Will Digital Networks Ruin Us?

With unemployment seemingly stalled out at around 7 percent in the aftermath of the Great Recession, with the leak of thousands of National Security Agency documents making news almost daily, with the continuing stories about the erosion of privacy in the digital economy, “Who Owns the Future?” puts forth a kind of universal theory that ties all these things together. It also puts forth some provocative, unconventional ideas for ensuring that the inevitable dominance of software in every corner of society will be healthy instead of harmful.

Lanier has an unusual authority to criticize the digital economy: He was there, more or less, at the creation. Among (many) other things, he founded the first company to sell virtual reality products. Another of his start-ups was sold to Google. As a consultant, he has had assignments with “Wal-Mart, Fannie Mae, major banks and hedge funds,” as he notes in “Who Owns the Future?” But unlike most of his fellow technologists, he eventually came to feel that the rise of digital networks was no panacea.

On the contrary: “What I came away with from having access to these varied worlds was a realization that they were all remarkably similar,” he writes. “The big players often gained benefits from digital networks to an amazing degree, but they were also constrained, even imprisoned, by the same dynamics.”

Over time, the same network efficiencies that had given them their great advantages would become the instrument of their failures. In the financial services industry, it led to the financial crisis. In the case of Wal-Mart, its adoption of technology to manage its supply chain at first reaped great benefits, but over time it cost competitors and suppliers hundreds of thousands of jobs, thus “gradually impoverishing its own customer base,” as Lanier put it to me.

Joe Nocera

FRED R. CONRAD / THE NEW YORK TIMES

The N.S.A.? It developed computer technology that could monitor the entire world — and, in the process, lost control of the contractors it employed. As for Facebook, Google, Twitter, Amazon et al., well, in Lanier’s view, it’s only a matter of time before their advantages, too, disintegrate.

There are two additional components to Lanier’s thesis. The first is that the digital economy has done as much as any single thing to hollow out the middle class. (When I asked him about the effect of globalization, he said that globalization was “just one form of network efficiency.” See what I mean about a universal theory?) His great example here is Kodak and Instagram. At its height, writes Lanier “Kodak employed more than 140,000 people.” Yes, Kodak made plenty of mistakes, but look at what is replacing it: “When Instagram was sold to Facebook for a billion dollars in 2012, it employed only 13 people.”

Which leads nicely to Lanier’s final big point: that the value of these new companies comes from us. “Instagram isn’t worth a billion dollars just because those 13 employees are extraordinary,” he writes. “Instead, its value comes from the millions of users who contribute to the network without being paid for it.” He adds, “Networks need a great number of people to participate in them to generate significant value. But when they have them, only a small number of people get paid. This has the net effect of centralizing wealth and limiting overall economic growth.” Thus, in Lanier’s view, is income inequality also partly a consequence of the digital economy.

It is Lanier’s radical idea that people should get paid whenever their information is used. He envisions a different kind of digital economy, in which creators of content — whether a blog post or a Facebook photograph — would receive micropayments whenever that content was used. A digital economy that appears to give things away for free — in return for being able to invade the privacy of its customers for commercial gain — isn’t free at all, he argues.

Lanier’s ideas raise as many questions as they answer, and he makes no pretense to having it all figured out. “I know some of this will turn out to be wrong,” he told me. “But I just don’t know which part.”

Still his ideas about reformulating the economy — creating what he calls a “humanistic economy” — offer much food for thought. Lanier wants to create a dynamic where digital networks expand the pie rather than shrink it, and rebuild the middle class instead of destroying it.

“If Google and Facebook were smart,” he said, “they would want to enrich their own customers.” So far, he adds, Silicon Valley has made “the stupid choice” — to grow their businesses at the expense of their own customers.

Lanier’s message is that it can’t last. And it won’t.

Have we reached the end of globalization?

At the start of 2014, let's take a look at one of the great trends of the last century. You could be sitting in Chicago, Illinois right now, but your TV was probably made in Japan, your sneakers were likely manufactured in China and your coffee might be from Kenya. Globalization impacts every single thing around us. So here’s the big question: have we reached the end of globalization?

For much of the last thirty years there has been a steady trend in commerce: global trade has expanded at about twice the pace of the global economy. For example, between 1988 and 2007, global trade grew on average by 6.2 percent a year according to the World Trade Organization. During the same period, the world’s GDP was growing at nearly half that pace: 3.7 percent.

But a strange thing has taken place in the last two years. Growth in global trade has dropped dramatically, to even less than GDP growth. The change leaves one wondering: has the incredible transfer of goods around the world reached some sort of pinnacle? Have we exhausted the drive toward ever-more-globalization?

It's a fascinating thesis. The world has seen historic developments in the last few decades: the internet, China's opening up, the rise of emerging markets, fast and cheap travel…all of these trends led to a massive acceleration in global trade.

But have those trends peaked? Could the next big invention, say, 3-D printers, end the need for more and more trade? Imagine a world where you need a new faucet in your restroom. Instead of going to the local store that sells faucets made in China (which contributes to global trade) now you just print out your own faucet, sitting at home or at a local store. Are people also getting more interested in local products compared to global brands.

Joshua Cooper Ramo points out in an essay in Fortune that localism is on the rise – local banking, local manufacturing, and even local sourcing for food and restaurants. Is this simply a pause or could it be more than that? The answer will depend on politics.

The last time the world saw a consistent period where the growth of global trade lagged behind global growth was in the 1920s, 30s, and 40s. One factor was the rise in protectionist policies - as a response in many cases to the Great Depression and the disruption of the gold standard. At one point, under what was known as the Smoot-Hawley tariff, the United States government began imposing import duties of around 60 percent. The move was aimed at protecting domestic farmers, but instead, it exacerbated the depression. It led to a steep drop in trade, and a wave of counter protectionist measures by other countries.

The world has learned its lessons from the Great Depression. But perhaps not as well as it should have.

According to the independent think tank Global Trade Alert, we’re in the midst of a great rise in protectionism. In the 12 months preceding May 2013, governments around the world imposed three times as many protectionist measures than moves to open up. Anti-trade policies are at their highest point since the 2008 financial crisis. According to the Petersen Institute, the rise of these measures cost global trade 93 billion dollars in 2010.

There might be some good news on this front. Last month, the World Trade Organization passed a deal to cut red tape in customs. It’s a small start, and there is a lot more to accomplish. Globalization and trade have produced huge benefits for people, especially the poor, who have been able to make their way out of poverty in a faster growing and more connected global economy. But globalization won’t continue by accident or stealth – politicians will have to help make it happen.

CHAVITTU NADAKAM (ചവിട്ടുനാടകം)