Divide et Impera: Why Governments Try to Put Restrictions on IT Companies
By Pavel Cherkashin, managing partner at Mindrock Capital
This article first appeared in Forbes Russia.
In August 2018 I wrote a column for VentureBeat. I named it “Homeland-as-a-Service: how blockchain will disrupt the world order”, by analogy with such IT concepts as “platform-as-a-service”, “software-as-a-service” and others. In this column I described the way our relations with the state are going to change with the development of new technologies and decentralized applications, in particular. Transformation of the state’s role in our life deems inevitable, though it is sure to provoke fierce resistance from all angles. What I did not take into account was the speed with which things were already changing. It seems like science fiction authors are turning into the best stock market analysts.
Competing with State
Within two years after the publication of that column Telegram and Facebook tried to issue their own digital currencies. They lost the battles but demonstrated that the companies would inevitably win the fight for world domination in the future. Even relatively small startups have a higher level of influence on the population than most of the state institutions. The threat for the traditional way of life turned out to be so serious that the US authorities launched a counterattack. They suggested playing it safe and dividing the business of such giants as Apple, Facebook, Amazon, and Google under the pretext of unfair competition and market monopolization. They turned the protection of citizens’ interests from their own fears into a universal excuse for any legislative and executive initiatives. The US idea was happily adopted by the European Union that claimed to have created a list of 20 IT companies the powers of which had to be restricted and by some Russian officials who did not waste their time and immediately complained to the president about the foreign companies.
Still earlier, even without meaning to, IT companies have become regular participants of political conflicts. One example is Facebook’s role in the scandal around the manipulations in the US election race or the Arab Spring. Another example is the recent events in Belarus: the protestants create groups in Telegram, it is impossible to block them, so the Internet signal in the whole state is being jammed by the equipment of Sandvine company which gets the avalanche of anger for supporting Lukashenko’s regime. So it washes its hands of it and quickly cancels the contract.
When the companies start optimising the functions of public administration the way they do with other business processes, all the bureaucratic institutions will be blown to smithereens. They already have all the necessary resources. For instance, Facebook has over 50 thousand employees and a third of the world’s population (2.7 billion people) as users. Amazon has 1 million employees, up to 10 million more work in the developing countries in the remote mode as “mechanical turks”. Over 200 million people visit its site annually, that is more than Russia’s total population. Cash reserves of IT giants are comparable to gold and forex reserves of countries that are far from being poor. As for the capitalization of the top American IT giants, it comprises $7 trillion, which exceeds the GDP of 16 members of G20.
Corporations that used to be national states’ closest allies have turned into their dangerous competitors. As technologies evolve bringing along transparency and freedom of choice, the states face an existential problem: how they could avoid surrendering their power to corporations that have come to performing state functions too quickly. In a similar way, secular rulers of the past must have cooperated with religious leaders while competing with them at the same time. It was technologies (education) and more effective business models that won all the same.
Fear of Reprisals
The corporations refuse to have anything to do with the power that has been thrust upon them and emphasize their lack of engagement in politics at every given opportunity. Their discourse along the lines of “we don’t care about authority, money is more than enough for us” does not work any longer. The war has been declared. De facto corporations have captured the population’s attention, but are they going to do this de jure?
For now what constrains the corporations is their fear of reprisals. A bright example is a story of the Chinese company ByteDance (developer of the video-sharing app TikTok now used by every teenager in the world). The content recommendation algorithm in this app is so advanced that it knows more about the users than they do about themselves. Within a decade a better version of the algorithm will be able not only to predict every user’s electoral choice, but even to influence it. The US Government has imposed sanctions on the company and required selling the business to someone “inside”, just as a lesson to everyone else.
In the modern cosmopolitan world it is impossible to nationalize IT companies following a pattern of industrial enterprises. In IT companies the main assets are people and intellectual property produced by them which can be “registered” wherever you want, even on Mars. Ownership of complex corporate structures is spread across offshores and anonymous trusts; people work from where they live and are not bound to a particular jurisdiction. Any attempts to tighten the screws of the state regulation in one place will lead to the companies moving to a different place just in a couple of mouse clicks.
Paradoxically only information technology can reconcile IT companies and the state. The lobbying technologies that allow building better relations between companies and states play a key role here.
Companies have long been lobbying their interests, but the state has always had the final say. Now the corporations are becoming more daring. They already have infrastructure, money, user data and understanding users’ preferences, a technically feasible new financial system, and other innovations that their users meet with full support and state officials — with fierce opposition.
New World: evolution of the state into a corporation for citizens
What is the gist of a New World? It pushes a dinosaur to evolve into a hen. Hulking and voracious as ancient reptiles, state institutions must evolve into a service organization or they, as they are now, are doomed to die.
While wasting resources on crippling the opposing forces, the states rapidly lose their grip over the main asset in this war, that is love and attention of their own taxpayers. The latter become followers, whose loyalty is expressed in likes and shares not only in the digital space and on the social platforms. They pay taxes just like they pay for Spotify subscription and get equal opportunities, law enforcement, protection and support for those in need. If they no longer enjoy the music or the service on Spotify, they go and buy an Apple Music subscription.
The only way to make an evolutionary leap is to introduce modern technologies into the decision making process. These technologies will be autonomous and beyond manipulations. This means that they will not be used to strengthen the top-down governance structure, but instead they will reduce the responsibility of one individual and ensure all the citizens’ involvement in the process.
Do you think this sounds too good to be true in any near future? Well, not really. This is the law of nature: evolving, human society organizes itself into the most effective system. The task of our generation lies in providing an opportunity for every person to express their opinion and be heard. This makes it possible to reduce the concentration of power by means of engaging more and more people into democratic governance.
A good story to illustrate this process is that of the FiscalNote company. In 2008 its founder Tim Hwang at the age of 18 was an intern in the White House. He questioned the effectiveness of the bureaucratic machine modus operandi. Tim quit University, moved to Silicon Valley and entered the Plug & Play accelerator which helped him to launch his own startup. He created a global repository of laws and regulations where changes and their effects are analyzed by artificial intelligence. For instance, investors always find it hard to determine the way some actions of the government may influence a certain industry. FiscalNote helps to predict the governmental actions more accurately than any human analyst ever could. Moreover the platform makes it possible to contact a public official who has proposed a certain draft law and comment on it. It is no wonder that 10 out of 10 biggest IT companies in the world are FiscalNote’s clients. Over the past seven years Tim’s startup has grown into a corporation with impressive revenue and in 2021 it is probably going to be declared a unicorn company.
Just imagine that this application of artificial intelligence is available not only to businesses (like in case of FiscalNote) but for the whole society. All the participants can see the impact and consequences of governmental initiatives, including those of conflicting ministries, and are aware of the will of “the collective unconscious” which forms the foundation for governmental decisions. How unusual would it be to have an opinion that really does matter? How much harder would it become to explain anything by “polling data” or “petty intrigues of the enemies”?
Studies conducted by Deloitte and McKinsey among others shows that the tendencies to decentralize power are already seen. For example, the most effective governments (Denmark or Singapore) may be characterized by a more distributed governance which actually means a dialogue with citizens, joint problem solving and identifying areas for development. Without a technological infrastructure collecting opinions and making decisions based on them such democracy would turn into chaos. Politicians actively exploit this idea saying that the society is not ready for “the true democracy” and thus justifying still higher centralization of authority.
Political debates will not solve this global problem of humanity, but artificial intelligence will. The language of such dialogue between governments and corporations (and the citizens as a result) is not the officialese of legislation but C++ or Python.
Small states that are not fighting everyone with their last bit of strength quickly track these new opportunities and trends like introduction of decentralized functions to e-government or special visas for digital nomads. These countries become cutting-edge examples of the new world order.
But large states seeing evil intentions at every corner do not accept this transformation that easily. In the traditional state model, only those obsessed with authority and power come to the top. For them adapting the new service model is equivalent to losing their identity, their meaning of life. The only force that is able to curb their lust for absolute power is a technological algorithm that will do the citizens’ will and abide by the law.
Corporations are also struggling. In most of them all the power is still concentrated in the hands of their founders anxious to change the world for the better. They are more charismatic than any politician. But they are retiring soon and leaving their seats in the board of directors to ambitious social-climbers, just like those sitting in the White House. What values will this new generation of managers stand up for? What are they going to do with the authority and powers passed to them with the job duties?
I trust entrepreneurs more than politicians. If I had a choice I would rather live in Facebook Republic or Google State. But there are no such states, there is even no Constitution which they could rely on. But without a Constitution they may become a tool to fight democracy, centralize the authority and manipulate public opinion. In this case, it is of no importance who is going to sit in front of the computer screen suspecting anybody and everybody like a security guard in a shopping mall. Both states and corporations are equally disgusting as supervisors.