The Biggest Digital Companies Are Decimating the Economy

Digital monopolies end up destroying the marketplaces they depend on

Douglas Rushkoff
Aug 13 · 4 min read
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Photo: alengo/Getty Images

Growth was easy when there were new territories to conquer, resources to take, and people to exploit. Once those people and places started to push back, digital technology came to the rescue, providing virtual territory for capital’s expansion. Unfortunately, while the internet can scale almost infinitely, the human time and attention that create the real value are limited.

Digital companies work the same way as their extractive forebears. When a big box store moves to a new neighborhood, it undercuts local businesses and eventually becomes the sole retailer and employer in the region. With its local monopoly, it can then raise prices while lowering wages, reduce labor to part-time status, and externalize the costs of health care and food stamps to the government. The net effect of the business on the community is extractive. The town becomes poorer, not richer. The corporation takes money out of the economy — out of the land and labor — and delivers it to its shareholders.

A digital business does the same thing, only faster. It picks an inefficiently run industry, like taxis or book publishing, and optimizes the system by cutting out most of the people who used to participate. So a taxi service platform charges drivers and passengers for a ride while externalizing the cost of the car, the roads, and the traffic to others. The bookselling website doesn’t care if authors or publishers make a sustainable income; it uses its sole buyer or “monopsony” power to force both sides to accept less money for their labor. The initial monopoly can then expand to other industries, like retail, movies, or cloud services. Such businesses end up destroying the marketplaces on which they initially depend. When the big box store does this, it simply closes one location and starts the process again in another. When a digital business does this, it pivots or expands from its original market to the next — say, from books to toys to all of retail, or from ride-sharing to restaurant delivery to autonomous vehicles — increasing the value of its real product, the stock shares, along the way.

The problem with this model, from a shareholder perspective, is that it eventually stops working. Even goosed by digital platforms, corporate returns on assets have been steadily declining for over 75 years. Corporations are still great at sucking all of the money out of a system, but they’re awful at deploying those assets once they have them. Corporations are getting bigger but less profitable. They’re just sitting on piles of unused money, and taking so much cash out of the system that central banks are forced to print more. This new money gets invested in banks that lend it to corporations, starting the cycle all over again.

Digital businesses are just software that converts real assets into abstract forms of shareholder value. Venture capitalists remain hopeful that they will invest in the next unicorn with a “hockey stick-shaped” growth trajectory, and then get out before the thing crashes. These businesses can’t sustain themselves, because eventually the growth curve must flatten out.

The myth on which the techno-enthusiasts hang their hopes is that new innovations will continue to create new markets and more growth. For most of history, this has been true — sort of. Just when agriculture reached a plateau, we got the steam engine. When consumerism stalled, television emerged to create new demand. When web retail slowed its growth, we got data mining. When data as a commodity seemed to plateau, we got artificial intelligence, which needs massive supplies of data in order to learn.

Except in order to stoke and accelerate growth, new, paradigm-busting inventions like smartphones, robots, and drones must not only keep coming, but keep coming faster and faster. The math doesn’t work: We are quickly approaching the moment when we will need a major, civilization-changing innovation to occur on a monthly or even weekly basis in order to support the rate of growth demanded by the underlying operating system. Such sustained exponential growth does not occur in the natural world, except maybe for cancer — and that growth ceases once the host has been consumed.

This was section 47 of the new book Team Human by Douglas Rushkoff, which is being serialized weekly on Medium. Read the previous section here and the following section here.

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From Team Human by Douglas Rushkoff. Copyright © 2019 by Douglas Rushkoff. Used with permission of the publisher, W.W. Norton & Company, Inc. All rights reserved.

Team Human

Team Human is a manifesto — a fiery distillation of…

Douglas Rushkoff

Written by

Author of Team Human, Present Shock, Throwing Rocks at the Google Bus, Program or Be Programmed, and host of the Team Human podcast

Team Human

Team Human is a manifesto — a fiery distillation of preeminent digital theorist Douglas Rushkoff’s most urgent thoughts on civilization and human nature.

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