Google: Too Big to Derail
It seems handily coincidental that one week after we learned that Google survived an FTC anti-trust investigation without much consequence, the search company announced the hiring of a new CFO, this one plucked from Morgan Stanley.
The finance industry, after all, is the pacesetter when it comes to evading government regulation and maintaining a chummy relationship with Washington. Ruth Porat, who will shift from being Morgan Stanley’s CFO to Google’s, was once considered for a top Treasury Department position and, according to the New York Times, “advise[d] the government on its dealings with A.I.G. and Fannie Mae and Freddie Mac” during the financial crisis. Sounds like a good person to have around the table next time there’s a conference call with the FTC. (Not that Google is doing badly on its own: company representatives have been to the White House 230 times under this administration.)
But the Google/finance industry synergies extend farther than a single marquee hire. In many important respects, Google now resembles a major investment bank. Having practically monopolized its initial product areas—search, online advertising, email—Google is now spreading its tentacles to other parts of the economy, including transportation, telecommunications, television, energy, and robotics. In some cases, it’s introducing genuine innovations, but in others, its role (like that of a big bank packaging someone’s mortgage into a complex security) is parasitic. Google is latching onto anything that smells like information, the new currency of this post-industrial economy.
The similarities between Google and America’s financial predators become clear when you consider what these industries used to look like. Until a few decades ago, financial professionals typically only did a few things—gave loans, issued bonds, invested money, offered banking services, and so forth. It’s only in the last twenty years that—thanks to deregulation, the introduction of complicated financial instruments, and computerized trading—finance has begun gobbling up more and more of the economy. Now hedge funds buy up sovereign debt and wage economic war against foreign governments; investment banks trade trillions in complex derivatives and other baroque products that few people truly understand; and Goldman Sachs can earn millions of dollars simply shuttling aluminum back and forth between warehouses it owns.
As with the tech industry, the financialization of the economy has granted power and profits to those companies with the best lawyers, mathematicians, algorithms, and former government officials on the payroll. And don’t forget market data: for some investors, the Twitter firehose has become as important a tool for gauging economic conditions as any analyst’s report.
The end result of all this is a vast but structurally unsound (and socially toxic) industry that pulls in billions in profits by selling sketchy products and carving out tiny competitive advantages that it can exploit relentlessly. Finance claims that it’s making the market more efficient, directing capital where it needs to go, but we know improved economic efficiency isn’t the point. Even The Economist has warned of the consequences of too many skilled workers being employed the finance sector, rather than in more diverse sections of the economy. Today, finance’s share of GDP is more than twice what it was in the 1950s. In some recent years, banks have captured up to 40 percent of all profits made by American businesses.
Now, the technology industry has begun treading a similar path, toward what Evgeny Morozov calls “the financialization of everyday life”—particularly as it begins establishing itself in once closed-off realms like education and healthcare. But instead of trading millions of shares of stock per second, tech titans trade users’ personal data and attention. We have become the commodities, with our attention auctioned many times per day by automated exchanges that allow companies to bid on which ads we should see. And no matter where Google advances, it’s always primarily interested in gathering data that it can monetize, in the form of more advertising. In 2014, Google reported $43.686 billion in advertising revenue; by comparison, its other businesses brought in less than $3 billion.
To better understand this parallel evolution of tech and finance, just look at the latest news about the ongoing implosion of RadioShack. Like many companies facing bankruptcy, the derelict retailer is selling its assets. A number of its stores may become Sprint shops—a natural transition for a company that sold phones in partnership with AT&T. But an intense battle is going on right now over one of RadioShack’s most valuable assets—its consumer data. Information on more than 100 million customers (names, addresses, and purchase history) may soon be the property of Standard General, a hedge fund that won the auction for RadioShack’s assets.
Much remains to be decided in court, but it’s fitting that the corpse of one of America’s fallen retailers is now being fought over by hedge funds and telecoms. But no matter who the winner is, will we be able to tell the difference?