Earlier this week, Social Capital published its Annual Letter. In the letter, Chamath Palihapitiya, founder of Social Capital, details his viewpoint on why Big Tech should be broken up and how. I enjoy reading Palihapitiya’s letter every year, but I take issue with two of his core points:
- Palihapitiya calls our current age the Modern Gilded Age, a nod to the Gilded Age of the late 1800s; however, his analogy is incomplete and ignores the risk that the US faces from global competition for the next technological age.
- Breaking up big tech does not necessarily mean that STEM talent will rush into professions that are perceived to be more noble. The actions of STEM talent in the current system tell us something about the economy at large and how we need to incentivize STEM development.
Perhaps Big Tech should be broken up, just not for the fundamental reasons he offers. Let me provide some alternative viewpoints.
Failings of the Modern Gilded Age Analogy
The first section of Palihapitiya’s letter suggests the current relationship between our society, economy, and technology is similar to that of the Gilded Age in 1870-1900. “The Gilded Age seems to have many similarities with today – both economic and societal.” In that period, the railroads, steel, and electricity provided a massive industrial expansion that led to income inequality, several boom and bust cycles, and villainous industry leaders. Palihapitiya then replaces railroads with technology, the Gilded Age booms and busts with the Dotcom bubble and the Global Financial Crisis, and the villain of the late 1800s with Zuckerberg and Bezos.
The plot points match up because human nature doesn’t change. We’re born to be jealous of neighbors who have more than us and revolt if those neighbors do too much better. We’re born to consume good things to excess, then vilify those that created the excess we enjoyed in the first place.
Because human nature doesn’t change, we can reasonably assume the technological development patterns that sparked both the Gilded Age and the Modern Gilded Age will repeat for the next age. Carlotta Perez’s work on technological revolutions suggests that the social dynamics that Palihapitiya describes are common to the end of other technological ages and that a new technological age will inevitably follow the current one where we will engage in the same cycle of industrial expansion, income inequality, economic boom and bust, and new villains.
Source: Perez’s Technological Revolutions via Seeking Alpha
An important point that Palihapitiya missed in his analogy was that the Gilded Age also represented a massive shift in global economic influence. Prior to the Gilded Age starting in the 1870s, Britain had been the key driver of each prior technological revolution identified by Perez— the Industrial Revolution in the late 1700s and the Age of Steam and Railways in the early 1800s. The Gilded Age marked a shift to the US as the dominant innovator in technology, allowing us to accrue the many economic benefits that come from leadership in technological innovation. Perhaps if Britain had approached the end of their Steam and Railway revolution differently, they could have maintained their status as a world power. Perhaps it was a foregone conclusion that they couldn’t.
Appreciating this part of the Gilded Age story makes the analogy more complete and presents the danger that the US faces today: the risk of losing our seat as the country that drives global technological innovation. As the Modern Gilded Age ends, we stand on the doorstep of the next technological revolution, probably something involving machine intelligence, but it’s far from a foregone conclusion that the US will remain the driver of that next revolution. China may be the country that drives that next technological revolution forward, not the US.
With this fuller picture of the original Gilded Age in mind, I propose a series of questions:
- First, to establish the importance of remaining the global leader in technological innovation — is the median economic quality of life in the US most likely to rise, fall, or stay the same if we are no longer the dominant technological power in the world?
- Then, does the US have a better chance of remaining the dominant technological innovator if we break up Big Tech fully, maintain the status quo for Big Tech, or something in between?
- If we break up Big Tech, would it create enough new competition that we would maintain or accelerate our prior pace of innovation in machine intelligence? Or would the aggregate pace of innovation slow?
I think the answer to the first question is obvious — median economic quality of life certainly isn’t most likely to rise if the US cedes its leadership position in technological innovation to China — thus we should do everything we can to maintain our status as the global leader. The answers to the second and third questions are more complex. Big Tech, which could be renamed US Tech, is driving the majority of global innovation in machine intelligence today. The point of breaking up Big Tech is to weaken their power, thus it’s logical to conclude that breaking them up would weaken their influence on innovation in machine intelligence. If breaking them up doesn’t do that, what’s the point? Even if breaking up Big Tech spurred new competition, there would seem to be some transitional period of slow down between when Big Tech is broken up and new companies are spawned to drive new innovation. Would that transitional period put us at a disadvantage to China that is insurmountable?
Perhaps I’m leaving you with more questions than answers, but that’s because I’m not sure what the answers to those last two questions are. I’m surer that most people who accept the dogma that Big Tech must be broken up haven’t fully thought through the consequences.
Here’s something I think most people would agree with, regardless of the side of the argument they take — driving more competition in US tech is good for innovation and good for consumers. There are two routes to drive more competition: make the dominant competitors weaker or make smaller competitors stronger. Instead of starting with the former, which is to break up Big Tech, I suggest we start by thinking more about the latter. How can we make smaller tech companies more competitive? Palihapitiya offered some good ideas around equity compensation. We should also consider other tax incentives to help bolster tech startups. Those incentives could be subsidized by greater taxes on Big Tech, which do seem a foregone conclusion.
Before we rush to break up Big Tech (US Tech), we should consider these questions and realize that intended outcomes — higher quality of life, greater competition, more innovation — aren’t necessarily guaranteed by breaking up these companies.
STEM Talent Focus Isn’t Big Tech’s Fault
After his suggestions on how to dismantle Big Tech, Palihapitiya suggests Big Tech is “greenmailing” STEM grads — paying the STEM talent pool substantial amounts that prevent them from working on more meaningful problems like climate, healthcare, or education. While this observation is factually true, it too stops short of the full story and therefore misdiagnoses the problem.
Actions inform us more about priorities than words. The person who isn’t willing to leave a million dollar a year salary at Big Tech probably isn’t going to leave a $500k salary somewhere else to work for compensation far less on a project more “noble.” Even if Big Tech were broken up and incapable of offering lavish salaries, every other industry is also starved for STEM talent — finance, manufacturing, energy, pharma, etc. — and they would find ways to pay salaries far above those found in a noble-cause lab. Actions dictate that the majority of STEM talent is motivated more by money than a cause. That’s perfectly rational human behavior. Again, human nature doesn’t change, only the settings do.
From talking to thousands of entrepreneurs since starting Loup Ventures, many in STEM-related fields, I’m also willing to bet that the best entrepreneurs who truly care about the problems of climate, healthcare, and education aren’t beholden to Big Tech at any salary. The best STEM entrepreneurs would leave jobs at Big Tech even if the company were to double or triple their salary because they’re driven more by the mission, not the money. Big Tech salaries may prevent the marginal noble startup from being created by talent that is probably better off working for someone else, but not the great noble startup.
I’ve been reading “The Man Who Solved the Markets” about how Jim Simons created Renaissance Technologies. He built the greatest hedge fund in the world with some of the top STEM talent in the 80s and 90s because he gave them an inherently compelling problem to work on and told them they would get taken care of when they succeeded. They succeeded and Simons took care of everyone. The deal is similar at well-funded startups that effectively compete for talent with Big Tech on the promise of future equity appreciation.
The real problem isn’t that Big Tech is greenmailing talent that would otherwise be working on more noble projects, it’s that more noble projects don’t offer the economic incentives to attract the employee-level talent that STEM founders need as they build bigger businesses. The question, therefore, isn’t really how to stop Big Tech from greenmailing because other companies would do a weaker version of the same thing even if Big Tech didn’t. The question is how to build economic incentives into solving the world’s most important challenges because incentives always drive action, particularly economic ones.
The same logic holds for Palihapitiya’s suggestion that Big Tech R&D budgets could be better spent on the noble causes. Private capital will always be driven by economic incentives because it is the responsibility of those capital allocators to grow the capital, whether those allocators are companies or investors. Again, the better way to reallocate those budgets to nobler projects is to create a world where noble projects have great economic potential, not just assume that if Big Tech were broken up, all of a sudden that money would be allocated to other endeavors. Even broken up, Small Tech companies would still have the obligation to shareholders to allocate capital in a way to grow it. Unless noble projects present the potential for strong capital appreciation, or unless investors specifically mandate that it have some climate/healthcare/education application, it’s unreasonable to assume that R&D capital would just naturally flow to those projects.
The better way to incentivize capital and talent to work on noble projects is to tie great economic incentives to those noble projects. If someone creates a meaningful solution for climate change, they deserve to be a multi-billionaire and all of their early employees and investors deserve to become multi-millionaires, even if those who want the solution most turn on them after. That’s the natural cycle from the Gilded Age and the Modern Gilded Age. Heroes become villains after they give us what we want. Human nature doesn’t change.