Enthusiasts of “the new economy” long cherished the notion that it would be different from the unenlightened, sluggish, and piggish older one. Yet our economy seems increasingly to resemble not some hippy capitalist utopia, but the deeply concentrated economy of pre-war Japan.
At the time, Japan had developed an economic model around a handful of large corporate conglomerates called zaibatsu. Organized as a “financial clique,” with a bank at the center, these firms extended their interests into virtually all economic activity. They included Mitsui, Mitsubishi, Sumitomo, and Yasuda. Mitsubishi led the way in shipbuilding, steel, and of course aircraft, being the creator of the famous Zero fighter.
Until bested by their onetime allies in the military, the zaibatsu dominated Japan. The war initially benefited them, but ultimately ruined their businesses as Japan was devastated. Yet they were so essential to the function of the economy that they were gradually rehabilitated during the U.S. occupation, recreating their historic pattern of using smaller firms as convenient subordinates.
Today we see the rise of a few companies, who have moved into virtually every aspect of our economy. The nerds of Silicon Valley are no longer just interested in gadgets to make life better but are seizing control of both the production and dissemination of information. Arguably the greatest beneficiaries of a pandemic that hooked people ever more on their products, the tech giants now have the capital to lead the drive into space and the forced march to electrical vehicles, while also looking into dominating more prosaic fields like healthcare and finance.
The zaibatu-ization of America’s economy presents an enormous problem of governance. Our constitutional structure is based on the notion of many competing players. When concentration became too evident, and politically potent, as during the early decades of the last century, measures were taken to slow, and even reverse, over-concentration. Yet in the past few decades, the largest emerging corporate interests—Meta, Google, Apple, Microsoft, Amazon—and a handful of large financial institutions gained unprecedented control over the economy. By last summer six tech firms, including Tesla, accounted for half the value of the NASQAQ 100. By 2020, the five largest tech companies had total revenue amounting to half of those of all state governments combined.
The new tech industry rose dramatically in the eighties. Achieving an almost mythological status, these companies faced few barriers to ascendency. Unlike corporate rivals in sectors like energy and telecommunications, there was little to prevent their hegemony over the digital domain. They have extended that rule to other fields in a way that would have made zaibatsu executives, or further back, powerful feudal daimyo envious. In virtually every key field— operating systems, social media, search, the cloud—a handful of firms now dominate. For example, Google and Apple account for nearly 90 percent of all mobile browsers worldwide, while Microsoft by itself controls 90 percent of all operating system software. Three tech firms now account for two-thirds of all on-line advertising revenues, which comprises the vast majority of all ad sales.
Small business are now waiting to be gutted. Amazon secretly mined sales data from independent sellers who were using the company’s e-commerce platform in order to guide Amazon’s development of cheaper knock-off products. Google has been fined billions of dollars for giving preferential treatment to its own shopping service on its search site and has been accused by one of its few competitors, the much smaller Duck Duck Go, of manipulating browser extensions to drive customers from rival products. Apple continues to place strict limits on who can join its App Store and how developers can receive money from apps.
Days of Innovation Past
We are a long way from the early days of Silicon Valley, a remarkable mashup of new and old companies, full of enthusiasts eager to build new products that often challenged the existing corporate hierarchy. I personally witnessed the exciting birth of this revolution; now these same companies are the hierarchy, and like hierarchies in general, they have become oppressive towards competitors and far less creative than they once were.
They are busily taking control of the means of information. Amazon, Microsoft, and Google already dominate the cloud and are now seeking control of underwater cables; in the past decade the large tech giants have boosted their share of undersea cable traffic from less than ten percent to roughly two-thirds.
The CEOs may still wear hoodies and speak woke, but they essentially seek, like other monopolists, to consolidate their market position, making them both essentially risk-averse, anti-competitive, and overweening. Mike Malone, who has chronicled Silicon Valley over the past quarter century, sees the Valley as having lost much of its egalitarian ethos; the new masters of tech, he suggests, have shifted “from…blue-collar kids to the children of privilege,” while also moving away from the production ethos that made the Valley so inspiring and egalitarian. “An intensely competitive industry,” he suggests, has become enamored with the allure of “the sure thing” backed by massive capital. If there is a potential competitor, they simply buy it.
Read the rest of this piece at American Mind.
Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.