Tech Platforms and the Knowledge Problem

My notes on Pasquale, F. A. (2018). Tech Platforms and the Knowledge Problem. American Affairs, 2(2)

The most philosophically important aspect of Hayek’s work was his epistemological objection to central planning. He argued that the market was indispensable because it permitted distributed knowledge of a sort which a centralised decision maker couldn’t possibly hope to reconstruct. In this short paper, Frank Pasquale considers the renewed possibility of centralised planning which emerges when private tech giants have a gods eye view of consumer and business activity within their domains. As the examples he cites illustrate, this involves business-to-business as well as business-to-consumer insight:

Having logged and analyzed billions of transactions, Amazon knows intimate details about all its customers and suppliers. It can carefully calibrate screen displays to herd buyers toward certain products or shopping practices, or to copy sellers with its own, cheaper, in-house offerings. Mark Zuckerberg aspires to omniscience of consumer desires, by profiling nearly everyone on Facebook, Instagram, and WhatsApp, and then leveraging that data trove to track users across the web and into the real world (via mobile usage and device fingerprinting). You don’t even have to use any of those apps to end up in Facebook/Instagram/WhatsApp files—profiles can be assigned to you. Google’s “database of intentions” is legendary, and antitrust authorities around the world have looked with increasing alarm at its ability to squeeze out rivals from search results once it gains an interest in their lines of business. Google knows not merely what consumers are searching for, but also what other businesses are searching, buying, emailing, planning—a truly unparalleled matching of data-processing capacity to raw communication flows.

There is a parallel integration taking place in finance and insurance who increasingly operate in the manner of the platform. As he writes, “finance and insurance firms not only act as middlemen, taking a cut of transactions, but also aspire to capitalize on the knowledge they have gained from monitoring customers and providers in order to supplant them and directly provide services and investment”.

We now confront “a hierarchical, centralized regime, in which corporate power is immense, and in which large national apparatuses of regulation seem to be the only entities capable of reining it in”. What he calls populist localizers, Jeffersonians,  want a new era of antitrust to break up the tech giants, whose concentration they see as impeding new entrants and further technological innovation. In contrast the Hamiltonians argue that scale is essential to technological development (e.g. machine learning) and that we simply need to update our regulatory frameworks to take account of these new developments. Though Pasquale’s suggestion interoperability standards could address their concern is an interesting one e.g. by allowing diverse social networks to interconnect in the manner of mobile telephone networks.

This doesn’t follow a left/right divide. As he notes, a critic like Evgeny Morozov frames tech giants as natural monopolies which “get better and better at each task they take on when they have access to more and more pooled data from all the tasks they perform”. This is a reason to socialise them rather than to break them up into smaller fragments which couldn’t cope close to replicating their functionality at scale. In contrast, the Jeffersonians existing within the boundaries of contemporary statism, calling on the Federal Trade Commission to break up a firm like Facebook. For Jeffersonians concentration of data seems like a private data monopoly. For Hamiltonians it seems like a necessary measure to secure the data and mitigate the risks it generates. Understanding the basis of this disagreements rests on what a platform is:

The largest, most successful firms of digital capitalism tend to serve as platforms, ranking and rating other entities rather than directly providing goods and services. This strategy enables the platform to outsource risk to vendors and consumers, while it reliably collects a cut from each transaction. Just as a financial intermediary profits from transaction fees, regardless of whether particular investments soar or sour, the platform pockets revenues on the front end, regardless of the quality of the relationships it brokers.

This casts them in the role of policing the platform and adjudicating disputes, described by Pasquale as functional sovereignty when a private firm takes on functions previously confined to the nation state. They tend to assume these issue can be resolved through automation and generally take an absentee approach to what they manage. But this doesn’t matter under current antitrust law which seeks to protect competition, not competitors. The only concern is whether prices are going up or down. As Pasquale explains, this short-termism fails to take account of how superior offerings might have been in existence were it not for the competitive advantage of big tech:

To see the practical effects of this obsession with the short-term, imagine searching for “weather” in Google, and instantly seeing its own weather forecast filling your mobile screen. Had it linked to three forecasting sites in that precious screen space, it might have directed more exposure and advertising revenue to sites with diverse interfaces, more or less information, or other variations. For example, the site WeatherSpark used to give a beautifully precise image of storms’ movement over time—the perfect visual analogue to AccuWeather’s minute-by-minute forecasts of rain or clear skies. But WeatherSpark no longer offers that service, and who knows how many other start-ups gave up on occupying this space. To establishment antitrust authorities, there is no ground to intervene—consumers get the basics of weather from Google’s interface, and it is free. It’s a short-termist outlook that omits long-run considerations in the name of a presentist scientism. In their worldview, there is no room for argument about whether better or worse alternatives do or should exist. Antitrust is supposed to protect “competition, not competitors”—and a singular lack of concern for quality translates into profound lack of interest in whether current or future competitors could do a better job than a digital behemoth. But how can we know if there is competition, if there are no competitors to provide it?

For Hamiltonians the solution is not breaking up these firms but treating them as public utilities which can facilitate others. Regulators accepted the massiveness of power generation and phone networks but with the necessity of offering a countervailing power which could control their operations. In fact the centralisation of big tech could even be a beneficial thing in the move towards taking public control:

In a recent podcast, the socialists of Chapo Trap House joked that they were happy to see Amazon consolidate power. Once it takes over every business in the country, it will be easy to “cut off the head” and simply impose government control over the economy. “Free Whole Foods hot bar for everyone!” was the imagined denouement. Similarly, if all the private health insurers in the United States merged, the stage would finally be set for “single payer”: the government need only take over the one insurer left standing.

The Hamiltonian vision “can be the economic equivalent of geoengineering—an embrace of the radically new and large-scale, arising out of the sense that inequalities and climate change are such massive problems that only rapid technological advances can solve them”. In contrast to the precautionary principle of the Jeffersonians who question “whether any entity should accumulate the power necessary to, say, compare everyone’s genomes, convert millions of workers’ movements to patterns of behavior programmable in robotics, or maintain social credit scores on all citizens”. Interestingly, Pasquale places some of the blame on the expectations of investors:

Investors demand a fantasy of monopolization: that their firm not merely occupy a field, but develop “moats” against entrants in order to guarantee both present returns and future growth. The day-to-day reality of operational budget constraints, however, pushes the same firms toward the pathologies of absentee ownership.

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