Beware Centralization
overcomingbias.com
overcomingbias.com
— It doesn’t really matter if those eyeballs are satisfied or not. There is no transaction taking place.
— Most eyeballs can’t really leave, since service is free and all their friends are here.
— There’s nowhere to leave to anyway, as new companies can’t compete with “free” (unless they are extraordinarily well-funded. As in, by a nation-state).
— If eyeballs complain and make $platform be regulated by the government (forcing some sort of user representation, oversight of habit-forming tech use, etc.), all the better—targeted regulation would lend it the status of a public good, implying approval, solidifying its already almost-monopoly. Meanwhile, business model will find its way as user representatives and lawmakers are lobbied, regulations can’t keep up with the tech, and politics proliferate.
The root problem is that users are tricked into thinking they are customers of a service for which they are not paying. This is at odds with the way the market is supposed to work.
If we take away this trick—the core idea where a platform survives off advertiser money—we might just be able to finally let the market do its job, move towards heterogenous social tech landscape and vote with our wallets rather than being exploited.
That's why governments need to mandate interoperability of social networks, using ActivityPub and similar protocols.
As a consequence:
1) fully-featured third-party cross-platform client software allows users to transition across platforms more easily,
2) platforms start bleeding users,
3) platforms start charging for service,
4) platforms become pipes.
There are implications, though:
1) big tech might find ways to pretend to be smaller entities;
2) this does not guarantee that user data privacy is respected, but ideally this creates a scenario in which the user is free to choose a more ethical provider;
3) client app security & ethics will become paramount, client apps will become valuable targets;
4) downgrade to pipes will end of the age of cool Web 2.0 platforms and grand social startups. Unfortunately, I don’t see any other way—this business model is user- (society-?) hostile yet addictive, and there seems no other way around it apart from WeChat-like nationalization which is objectionable for a whole other chunk of reasons.
Possibly. If FB et al did, they would have to become a lot more responsive to users.
> 4) platforms become pipes.
Not sure what you mean by that.
It sounds nice in theory, but in practice I suspect such a regulation would at best accomplish nothing and at worst would be a disaster. How do you even define a "social network?" The regulation would either be too broad and wind up covering the comments section of HN, or too narrow and easy to evade. In all likelihood the outcome would be similar to GDPR -- the big companies that inspire it would have little difficulty with compliance while startups would find it that much harder to compete.
HN is clearly a social network. What I envisage is a regulation that applies to social networking and user-generated content sites with greater than a certain number of users, e.g. 1 million.
Obviously there shouldn't be onerous regulation on small sites.
"User representation" sounds nice, but I wonder how that would work in practice. After all, there is "citizen representation" in modern democratic governments but most decisions are being architected by closed door committees free from competing ideas as well.
One of the examples that comes to mind is the battle of activists with ICE. ICE is a government agency, so activists, being citizens, at least in theory have a say in how it is run. Instead, one of their main tactics is shaming private companies for cooperating with ICE, which is kind of backwards if you take the idea of "citizen representation" at face value.
Should some kind of democratic process apply to such organisations?
> Should some kind of democratic process apply to such organisations?
I've wondered what would be some effective ways to add more user voice in the ownership and governance process of these platforms. Do you have any ideas?
I agree. I think one of the hardest things for most people when moving from one actual country to another is leaving behind the people and has been the hardest thing for me when I've decided to delete FB or stop visiting certain internet communities.
While there are many definitions of a state, I just learned that Max Weber defines it as "a human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory" [0]. This makes me think more about what a state would look like if it were a human community organized around a digital territory and what that means for the future (and present).
The obvious answer would seem to be structure them as cooperatives.
Allow service users to purchase shares at a nominal value, and restrict voting rights to one member one vote - that is, shareholder votes are not weighted based on how many shares one has, owning more shares would only enable one to earn more interest on the shares' capital.
Alternatively, all shares (or maybe just 50%+1) could be held in trust for the benefit of the users. Trustees would then have responsibility of taking users' needs in to account.
It's incorporated as a public limited company, but all of its shares are owned in trust.
Also, I think it might be underused right now because it's probably really hard for most people around the world to move to another country for various reasons: financial, social, linguistic, legal, etc.
I agree that moving countries can help people, I think it is currently a huge task for most and ironically, believe that better relationships between countries and an overarching form of governance may make it easier to do.
I'm curious how governance (not just government, but even governance of orgs and other platforms) adapts to a world that more and more abstracts away physical space.
Facebook may have business relationships with other private entities I use, and as a side effect receive some of my information, but Facebook is nothing like the government.
I also think most governments haven't regulated online interaction very much, for better or worse. Which means most online interaction is moderated/regulated/controlled by the platforms that host them. Yes, Facebook won't throw me in physical jail, however they could suspend or even ban my account. If I don't use it, not such a big deal. If it's the only way I communicate with 90% of the friends in my life and I run my business on there, it could be a huge detriment. They could even just tweak the algorithm of posting, without me knowing, and all of a sudden, my friends and family aren't receiving the messages I'm sending, without me knowing. Not just Facebook, but Amazon, Google, Visa, Stripe, Paypal, and many other platforms have huge power over our digital lives.
Is getting banned from Twitter the same as getting thrown in physical jail? Personally, in most cases, I don't think so. However, I still think these platforms can have a lot of power over one's life.
Leaving seems like almost zero representation to me. Now, it doesn't mean zero freedom, yes, people have freedom to leave. I just don't see that as representation.
Honestly, I'm not sure how it would look. I imagine it might feel different. I imagine I might feel a little more hopeful, instead of so helpless. A little more calm, less filled with dread. I imagine I might feel a little more relaxed, believing I have some say in a safety valve to keep the platform going, in case some leader takes it in a direction that most of us don't want.
I don't know if I'd even want direct democracy, where we users vote on feature prioritization and other nitty-gritty details, I may like some type of representative democracy.
I don't know. It may not look different but maybe it would feel different. Does that make any sense?
If Facebook makes you feel "helpless" and "filled with dread", then probably the most empowering choice is to stop using Facebook.
- Ronald Coase's "islands of conscious power"
- Herbert Simon "Organizations and Markets"
- Both of which I discovered via "The People’s Republic of Walmart" by Leigh Phillips and Michal Rozworski
A quote from Simon:
"The economies of modern industrialized society can more appropriately be labeled organizational economies than market economies. Thus, even market-driven capitalist economies need a theory of organizations as much as they need a theory of markets. The attempts of the new institutional economics to explain organizational behavior solely in terms of agency, asymmetric information, transaction costs, opportunism, and other concepts drawn from neo-classical economics ignore key organizational mechanisms like authority, identification, and coordination, and hence are seriously incomplete."
In my opinion the rise in "government intervention" can easily be explained by growing inequality and corporate power.
People blame symptoms instead of causes. Zimbabwe clearly failed because they printed money, they clearly didn't fail because the agricultural reforms destroyed their export industries and made them dependent on food imports, no way.
I appreciate this point and maybe that also contributed to my confusion at the conclusion which seemed pretty anti-government and inherently neutral or pro-business.
> People blame symptoms instead of causes.
The more I've thought about things over the last 1.5 years of covid and the Trump presidency, etc., I'm starting to think that we just blame people who we think are against us and make up stories and rationale to align with our "they're bad people" narrative. I think this often comes from a deeper, "I felt bad therefore this person made me feel bad therefore they are bad therefore they are the reason everything bad is happening in my life." And, as you mention, can cause us to focus on whichever symptom or belief of causality that aligns with that story, instead of overcoming our bias and trying to see how "good people" may have done "bad things" and "bad people" may have done "good things."
Also, I appreciate your points about the Zimbabwean economy and hyper-inflation, I have a 10 trillion Zim note somewhere in my house and remember taking a class on the agricultural policies of Zim at that time.
They can also start to buy other smaller orgs to relieve competitive pressure. They can also create lock-in policies to make it very painful for people to leave. They can also spend money on political advertising to play on people's fears that certain individuals or orgs are out to get them.
Government can also do this. I guess sometimes I just get confused why people seem to fear one and not both.
Whats important about any centralization-decdntralization debate is that its a Tradeoff, ALWAYS a tradeoff, between Convenience and Freedom (See Tim Wu's book Master Switch for more). No one side ever wins because both have value in different situations.
Look at covid as an example. Each govt comes out with its own vaccination, quarantine, treatment rules. This makes sense because they each have different capacities and resources. Singapore and Germany can do thing that Vietnam and Kenya cant.
Now if my job involves moving silicon chips and their raw materials through 8 countries every day, all of a sudden my work load has jumped 8x cuz I have to follow 8 different sets of rules. I say screw that shit cuz my salary isnt jumping by 8x. Next thing you know factories are shutting down and people are being let go. If you have built up enough clout over the years, you can pull different govt officials into a room and say lets solve this, and what then emerges is more standardized rules. You could say that has centralized things that were decentralized. But thats not the point cuz tomorrow you know the Germans, who strictly follow the standards, realize they can be improved but why wait around for agreement from everyone, lets add the new ones and you can see how the cycle restarts.
Things are always changing.
Seriously? I saw nothing in the article to argue why consolidation would yield to such ills, it kind of just assumed it.
Felt mostly like the article said: "why don't most firm consolidate? Well, maybe because it wouldn't end up so good? Maybe because the leader would fail to manage all of it properly?"
I don't know, the whole thing was so thin on actual analysis, data, examples, annectodes, logic, etc.
I felt it relied exclusively on the hope that you already are biased towards its conclusion to actually make its point.
For example, it could have at the very least brought up very large successful firms that have consolidated? Like most tech giants? Or media corporations? And tried to explain why they have done so?
(tech) giants might be successful, but the point is that they’re not as successful as they could be if they were loosely federated, more focused, independent companies. firms consolidate beyond the point of maximal economic benefit because of other reasons (at root, for power & status). the (lost) point being that this is suboptimal from a strictly economic perspective (same for overgrown governments).
I didn't see that point being made, I only saw it being affirmed without substantiated reasons.
Why do you believe they aren't as successful in their consolidated state as they would be in a seperated state? What data, annectodes, rationale, experiments, experiences, etc. lead you to believe this to be a generalized truth?
> but not of putting gov and corp on equal footing here
Same thing, I saw nothing to justify why whatever may be true of corporations somehow would similarly apply to a different context such as governments.
Why do you believe that what is generally true for a corporate model would be for a government? What data, annectodes, rationale, experiments, experiences, etc. lead you to believe this to be a generalized truth?
And in both cases, are there exceptions to these truths? Are their circumstances that are required for them to hold?
And if you're not going to walk me through the proof, at least make a case for why I should trust your assessment. Who are you and how much time and effort did you spend evaluating this? Did you do so in good faith? What did you do to make sure you challenged your pre-conceptions and didn't fall pray to bias? Did you have other people review your assessment? Were they themselves deep thinkers on the same topics? Do you have skin in the game? Did you test your theories in any way? Etc.
*Edit: fixed typo
The "ills" of the central planning department of the government getting too large result in gulags.
I disagree, as corporations can cause plenty of harm to people, whether physically or emotionally.
> The "ills" of the central planning department of the government getting too large result in gulags.
Yes, governments can have much more power over citizens, as moving from one to another can be much more difficult and the legitimacy to use violence to enforce, I agree. Maybe I just felt confused the original article didn't delve more into that, or maybe it did and I just didn't see the connection and it felt disjointed to me.
Government matter. Facebook is just another corporation.
Articles of incorporation are a legal concept granted by the state. The investment landscape is distorted by gov. interventions in the market. Access to investment capital, regulatory capture, Cantillon effects and other factors favor large corporations over the small.
In a truly decentralized market environment, large players and monopolists would have greater difficulty competing with new entrants.
Corporations cannot.
Again, I'm not saying losing one's online business is equivalent to being thrown in prison or many of the things governments can do to people, I'm just confused why people seem to be so afraid of the government getting too big and not also at least a little afraid of corporations getting too big.
"I'm just confused why people seem to be so afraid of the government getting too big and not also at least a little afraid of corporations getting too big."
I do think that even if companies/non-governmental orgs are causing the violence, that ultimately we often look to government to resolve the conflict and/or to protect us, and if they don't, then it becomes their fault for not doing so.
But again, overall, I'm not saying we shouldn't be afraid of governments wreaking absolute havoc and pain upon millions or billions of people, because, as you mention, "liberal democracies are but a hop, skip and jump away from autocratic dictatorial hell as history has shown repeatedly." Governments have harmed so many humans over the history of our species and I think it makes sense to be fearful they will get too powerful and do that. I just think it also makes sense to be a little afraid that corporations/other orgs will get large enough and powerful enough that they could also do damage to us.
One thing I'll say about modern gangs, however, is that they're in large part caused by governments. The high murder rate in South America is downstream from puritanical government drug restrictions in North America. Gangs will still exist even without perverted incentives provided by government, it's true, but governments are part of the picture here.
Your point about the slave trade is a good one and it just shows that corporations - and people in general - do need at least a minimalist government to protect individual rights.
I guess the more that I've thought about running for office, and more so, actually governing, the more that I've started to see how government can get blamed for so many things, direct and indirect. For example, some company moving overseas and laying off its employees, and people blaming the government because it didn't prohibit the company from making that move and protecting people from that company, more so than being angry at the company. Almost like being more angry at the parent who doesn't protect us from our sibling than the sibling who is hitting us.
Anyways, I appreciate our back and forth, thank you for helping me see things a bit differently.
That's not violence. "Emotional violence" is a contradiction in terms.
Oh and commit violence against you, although maybe not as easily in America these days. It used to be they could and it could become that way again.
Though, my understanding is that they are still not allowed to control nuclear weapons, so I'd still put them in sub-government levels of dangerous.
If the US government does... a lot of people get very badly hurt in the process.
Also, governments die all the time, there was a revolution in Afghanistan like three weeks ago, the new government hasn't even picked its flag yet, are you under a rock?
I agree corporations don’t claim certain rights that governments do at present - the right to kill citizens (sometimes without trial), the right to tax their income (though they do impose transaction taxes). So they are limited at present but not so much as you imply.
Information is powerful and exerts huge control over our lives.
But at the end of the day, even if FAANG help the government do a bad thing, it’s still the government doing a bad thing. Making FAANG the primary focus of our ire enables the government to continue to do those same bad things. And the bad things FAANG can do pale in comparison to what the government can and does do.
Again, it’s not a binary choice. But it’s why some people worry more about the government than large corporations.
To be clear, i agree it's not a binary choice and considerable amounts of bad things come out of governments too. Or if you like memes, you may enjoy: https://i.imgur.com/CkOr542.jpg
Corporations control the government.
The bad things that corporations do are much more immediate and common.
When a government does something bad, in practice it is often just failing to protect people from corporations. For example, the parent mentioned providing clean air and water; however, the most likely scenario where that doesn't happen is a corporation polluting the environment.
When the government does bad things (or more commonly fails to prevent bad things from happening), the consequences tend to correlate with inequality.
On the other hand, others see this power and want to use it. Thus recently we see a lot of "they are a private company, they can do whatever they want" when somebody likes how they handle some situation and "they have become too powerful, they need to be regulated" when somebody doesn't like that. This is a kind of a game where whoever makes facebook do their bidding wins, and facebook itself is reduced to maneuvering between various demands and interests without much agency of their own. That's quite scary as well.
My guess is this will end up with some kind of quasi-censorship regime, "voluntarily" installed by facebook (because, you know, first amendment), so that they can continue to collect their ad dollars unmolested. The beginnings are already there - various fact-checkers etc.
It's basically the same argument that the people making tools available have no responsibility for what users do with them (which is BS). The tools of misinformation are out there and being widely used and Facebook made them available. It's important that they take responsibility for that.
Indeed how did nation states get their legitimacy? They took it by force and impose it by force on those who disagree.
There is nothing natural or immutable about our current power structures or nation states.
Now if Facebook promotes division and misinformation... just because you don't log onto Facebook, doesn't mean it has no impact on your life.
Also, technically Adobe killed Flash, not Apple. Adobe could have liberated the technology at any point to address Apple's issue, or continued without iOS support. Adobe decided to pull the plug because they're a greedy evil corporation like any other and don't care that people depend on things or create cool stuff with those tools.
Maybe I misread the ending of the article and that the author meant that we should worry about the centralization of any org, and more so about the centralization of government orgs.
fwiw, that’s what I got out of it.
Maybe what hit me harder was the last line and the presumption that 1) it is a historic increase in the scale and depth of government management of society and 2) that we are also not seeing a large amount of corporate centralization. Maybe I perceive more corporate centralization than government centralization, as platforms have hundreds of millions or billions of users across 100+ countries, and I recall my 2005 political science class talking about the rising influence of multinational companies over nation-state governments.
Previously, governments had an area of influence of roughly a few days travel from their centers of power: their area of influence was as large as their army's capacity to crush dissent. It's a "new" development in the history of humanity that you cannot be safe anywhere on earth: even in a remote forest/mountain, the government can come and massacre your community very quickly.
(In most countries, they'll most likely just tear down your houses [0] and imprison you, because that's less likely to cause popular uproar)
[0] Even a pretend democracy like France has strong regulations mandating to break people's homes. And french police/préfets are very involved in persecuting ethnic minorities (eg. Rroma people) and other "light housing" folks.
A while ago there was a thread here on HN about how WhatsApp had got quite big in Brazil. The particular thing I remember was that apparently, in some school districts, you'd have to be on WhatsApp to get information about your kids' school. If not mistaken, this was at the time when the new privacy policy was being rolled out, with threats of being cut off from the service if you didn't accept it.
The school can only communicate via so many platforms, and they're likely to choose the biggest ones in their area. So when you're banned, or for some other reason can't or won't go on them, then it's a problem.
Of course, the bigger point is that maybe this kind of services shouldn't transit only through social media but should be available in an open way, but I won't hold my breath, at least for the time being.
You suggest that life without _any_ social networking platform would be bad. All of human history before Y2K would suggest otherwise.
There are lots of ways (even on the Internet) to socially network without using Facebook (or whoever you currently think of as a Facebook compeditor).
Or, dare I suggest it, socialising without the Internet?
Prior to centralized social networks, there were _many_ tools that have been abandoned since. For instance, you would have smaller internet boards dedicated to a specific hobby or a geographic area (many of these died out). Before that, you had fanzines, local community congregation points like bars and such. But those either disappeared, or their use changed (e.g. bars as a point to meet existing friends rather than to make new acquaintances).
It is a common pattern for new technologies to displace existing tools, which means that people refusing the new technology usually end up in a worse situation than before the technology appeared.
In addition, socializing is often at least somewhat "competitive". If you are less able to network then you will be at a disadvantage when seeking a job. If you are more difficult to communicate with, then you are likely to be left out of group decisions; even if by accident. If you are advocating a political position, then not having access to the most popular communication platforms is a major handycap.
I haven’t used my Facebook (that I made in like 2007) in a few years, and I finally got around to deactivating it a week ago.
Doing so was painless—it’s all voluntary, of course, and I have plenty of (healthier) avenues to maintain relationships with my friends and family.
But the same doesn’t apply to my country! I can’t painlessly “deactivate” my citizenship and be rid of the government whenever it does something bad.
De-Googling your life is annoying, but not impossible. De-United-States-ifying your life is… way different :)
They may not be able to tax or put people in jail directly, but with lawyers, lobbyists, and DMCA takedowns they can achieve similar results.
They can hire lobbyists to affect government policy like immigration, environmental protections, and war.
I'm less concerned about what happens if Facebook fails than what happens if Facebook succeeds.
Note: "Facebook" used as a placeholder for any mega-corporation.
Dating sites that start out free then once they have captured the market squeeze it dry, LinkedIn does much the same, etc. etc.
If you cancel your LinkedIn or Tinder account, nobody is going to throw you in jail. Even if you just stop paying.
They’re wildly different.
The US Government isn’t the one providing your income.
Bouygues and Vinci can, siphoning off billions of public money into the pockets of the already insanely rich billionaires of the ruling class.
> They can’t tax me or put me in jail.
Corporations won't collect your taxes themselves, because the State's armed hand is here for that. They have a price tag on everything, and if you don't agree with their unjust rules and prices for basic services (food, electricity), cops will come and seize your belongings.
Many prisons across the globe are operated privately, and it's not unheard of to have private police. Many multinationals employ militias to kick away local inhabitants (to steal their resources/land), and get whistleblowers/activists/journalists murdered.
> They’re can’t put migrant children in cages or drone strike weddings.
Who builds the cages for children? Who benefits from quasi-slave labor due to strong anti-immigration laws? Who profits from selling drones and missiles to the military? Corporations, usually owned by people very close to the government.
> They’re not responsible for making sure our water and air are clean.
Corporations are responsible for polluting our air and water. Facebook, in particular, has enormous data centers just to archive/surveil everyone. Also corporations are sometimes responsible for maintenance of public infrastructure, which to my knowledge they never do well (see Veolia scandals in France for example).
> Facebook can’t Brexit. If Facebook fails, life goes on.
No, but they've got a propaganda apparatus sufficient to convince millions of people to.
> If my government fails, life is going to suck. A lot.
It doesn't have to, and could in fact be a great source of hope! Your government is the reason why life sucks in the first place. They are the people and institutions supposed to represent the people (cough cough) that enabled vampires to bleed the whole population dry in the first place, all the while polluting everything so that future generations won't even have clean water. Abolishing corrupt governments and any form of centralized power, which have shown time and time again to be useless to protect the weak against the powerful, could be the start of something better and more beautiful, an actual democracy without a center and without psychopaths running the show because nobody would hold power over somebody else (the actual definition of a democracy).
In fact, I would generalize more than the article’s thesis: “large organizations considered harmful”.
Any large organization, be it a company or a government or even an NGO, will inevitably lose efficiency as it grows larger, and will lose focus on its original purpose in favor of the purposes of the people with decision making power in the organization.
I find it interesting that people on the left in general tend to believe the worst of corporations and have more confidence in government, and people on the right have the reverse views in general.
In my opinion, both have some potential for tyranny; it’s just a little easier (not much) to deal with recalcitrant corporations, and sometimes you have a choice of corporations to interact with.
This is because they're competing coalitions. If you want to build a garbage F-35 for a trillion dollars*, the trillion dollars will come mostly from corporations and capitalists. If you want increased media consolidation and to keep your Hollywood movie studio cartel protected from competition by upstarts, you want regulatory capture and a lot of international treaties to launder your draconian copyright laws through, i.e. less government antitrust enforcement and less government autonomy.
*This is, in actual fact, an underestimate. Somehow.
Both of those things are bad, but the people who want them both want to control the government in order to institute them. The beneficiaries of having the government not do either of those bad things would be the public at large. They're diffuse and unable to effectively organize, so there is no political party representing them.
And notice that I just provided an example of "the right" wanting wasteful central government spending and "the left" acting in the interests of multi-billion dollar corporations. Because they're not principled ideologies, they're heterogeneous opposing political coalitions.
I can dream right? Imagine this: Rather than a basic income or a salary in fiat issue some kind of shares to the employees/citizens. You need 100 to get a full vote (50 for half etc) and you get dividend for each share.
If the value of the share declines (as we keep issuing new ones) the amount issued and the amount needed for a full vote are gradually increased and the dividend decreases.
Then, rather than a single vote for someone you also get a single vote against someone so that popularity alone doesn't win elections.
Have a very simple certificate that one must obtain in order to vote that teaches the absolute bare minimum about each candidate.
Finally, lets no do single elections but allow people to change their vote whenever they like with a higher amount of votes required for getting in than for getting out.
But they do control the soapbox. They can simply silence you, without any due process. They can divorce you from your social network.
It’s not that Facebook can’t do bad things, it’s just that there are reasons why you might be more worried about the government doing bad things and therefore talk about it more (like in the article).
Yet governments are directed by citizens through a democratic process unless they are dictatorships.
Workers and customers don't vote in private companies. They function as dictatorships.
If propaganda and manipulation was a weapon, Facebook would be a social nuclear bomb.
Which is to say that Facebook effectively acts as a government agency (maybe they could call it the "Ministry of Truth"?)
[0] https://www.newsweek.com/biden-administrations-admission-the...
* That the forces present in the US's current agricultural system are not government-driven;
* That the government and corporations are entities of a kind, and centralization in one can be used as a parable against the other without any further contextualization;
* That we don't have ample, concrete evidence of the exact opposite outcomes predicted (i.e., developed, social democratic states that exercise central control over the food chain to the direct benefit of quality, safety, and public health).
I don't understand why anyone would want a weak central government. Who's going to be there to bail out corporations during the next crisis?
All my comment implies is that I wish to read such deep analysis, and unfortunately the article didn't provide one. I'm hoping other people can reply with links to much better literature on the topic of consolidation versus seperation in business and politics.
> So why don’t firms merge to get larger?
But they do. Most industries/sectors trend toward consolidation. Specific examples that come to mind are radio, agriculture, banking, and tech. I did a quick search and found [0], which describes a general tendency toward consolidation as industries mature.
One major reason for consolidation (ignored by the author) is economies of scale: as volume increases, the cost per unit decreases.
On the other side, the author ignores benefits of central control for some things. For example, private railroad companies used to have different gauges for their railroads in order to protect their routes, but that led to unnecessary inefficiencies.
Also, governments have a different mandate than the private sector. Governments are charged with pursuing citizens' values (freedom, equality, security, etc.), but for private sector companies, their goals boil down down maximizing profit.
This reminded me of the discussion about how "mature" companies often struggle to innovate. The thought was that as companies mature, they tend to get larger and that size forces them to focus more on "maintenance" than innovation. So the way they "innovate" is by acquiring smaller companies (who are still in the innovation phase), resulting in eventual consolidation until a major disrupting event.
There's a lot of profits in making cars, but Canada, Switzerland, Finland etc. even if they are relatively advanced countries, don't make cars. It's technically feasible, but really hard especially due to necessary scale and specialization.
i do heartily agree with the concluding paragraph that the general public seems largely unaware of these issues, to our collective detriment.
And even in the recent pandemic, it was the NHS that discovered treatments like dexamethasone and tocilizumab thanks to an innovative and large scale A/B testing system that is much more difficult to set up in decentralised systems.
- "In fact firms do not do this." — In fact firms merge all the time.
- "The typical scale of most firms seems far smaller than can be explained by these effects." — No reason is given. Italics do not constitute an argument.
- "It seems obvious to me that by now such a food agency would have intervened in food production, processing, and distribution far more extensively that has been the actual case in our actual history." — Not at all obvious, and again no evidence or even any argument is given.
- "The amazing thing is that all this would happen even with high quality oversight and accountability by agencies to politicians, and politicians to voters." — The amazing thing is that the author thinks he can state this prediction without basis of any sort.
There are good reasons to beware centralization, but this piece is simply lazy. This gets an F. Show your work.
https://en.wikipedia.org/wiki/Preferential_attachment
Consolidation of any type of thing (e.g. Wall Street and financial systems) can become very fragile and many of the guards against failure (risk models) cease to be valid the moment you have preferential attachment.
From an economic standpoint There are a bunch of downward pressure on corporate size:
Capitalism doesn’t like companies that are too mangled with inefficient divisions - investors have portfolio goals and they can’t use a company in their portfolio that doesn’t signal like it’s industry. The more merged a company is, the more likely some divisions are to carry other divisions instead of returning money to stakeholders, the less attractive it becomes, the more likely their focused competitors are to get the big retirement fund allocation instead.
Historically, Corporate Managers love few things more than more people under them, and lots of cash for toys on the budget. So in the 80s you had fat corporations with lots of cash at hand and private jetting. That triggered massive PE and leveraged buyout activity. Now companies know better than to stay cash ladden, because activist investors are hunting for fat corporations to LBO, especially with low interest rates out there. By this point, however, the fat is mostly gone.
Centralization only helps with utilities, which is why if monopolies become too central to life in a country, they risk turning into one and then having profits capped.
Feedback on quality is and always will be king and any giant is vulnerable to nimble and responsive competitors of higher quality.
A) The word 'centralization' is consistently misapplied by the tech crowd, in almost all cases, the term is 'monopoly' (or oligarchy or monopsony) and these are well understood and studied concepts in economics.
B) The term 'Economies of Scale' is what he's inadvertently alluding to, but he's missing where most of the advantage of it comes from. Yes 'redundancy' is one artifact, but there are two bigger issues 1) specialization and 2) market power. When you're really big, you can start to afford to hire people to do things that competitors cannot, that might give you a big advantage. Most of real R&D falls into this category. So many applied 'AI' things are coming out of R&D divisions of big companies. 'Market Power' is a more abstract concept, but when you're large, you can make much stronger demands. Mondelez, P&G are big enough that they can plow through many competitors with all sorts of tactics: they get better prices and displays in-store, they have much bigger marketing budgets, they can sell at a loss in one corner to stifle a competitor, they can lean on buyers and distributors (i.e. buy them and you don't get our product) etc..You can think of Mondelez and P&G as 'owning' production and distribution. Apple is a 'Monopsony' for certain parts, and it has incredible leverage over it's supply chain and reaps most of the surplus profits from innovation in those supplying it.
C) Many firms simply do not benefit from economies of scale i.e. roofers, carpenters, most kinds of law etc. but most do, however, the US has relatively speaking, much more people employed in 'big companies' that not - and that's what makes it rich. In fact this is a defining feature of 'Rich Europe' aka Germany, UK, Netherlands vs. 'Less Rich Europe' aka Poland, Spain: 'Rich Europe' has many more people in mid to larger companies. In many industries, you have to be at a certain scale to compete effectively.
We generally don't like monopoly because the investors will tend to sit on an industry and extract rent as opposed to doing anything risky and actively block others from participating.
What’s the solution here? Decentralisation doesn’t seem to compete well with centralised alternatives. Perhaps this will change with the latest wave of pro-decentralisation?
Perhaps the problem is making competition the axle around which the world revolves.
They never considered that you also introduce more risk.
Why would a public service for food have less diversity and innovation? A public service is operated by individuals, and doesn't have to be centralized or hierarchical.
I agree with the point that reducing competition (by enabling cooperation) can be very efficient. But i strongly disagree it has to lead to centralization and therefore less options. If anything, capitalism leads to less choices because you need big money to even exist in a certain consumer space. There is currently no avenue for "garage innovators" to innovate and spread their products... a public service could (if not operated USSR/USA style) foster cooperation and innovation across the board.
Of course a perfect firm/government will perform better than the free market. That's why firms exist.
Libertarian ideologues tend to have blissfully little knowledge or appreciation of the difficulties of scaling and effective management. Big firms sometimes underperform because scaling human organizations is a fucking hard problem, not because "centralization bad".