When a firm delivers enormous wealth to a handful of its top executives and shareholders at the cost of a large insecure workforce, society is divided into two dichotomous groups: Those who are part of the innovation economy (lords) and those who aren't (serfs)
The past two decades witnessed unprecedented growth of some technology giants. The large economies that exist in digital industries have often led to oligopolistic structures in which a few emerging players dominate large shares of the market. The prominent four players — Amazon, Google, Facebook, and Apple — together have a market capitalisation of $2.8 trillion (GDP of India), a staggering 24 per cent share of the S&P 500 top 50, and close to the value of every stock traded on the Nasdaq in 2001. They have not only succeeded in creating enormous wealth that has helped millions of families across the planet to earn economic security, but also transformed how we shop, search, and socialise on the six-inch pocket-friendly device.
We have this general perception that these tech giants must be creating a lot of jobs, whereas, in reality, they have a small number of very high paying jobs. For instance, Procter & Gamble, with a market capitalisation of $202 billion, employs 95,000 people. Intel, a new-economy firm that could be more efficient with its capital, enjoys a market cap of $209 billion and employs 1,02,000 people. Whereas, Facebook, boasting a $ 527 billion market cap, employs only 25,000.
Uber set a new low with $68 billion spread across only 12,000 employees. Uber manages it by creating a two-class workforce, where its “driver partners” act as contractors. By keeping them off the payroll, Uber’s investors and 12,000 white-collar employees do not share any of the company’s $68 billion in equity. Besides, the firm is not burdened with paying health or unemployment insurance or paid time off for any of its two-million-strong driver workforces.
In fact, when Uber filed for its initial public offering (IPO), its S-1 filing stated, “Our business would be adversely affected if drivers were classified as employees instead of independent contractors.” The scramble for IPO is partly driven by investors and founders looking to cash out at the highest possible valuation before labour laws catch up with them and potentially break the model that has given them their multibillion-dollar valuations.
While billions of people derive significant value from their galaxy of feature-rich products, disturbingly a few reap the economic benefits. This business model is excellent for consumers like you and me, who get cheaper, faster, and more technologically advanced services, but what about workers who generate revenue by driving and biking day and night? Are the workers an afterthought in this economy? One could argue that the drawbacks of workers employed on these platforms far outweigh the benefits. There is no job security. There is the stress of unpredictable income. There is a reliance on algorithms to get work and rating system that keeps every one of them on their toes.
While it is not yet clear whether the market power these large players enjoy is a temporary or inherent feature of internet markets, this does raise distributional questions; we are witnessing a scenario, where substantial gains in productivity are no longer getting translated in higher incomes — a clear breach of “social contract” espoused by advocates of liberal economics.
Moreover, the generation of economic value from low-cost unpaid labour each time a user turns on their device and accesses computer-mediated networks raises additional questions about who ultimately benefits from this new form of digital capital.
Big tech companies have dumped an enormous amount of wealth into the laps of a small cohort of investors and incredibly talented workers — leaving much of the workforce behind, perhaps believing that a majority of them will be content streaming video content on an extraordinarily powerful mobile device.
There is no denying a trend, where a disproportionately high amount of wealth generated by higher productivity primarily through technological advancement is going directly to the owners of these technologies.
The significant consequence of this can be seen where wages, in general, are no longer playing the pivotal redistributive role that it has historically played so far. This has resulted in the rise of a new socio-economic class usually employed in platform-based companies like Amazon, Uber, Flipkart, or Snapdeal.
A majority of people belonging to this class are insecurely employed as a part-time employee with zero hour contract. Due to their precarious employment status, they never feel financially secure to get themselves categorised as gainfully employed with full-time job security. As a result, paradoxically, despite growth in employment opportunities, the actual figure of people categorised under fully engaged with the security of a permanent job has seen a disturbingly southward trend. Due to the emergence of this phenomenon, probably for the first time in the history, we are witnessing an army of the workforce who are overqualified to fulfill the demands of low skill jobs available in these platforms based companies.
Let us attempt to see this entrenched paradox through the lens of one of these tech giants — Amazon. Amazon has successfully delivered enormous wealth to a handful of its top executives and shareholders. From its reliance on temporary workers to its investment in automation, Amazon’s vision of labour is one that seeks to shift its profits to an ever smaller group.
A century ago, workers and unions waged hard-fought battles to end piecemeal work and grab reliable wages and salaries. Today, Amazon is eroding this basic agreement, and moving backward to adopt a 19th-century labour model that drives returns to the top at the expense of the rest.
Economists Jason Furman and Peter Orszag in their 2015 study suggest that growing monopoly power is allowing a few dominant firms to extract more income than they would earn in a genuinely competitive market, and allowing them to distribute those returns to their shareholders and top-level employees.
Every year in his letter to shareholders, Bezos includes a copy of the shareholder letter he wrote in 1997, Amazon’s first year as a publicly traded company. It’s often held up as an example of the clarity of Bezos’ vision even early on. “We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership position, the more powerful our economic model,” it read.
Amazon has posted an annual profit for only 13 of the past 21 years. Historically, it has plowed profits right back into R&D for robotics and image recognition. Besides, Amazon is integrated vertically across business lines. In addition to selling stuff online, Amazon now publishes books, extends credit, sells online ads, designs clothes, and produces movies and TV shows. It is also one of the world’s largest providers of cloud storage and computing power, renting server space to Netflix, Adobe, Airbnb, and NASA.
There’s no question that, nearly 20 years later, Bezos and his company have established a compelling economic model, attained a market leadership position, and succeeded in creating shareholder value. When a company comes to monopolise a market — when it grows so big that it can threaten other industries just by entering them — it ceases to be merely a company. It becomes an institution so powerful that it can rule over people like a government. The question now, however, is at what cost, and whether they’re creating value for anyone else, other than shareholders and top level employees.
An internet-based platform like Amazon presents a uniquely troubling form of private power. Unlike a traditional monopoly whose power stems from its control over the production and pricing of a single good, a platform draws its strength from its position as a kind of middleman, a broker that controls the relationship with producers and consumers alike. Once a platform reaches a critical mass of consumers, producers, or both, these groups become vulnerable to the platform’s control over standards and policies.
Since the turn of the millennium, firms and investors have fallen in love with companies whose ability to replace humans with technology has enabled rapid growth and outsize profit margins. Those huge profits attract cheap capital and render the rest of the sector flaccid. Old-economy firms and fledgling start-ups don’t even stand an outside chance of tasting success.
The result is a winner-takes-all economy, both for companies and for people. Society is bifurcating into those who are part of the innovation economy (lords) and those who aren’t (serfs). One great idea backed by a group of investors is capable of making a twenty-something the darling of venture capital, while those who are average or even just unlucky (most of us), have to work much harder to save for retirement.
Therefore, it’s high time policy experts got involved in making a list of prescriptions to address this paradox because the distortions created by tech giants are getting way too visible and disturbing.
(The writer is an IRS officer. Views expressed are personal.)