🌌 Reshaped #13

Big Tech and national champions, AI threats, startup layoffs, NGOs in Tanzania, microplastics records and much more.

May 09, 2020

Welcome to a new issue of Reshaped, a newsletter for those who do not want to miss a thing about the huge transformations of our time.

It was an intense week, so expect a longer news section. I am curious to know your opinion on national champions: does it make sense to break up Big Tech when Chinese companies can benefit from the support of the state?

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News

Business and Finance

🚗 Uber is investing $170 million in scooter startup Lime, which is lying in bad financial conditions (CNBC). However, this seems strange as it happens while Uber is laying off 3,700 people, about 14% of its total workforce (The Guardian). Not least, Uber and its main competitor Lyft were recently sued by the state of California for having misclassified their employees as independent contractors (The Wall Street Journal). In the meanwhile, the company has postponed its profitability target to an undefined quarter in 2021 (TechCrunch).

✂️ Airbnb is cutting 25% of its workforce (about 1,900 people), in an attempt to reduce labor expenses by $400 to $500 million (The Verge). However, there might be signs of recovery for the company — whose revenues are estimated to fall by 50% in 2020 — thanks to the European market (Financial Times).

📃 WeWork sued SoftBank for refusing to finalize the $3 billion shares buyout as previously agreed (CNN).

🤝 Despite a negative trend in M&A deals, Liberty Global and Telefónica have agreed to merge their units in the UK to form a telecommunications giant worth $39 billion, the biggest in the country, with about 46 million customers (The Wall Street Journal). It is the biggest deal since the start of the pandemic, but not the only one of the week. To improve the offering of MobilEye, Intel acquired Israeli mobility startup Moovit for $900 million (ZDNet); the company recently had an excellent growth path until it reached 800 million users worldwide — mainly commuters.

⏳ Self-driving car startup Zoox is for sale (The Information). The company is valued at $2.7 billion and, like many other startups in the months to come, will have to deal with stricter IPO conditions (see chart below by CB Insights).

💰 Fintech startups continue to raise funds. Robinhood raised a new round worth $280 million and is now valued at $8.3 billion (TechCrunch). Similarly, digital bank N26 raised $100 million to improve its customer base and further expand its business in Brazil (Bloomberg).

🎩 Negotiations have started between the US and the UK for a new trade deal aimed at strengthening the current commercial relationship between the two countries (The Guardian). Food and healthcare — two dominant topics in the national British debate — will be at the core of the talks (Politico).

Science and Technology

📡 Fusion reaction can be stabilized thanks to radio frequency waves and temperature, which could be a solution for the longstanding problem represented by magnetic islands (Popular Mechanics).

🌖 NASA is planning to establish a base on the Moon, with the aspiration to make the first step towards a stable human presence there (Universe Today).

🌳 Planting trees is a generous social initiative but a naive political move, as it often fails to be seen as a long-term project to be managed over time (Science).

To realize the potential benefits of increasing tree cover, it is essential that tree-planting projects include thorough goal setting, community involvement, planning, and implementation, and that the time scale for maintenance and monitoring is sufficient.

🌊 The level of microplastics in the oceans is the highest ever recorded, according to new research by a consortium of universities (ScienceDaily).

🎖 Do we need national champions?

In the debate on free markets and antitrust enforcement, there is a question that often remains unanswered: do we need powerful, gigantic companies to compete with Chinese conglomerates? In other words, why should the US break up Big Tech companies while China actively supports its national industries? Would it be a fatal move for the West? This debate seems to fall in the precise category of “national champions” versus the free market.

National champions are (usually large) corporations that benefit from the support of the state because of their strategic role in the functioning of the economy, in the innovation of their industry, or in the landscape of international relations. In exchange, those corporations should run their businesses in the interest of the state. Typical examples of countries that implemented a national champions policy are France under Charles de Gaulle (during the so-called Dirigisme) and Russia under Vladimir Putin. However, pursuing such a policy means interfering with the competitive dynamics of free markets by allowing (and sponsoring) the existence of monopolies or oligopolies with strict ties with public institutions.

In the last year, this argument has been mentioned by executives from some of the major tech companies in the US, from Cheryl Sandberg (Facebook) to Eric Schmidt (Google) and Sundar Pichai (Google, see video below). They claim that antitrust should not be enforced to break up Big Tech for three main reasons: the role of those companies in the progress of society, the fundamental benefits of scale, and the emergence of China. State capitalism supports Chinese companies in many ways and it would be hard for smaller US tech companies to compete, with negative effects not only for businesses but also for consumers.

To some extent, it seems that both China and the US are playing a chicken game: the first to hinder the path of their national champions towards market dominance could pay the consequences for decades. The US knows that China is not likely to swerve anytime soon; hence, it is reluctant to swerve as well. Notice that, for China, swerving means ending state capitalism, while for the US it means enforcing antitrust law against Big Tech. However, this perspective fails to address two fundamental issues. First, as perfectly illustrated by Shoshana Zuboff in The Age of Surveillance Capitalism, allowing those companies to achieve monopolistic market dominance to the detriment of national and international competitors could be dangerous for democracies and for consumers. Second, antitrust could be beneficial for US companies in their competition with Chinese giants.

In any case, it is evident that China is in a different stage of the cycle relative to the US. The support provided to national promising companies is partly due to the political structure of the country, but also to the need to do what developed countries have done decades ago: building strong national industries with specific trade regulations and tailored internal support, especially regarding publicly funded R&D. US companies are in a different stage: they have already benefited from the risks taken by the state in financing new industrial sectors and innovations. Now they should be able to play as dominant players in the world market — which they actually do. Just take the cloud market as an exhaustive example: Chinese companies Alibaba and Tencent control less than 10% of the global market, while the rest of it is controlled by US corporations.

However, there is a basic misunderstanding that makes this debate nothing more than a public lobbying activity. The original concept of national champions is based on an active role played by the state. This happened in the US with IBM and Apple, for instance; and it happened in France, where the culture of national champions is still very strong today. However, it seems to me that what Big Tech is demanding right now is just more laissez-faire — no negative influence (antitrust enforcement) on industries by the state. The reciprocity of the national champions model is totally forgotten to the point that many fear that Big Tech could replace governments (even if not formally) in the near future.

Maybe it is necessary to counterbalance the potential threat represented by Chinese companies, but two things are certain. First, it cannot be an argument in favor of weakening antitrust enforcement, since Big Tech would be big enough to continue to operate in international markets as a dominant player. Second, governments and societies cannot accept a solution based (again) on trickle-down economics and laissez-faire. On the contrary, the state should play a bigger part in the innovation ecosystem to support tech companies and pretend to be rewarded to foster new innovations. In this case, antitrust could be a useful instrument to restore fair relationships and power dynamics in the US and in the whole Western world.

Alternative perspectives

🦾 On Scientific American, William Davidow and Michael S. Malone argue that AI should be restricted to very narrow domains, being too risky for humankind. The authors mention the risks of authoritarianism emerging from surveillance states and the possibility for private groups — formal, like corporations, or informal — to control human behavior.

We think a better approach is to make AI less powerful. That is, not to control artificial intelligence, but to put it on an extreme diet. And what does AI consume? Our personal information. If AI systems and the algorithms in charge of “virtual prisons” cannot get their hands on this personal information, cannot indulge their insatiable hunger for this data, they necessarily will become much less intrusive and powerful. How do we choke down the flow of this personal information? One obvious way is to give individuals ownership of their private data. Today, each of us is surrounded by a penumbra of data that we continuously generate. And that body of data is a free target for anyone who wishes to capture and monetize it. Why not, rather than letting that information flow directly into the servers of the world, instead store it in the equivalent of a safe deposit box at an information fiduciary like Equifax? Once it is safely there, the consumer could then decide who gets access to that data.

I am skeptical about one key assumption of the authors, namely that the development of AI is as quick as described. However, it is undeniable that new structures of power are being built around so-called AI systems, whatever their technological level or advancement. From the article, two extremely important topics emerge, which I will cover in two distinct future issues:

The vicious cycle of AI and the new role of antitrust in defending economic liberties;
The new forms of data governance that regulators should start testing at scale.

🌿 On The Conversation, Dario Kenner makes the case for raising income and inheritance taxes on the richest to finance the transition to a low-carbon economy, as the UK did after World War II. According to the author, nudging is not enough to address the huge challenges linked with the green revolution, as the French case shows.

The UK’s millionaires and billionaires hold more responsibility for climate change as a result of their lifestyles and investments. One study estimated that the average greenhouse gas emissions per person of the richest 1% in the UK is equivalent to around 147 tonnes of CO₂, compared to an average of four tonnes for someone in the poorest 10%. One of the reasons that the rich have larger carbon footprints is because they fly further and more often than the average person. The richest 1% also invest their wealth in companies whose operations are highly polluting.

🌍 On Africa Is a Country, Khalifa Said criticizes the role played by NGOs in Tanzania during the coronavirus emergency, especially for being unfit to challenge the measures taken by the government.

Nearly every action taken by national governments throughout the world in their efforts to contain the spread of COVID-19, and thus to save lives and communities, goes directly against the dictates of neoliberal fundamentalism. For a number of decades, advocates of this ideology would propose murderous cuts in public spending on critical sectors like health and education. In addition to the breakneck privatization of public services was the massive growth of NGOs whose missions varied widely; from those advocating for government accountability and democratic institutions to those championing girls’ rights, citizens’ agency, and countless others providing services. This is no coincidence. The missionaries of neoliberal evangelism have been pushing for the social services provision role of governments to be replaced by NGOs and private individuals, arguing that this will ultimately improve service efficiency for governments.

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