There are signs that highly concentrated economic power in an age of AI is leading to destructive social outcomes
Joan Torrent-Sellens is professor of economics and business studies at UOC – Universitat Oberta de Catalunya.
Cross-posted from The Conversation España (translated into English by BRAVE NEW EUROPE)
Economists have long been aware of the existence of the constellation economy. That is, a world in which people and companies with special skills – not always earned through hard work, merit and competitiveness – dominate increasing shares of market power.
We also know that, with digital transformation, network and platform effects (i.e. the ability to generate value by connecting an increasing number of users) dominate the business models and competitive advantage of digitised companies.
These two phenomena have become intertwined to the extent that, in most sectors of the economy, a few companies dominate the business. There are an estimated 400 large, global, digitised, superstar corporations in the world, wielding market power of such magnitude that it extends far beyond the economic sphere and dangerously extends its connections into the political and institutional spheres.
Now that we have just passed the week of Sant Jordi, I have a recommendation for the sceptics: read The Profit Paradox, the latest excellent book by Jan Eeckhout, one of the world’s most prestigious academic economists on the subject of market power.
What we economists were not so aware of before, and what I want to draw attention to in this article, is the possibility that the onset of a new digital wave will push superstars and market power into a new virtual, limitless world.
In the economy of massive data and artificial intelligence, the increasing returns to size are taking a quantum leap. If data and predictive value are the oil of the 21st century, the more data companies gather and process, the better algorithms and better predictions they can make, which in turn will lead to greater efficiency and market power.
Harvard professor emeritus Shoshana Zuboff argues in her book The Age of Surveillance Capitalism that a vicious cycle of behaviour modification has been set in motion through so-called behavioural futures markets, where predictions are sold on everything from the behaviour of citizens to the production of goods and services. If we do nothing, in the end there will only be a few companies exercising market dominance and political influence that is hardly compatible with true economic and political democracy, digitised and representative.
What is the danger for quality job creation that 400 global, digitised and super-efficient companies dominate markets? Why worry about the effects of technological innovation and creative destruction? After all, isn’t digital transformation the engine of efficiency, economic growth, employment and material prosperity for people? Well, on the basis of the most recent data, researchers of digital transformation are no longer so sure.
We have found that this second digital wave, based mainly on artificial intelligence, is driving productivity, employment and welfare gains in many firms and industries, especially when complementary relationships with human capital and organisational innovation are at work.
At the same time, other people, firms and sectors are being displaced by creative destruction. Many believe that with the right training and skills in firms, the jobs lost will be compensated for by the more entrepreneurship, innovation and economic dynamism that AI will create. However, something is going wrong.
Contrary to common opinion, recent research tells us that, in this digital age, entrepreneurship is declining, that creative destruction is not dynamic enough, that superstars use innovation mostly in defensive and protective terms, or to extend their market power (which I call destructive creation), that labour mobility is declining, and that economic growth has long since struggled to maintain sustained rates of progress.
All this, in a context of the consolidation of an unbearable labour and social inequality. In this last register, new and unsuspected forms of discrimination are appearing, such as divergence between companies, new forms of fatigue or social isolation in digitalised work, or the advent of a new ocean of health problems linked to the new obsession of the 21st century: a growing social addiction to ephemeral, digitised and digitalised experiences.
Thus, in the bright world of screens, all that glitters is not gold. Everything seems to indicate that we are heading towards a kind of asymmetric capitalism, in which the symbiosis between digital-artificial transformation and market power could generate a wide and persistent web of difficulties, starting with all kinds of discrimination and inequalities in employment.
The dangers go far beyond the typical warnings about the need to modulate change, train people or dynamically empower companies. The digitalised capitalism of business will have to be reorganised in favour of a digitalised capitalism of purposeful exchanges, albeit not always through competitive markets.
In the new digital market society, digitisation will have to be protected from the main digitising agent: the large superstar corporation with immense market power. It is time to digitise value theory and competition policy.
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