Fully Automated Luxury Capitalism? How Big Tech makes us richer, and why we underestimate it
12 September 2024
SUGGESTED
Markets and Morality
Economic Theory
Tax and Fiscal Policy
19 November 2024
The story of the British economy since 2008 has been one of near-stagnation. For a number of reasons, GDP growth in recent years has been nowhere near as strong as it could have been.
But there are a couple things missing from these figures. Firstly, when comparing output across time it, is very hard to account for quality and durability increases. For example, a new VW Golf in 1982 cost about as much as the average worker’s yearly salary. The same is true today. However, in terms of reliability, speed, fuel efficiency, emissions and safety (although arguably not in terms of style…) today’s Golf leaves 1982’s in its dust.
The other issue with this accounting is that GDP figures don’t take into account all the free services companies are constantly fighting each other to give us. A quick look on your phone may reveal apps for search engines, navigation, email, photo storage, word processing, entertainment, education, and an endless array of social media, all for free.
A 2023 paper from the National Bureau of Economic Research attempted to quantify how much all of this contributes to the economy. Researchers asked people how much they would have to be paid not to use these free services for a month to estimate how much value they bring to our lives. The paper came to the conclusion that just the 10 free applications they studied (including Twitter, WhatsApp, Google Search and Google Maps) resulted in a welfare gain equivalent to 6% of GDP. To put that into perspective, this is the same as total UK government expenditures on education and defence combined.
Not only this, but if we expressed those gains as a proportion of people’s incomes, it becomes clear that people on lower incomes benefit disproportionately. This means that, in effect, these services reduce inequality (even though we don’t see that in the Gini Coefficient, or any other standard inequality measure).
Of course, just because we don’t pay a fee for these services, it doesn’t mean tech companies don’t get anything in return for our use of them. To modernise the prescient words of Adam Smith: it is not from the benevolence of the big tech company that we expect our free maps and search engines, but from their regard to their own interest.
But even the actual costs we do pay, such as allowing the use of our data, and exposure to adverts, are tiny. We know they are tiny because of how little we’re willing to pay to remove them. It only takes minutes to switch to a different browser which blocks adverts and doesn’t collect data, but few of us do.
This does not mean that we are not still far behind where we could have been had we followed more pro-growth policies over the past two decades. It also is not meant as a criticism of GDP as a measure. It just means that GDP measures struggle to incorporate unpriced services.
When we take these services for granted it is far easier to demonise the companies which provide them. We are already seeing the effects this attitude has on public policy. If one day Google and Apple have to start charging for use of their navigation software, it won’t be the governments which have raised their taxes and restricted their ability to innovate which will receive the blame, it will somehow be the ‘greedy’ company executives, and capitalism in general.
The interesting thing is that there is a very large overlap in the Venn Diagram of people who vilify big tech companies (and, again, capitalism in general), and people who advocate for equality and for political systems which provide more stuff for ‘free’ (see, for example, Aaron Bastani’s Fully Automated Luxury Communism). Yet, ironically, it is Big Tech, and it is capitalism, which gives us lots of free stuff.
Economist Don Lavoie spoke of how the goals of everyone, including even the economic Left, might just be better met by relying on the merits of the free market. “It has been taken for granted that [to achieve its goals] the Left must rely on some form of national economic planning.” He continued: “I believe there is no question more urgent … to answer than whether planning is in fact an appropriate means to attain these goals.”
Perhaps the policy goals of those who prefer centralised economic planning may need some careful rethinking. The question of whether achievement of an ideological movement’s goals is more important than loyalty to the entrenched methods supposed to achieve these goals is an under-considered one. There is an important difference between advocating for a centrally planned economy and advocating for what one hopes a centrally planned economy will achieve.
None of this is to glorify big tech companies. They all have their issues and are probably deserving of some criticism. The point is that today’s ‘out of control’ capitalism disparaged by some people might just go a bit further in achieving their aims than they think.
Whether you favour centralised economic planning or not, free markets and free people are likely working to fix an issue you care about. For free.
But there are a couple things missing from these figures. Firstly, when comparing output across time it, is very hard to account for quality and durability increases. For example, a new VW Golf in 1982 cost about as much as the average worker’s yearly salary. The same is true today. However, in terms of reliability, speed, fuel efficiency, emissions and safety (although arguably not in terms of style…) today’s Golf leaves 1982’s in its dust.
The other issue with this accounting is that GDP figures don’t take into account all the free services companies are constantly fighting each other to give us. A quick look on your phone may reveal apps for search engines, navigation, email, photo storage, word processing, entertainment, education, and an endless array of social media, all for free.
A 2023 paper from the National Bureau of Economic Research attempted to quantify how much all of this contributes to the economy. Researchers asked people how much they would have to be paid not to use these free services for a month to estimate how much value they bring to our lives. The paper came to the conclusion that just the 10 free applications they studied (including Twitter, WhatsApp, Google Search and Google Maps) resulted in a welfare gain equivalent to 6% of GDP. To put that into perspective, this is the same as total UK government expenditures on education and defence combined.
Not only this, but if we expressed those gains as a proportion of people’s incomes, it becomes clear that people on lower incomes benefit disproportionately. This means that, in effect, these services reduce inequality (even though we don’t see that in the Gini Coefficient, or any other standard inequality measure).
Of course, just because we don’t pay a fee for these services, it doesn’t mean tech companies don’t get anything in return for our use of them. To modernise the prescient words of Adam Smith: it is not from the benevolence of the big tech company that we expect our free maps and search engines, but from their regard to their own interest.
But even the actual costs we do pay, such as allowing the use of our data, and exposure to adverts, are tiny. We know they are tiny because of how little we’re willing to pay to remove them. It only takes minutes to switch to a different browser which blocks adverts and doesn’t collect data, but few of us do.
This does not mean that we are not still far behind where we could have been had we followed more pro-growth policies over the past two decades. It also is not meant as a criticism of GDP as a measure. It just means that GDP measures struggle to incorporate unpriced services.
When we take these services for granted it is far easier to demonise the companies which provide them. We are already seeing the effects this attitude has on public policy. If one day Google and Apple have to start charging for use of their navigation software, it won’t be the governments which have raised their taxes and restricted their ability to innovate which will receive the blame, it will somehow be the ‘greedy’ company executives, and capitalism in general.
The interesting thing is that there is a very large overlap in the Venn Diagram of people who vilify big tech companies (and, again, capitalism in general), and people who advocate for equality and for political systems which provide more stuff for ‘free’ (see, for example, Aaron Bastani’s Fully Automated Luxury Communism). Yet, ironically, it is Big Tech, and it is capitalism, which gives us lots of free stuff.
Economist Don Lavoie spoke of how the goals of everyone, including even the economic Left, might just be better met by relying on the merits of the free market. “It has been taken for granted that [to achieve its goals] the Left must rely on some form of national economic planning.” He continued: “I believe there is no question more urgent … to answer than whether planning is in fact an appropriate means to attain these goals.”
Perhaps the policy goals of those who prefer centralised economic planning may need some careful rethinking. The question of whether achievement of an ideological movement’s goals is more important than loyalty to the entrenched methods supposed to achieve these goals is an under-considered one. There is an important difference between advocating for a centrally planned economy and advocating for what one hopes a centrally planned economy will achieve.
None of this is to glorify big tech companies. They all have their issues and are probably deserving of some criticism. The point is that today’s ‘out of control’ capitalism disparaged by some people might just go a bit further in achieving their aims than they think.
Whether you favour centralised economic planning or not, free markets and free people are likely working to fix an issue you care about. For free.
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