Rollerball” (https://www.youtube.com/watch?v=aPeHqCfRNk0). Putting aside the violent game displayed, this was a future where the corporations have supplanted the nation state and I quote: “Rollerball’s action takes place after the world’s nations have gone ‘bankrupt,’ and after the destructive ‘Corporate Wars’ have come and gone. Now, corporations ‘take care of everyone,’ and the violent, team sport of Rollerball has been created by big business to remind people of ‘the futility of individual effort.’ The goal of the corporations is to be essential to every individual’s life, and for ‘the few’ to make important decisions on ‘a global basis.’ See the page at http://reflectionsonfilmandtelevision.blogspot.com.au/2012/02/cult-movie-review-rollerball-1975.html for much more but in reading it, I wonder if this is the future that our corporations wish for.
It seems that a Nebraska state legislator wants to carve out a 36 square mile chunk of the state and allow corporations to set up their own sovereignty. Businesses located in this area would not be subject to any laws, rules, regulations, or taxes other than those that are self-imposed.
https://www.rawstory.com/2018/01/republican-lawmaker-wants-carve-up-nebraska-so-corporations-can-run-their-own-tiny-tax-free-states/
Great place for my germwarfarepornographytoxicchemicalfentanyl factory! The race to the bottom is a loser’s race. We can ask, when will people learn, but the those making the choices are materially benefitting. We, the non-benefitting-simpletons, need to stop these things before there’s no turning back.
Galt’s Plateau?
Also, think Peter Thiel’s “Seasteading” delusion.
mpalomar at 10:53 am, thank you for that fine comment.
More Ohio Amazon workers relying on food aid [Policy Matters Ohio]
So, Ohio’s
chumpscitizens supply SNAP and the first responder services to Amazon’s workers,but don’t get to collect the taxes or fees to pay for them.
Brought to you by the serious, deeply religious, fiscal conservative John Kasich.
From the point of view of a working person affected negatively by them, if they are nation states, is it reasonable to declare war on and attempt to destroy them?
In the case of Amazon, this dynamic is also about corporate leverage beyond e-commerce, including major contracts and functional ties with the DOD and intelligence arms of federal government, control of influential news media that can be applied to shape policy and discipline politicians, and ubiquitous listening devices popping up in the kitchens of ordinary families. It is also in part attributable to the damage that decades of neoliberal policies, failure to enforce predatory anti-trust laws, tax forbearances and government subsidies, globalization, extraordinary levels of targeted Wall Street financial support, and rising economic inequality have wrought on the former middle class of this country that causes the political leaders of cities and states who are desperate for jobs in their respective jurisdictions to dance to the corporate tune.
We have been fortunate that the individuals behind this company are both remarkably talented and seem to be fundamentally decent people. But what about their successors? And is it really wise to vest so much bandwidth in any single entity?
Who knew that “Fahrenheit 451” was really about streaming electrons at room temp?
When I first looked at the title my minds eye saw:
There are many news savvy people who were in quite economically stable positions who knew – or now know – better about what a Ghastly and now frighteningly CIA/DOD connected and economically powerful person Bezos’ is and they quite willfully chose their own convenience and penny pinching. Frankly, they ought to feel ashamed of themselves. They need to take a walk through Seattle’s homeless encampments, for just one thing. (And, no, I’m obviously not talking about anyone who desperately needed something utterly unavailable or unaffordable and chose Amazon as a last resort.) A short excerpt from the above linked article:
I bleakly await a major solar storm, what in the world do people think will happen when that arrives and their entire lives are conducted in the electronic ether for their own convenience and cost cutting at other human’s expense? And how are so many supposedly educated people so willfully ignorant about the nightmares now going on for those who have little to no online access or electricity?
I love the thread comments started at Thuto’s first comment above, along with a lot of Thuto, et al’s other commentary I’ve read.
No John Galt would or really could make the extensive, long-term, often risky investments which lead to creations like the Internet. The government invented and developed the infrastructure Jeff Bezos rides and exploits in his efforts to hold dominion.
A gloss over the history of the growth and evolution of the Internet at least suggests some public benefit to the inventiveness of entrepreneurs as they discover new ways of exploiting and organizing human commerce, social interactions, job filling and job seeking …. The Market — to the extent there is a ‘market’ of sorts in an older meaning of the term — does help select winning and losing approaches for exploiting the Internet for a wide variety of purposes. However I am not so sure the madness and waste of the turn of the century Internet bubble or the massive destruction of small business and undermining of the Post Office are necessary or beneficial. Certainly no same person would want to live in the world according to Jeff Bezos.
Is there some way to enjoy the benefits of capitalism — its manifold inventiveness and organizing capability — without letting the most rapacious pirates reap all the rewards from creations like the Internet while they use those rewards to buy our government outright and wreck destruction on the life, liberty and broad pursuit of happiness in our country and in the rest of the world? Communism tosses the baby out with the bath-water and Capitalism — devolved into Neoliberalism — seems determined to crush the bathtub — what Socialism means seems too vague to counterpoint either Communism or Capitalism.
I think 21st Century humankind suffers from a grave deficit of philosophy as it faces existential threats.
Great article.
An excellent example of the need for a federal job guarantee that pays a living wage with benefits.
The convenience is great but it should have this to compete with as a baseline.
This is the invisible hand of Adam Smith at work. It can also be called “fashion”. But it is simply because it is so popular that it is a threat.
If Bezos is caught with his hand in a secretary’s drawers, then his business will suffer badly.
All this doom and gloom is laughable!
Think of this instead: In Eden, mankind ate no meat as the energy reaching plants meant all the vitamins and amino acids were provided by leaves, fruits and roots. But now and for the past 6,000 years, we have had green light powering green chlorophyll…. when Purple light was far more efficient. The Sun will soon jump a Quantum to Green, reducing chlorophyll efficiency further. All life will suffer unless we develop say orange cholorophyll.
Bayer masks on digital cameras have 2x as many green results as R or B. This shows we have green light, yellow from Eden and blue from our sky.
There are those who appear to have a built in sonar for detecting any uttering of criticism reflecting the despair of billions who don’t – and never will – take part in the benefits of their stunningly electrified, elite, entitled and homogenous world at the expense of others; at which point, they – or their bots – show up to snicker at the outrage despair and inhumanity.
Perhaps they’re worried, as the damn cannot hold much longer.
Another hint, in regards to:
They always have an obsession with ‘primitive’ life forms, implying that humans were a disease ….
yet, they are never suicidal – despite the fact that they are the ones who have instituted the current reality – and never consider themselves to be the actual DISEASE.
One of the apparent key assumptions in this article by Pasquale is suspect:
“But a political economy perspective emphasizes that social relations abhor a power vacuum. When state authority contracts, private parties fill the gap.”
I would argue that it is generally not the case under contemporary neoliberalism that actual State authority contracts. As Mirowski has argued, the confusion of marketization of government functions (in this case the creation a potential Amazon Defense Department procurement platform) with the shrinking of the State masks the State’s continuing power under the cover of such a marketization process.
Amazon might end up with a monopoly or duopoly control of $53 billion in federal purchasing but the Defense Department itself may also end with with even more powerful control over that same revenue stream, in part by using the argument that they are able to get a better deal for the average citizen under such a private monopoly/duopoly platform.
We cannot trust our political class (both public and private actors) to act in our interests. They have revenue flows to protect and control ( to enable bank bailouts when necessary and an economic platform for endless wars).
This type of consolidated joint sovereignty will only last until it is finally seen collectively as largely an illusion that can be dismantled once each of us takes steps to withdraw our willingness to put up with such compromised and corrupted leadership.
We must never forget that such sovereignty and power has an important subjective dimension–that might crumble surprisingly quickly if we begin to shift our allegiance to ourselves.
oh my, Jim,
dare I ask, what does shifting allegience to ourselves mean, is that an oxymoron?
that was left wide open, does ourselves mean: us,/i>, a particular we, or billions of MEs
most of us are social (even when we deny it), we require, and stay alive for, others in our lives …
Hi D
I was trying to isolate the subjective dimension (our individual consciousness and agency) and its role in sovereign power, suggesting that the reason why we accept such power is not that we necessarily support it but that we tend to perceive it as an objective and unchangeable condition (in both the public and private spheres).
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Thank you so much for the response JIm, I think I get what you’re saying now.
I like the viewpoint. A few rocks in the roads. AirBnB has been banished to the rubbage bin in a number of cities. The same for Uber/Lyft. Amazon has similarities to Sears company from 60 years ago. Anyone providing a product to Sears would be confronted with an offer they could not refuse, sell your business or we will stop selling your product. Amazon or off shore vendors now do the same.
As in Brexit, unelected officials in Belgium drove enough people in Britain to walk out on the EU. Direct control by profit making corporations drives the same push back. Government by K-street, political contributions and revolving door careers tends to conflate the politics of control and slow down the dehumanization of government.
You do not get things you don’t ask for.
Cities, people, they need leaders who will
stand up for them and ask for the respect
they will require.
Lot of people I know will defeat themselves
sitting in a chair.
Thinking all so far ahead.
Most interesting NC post/comments thread ever?
“Chauncey Gardiner”,
For three days now I ‘ve been utterly horrified and mulling over what you wrote, regarding Amazon/Jeff Bezos (if I’m wrong, please correct me, as the subject was centered around Jeff Bezos’ Amazon™) here:
I mean do you even – IN PERSON – want to ask the homeless in Seattle and the surrounding area about that? After all those he has economically crippled and far worse, in an ugly world where lack of money means death, how is it that you note We have been fortunate that the individuals behind this company [….] seem to be fundamentally decent people????
The Amazon story isn’t over by a long shot. Currently they barely make a profit and once they have to pay not only State taxes but also municipal taxes like county and city (which they don’t yet) we will see where they are at.
Furthermore, Amazon has a huge “Achilles Heel” when it comes to logistics and their policy of Amazon Prime free delivery. Hopefully the day will come when the USPS charges the correct amount for last mile delivery and all those UPS and Fedex drivers finally unionize and go on strike.
The same goes for the sweat shop warehouses that Amazon euphemistically refers to as Fulfillment Centers. Kind of Orwellian – I don’t think that the people that work there are particularly fulfilled.