How Big Tech Betrayed All of Us

hi its Jill Schlesinger on this episode
of Jill on money is the tried and true investment advice right going forward
we’ve had an environment for 40 years in which all boats have been rising and so
if you think about the investment advice that the average retail person was given
put your money in an index fund forget about it I’m not so sure that’s the best
advice anymore because I think that u.s. multinational stocks in particular their
growth is going to be constrained welcome to the Jill on Money podcast we
are presented by Marcus by Goldman Sachs you know beginning of the year good time
to take stock of where things stand that’s why I was happy to book our guest
Rana Faru Harr she’s a columnist at the Financial Times she is such a great
depth of knowledge around the economy financial services the technology sector
she’s also got a new book out it’s called don’t be evil how big tech
betrayed its founding principles and all of us this is a wide-ranging
conversation with Ron I hope you enjoy it you’re listening to Jill on money
with Jill Schlesinger what was the best financial or career decision you’ve ever
made oh wow what a good question you know to develop a portfolio career a few
years ago I was at a point in my career where I could have stayed on the
management track and become an editor-in-chief somewhere had the big
job with the big title and it was interesting a lot of my male peers were
very much kind of drawn to that direction but I really as somebody
covering business in the economy I looked out and I thought you know I
think we’re headed to a world in which flexibility is gonna be what’s valued
and the ability to move across platform so I was a print journalist at the time
and I thought I want to do video I want to do radio I I got an on-air contract
with CNN I started doing work with NPR I started writing books and so now I think
of myself as a little mini entrepreneur and I’ve got kind of five legs on my
stool so if one of those legs breaks or 2/3 you know that’s gonna happen you got
a couple there in reserve I love a diversified portfolios it’s a beautiful
thing so let me start by asking you you were covering finance
services right yeah so what made you move into tech well you know it was
interesting it the last book that I did the first chapter was actually about
Apple because I was you know that book was about financial markets and I was
trying to find what are the craziest ways in which companies are playing the
financial markets and at that time Apple had like 300 million dollars of carrots
are a billion dollars of cash on the balance sheet it was giving a bunch back
to shareholders in the form of buybacks which kind of artificially pushes the
markets up and I thought that’s really weird well since then all the tech firms
have started doing that the money has gone from Wall Street to Silicon Valley
they have become in some ways the new too-big-to-fail institutions they’re at
the center of our economy our politics as we know election disinformation still
a huge issue and also there’s a social angle on this which I get into in the
book that my son actually became a video game addict I one of the prompts so you
started the book with that story about your son if you wouldn’t mind can you
recount what happened and how that immersed you in this
yes it’s seared in my brain forever I I had just started the FT actually and I
was writing about the world’s biggest business tech economy stories and so I
was starting to look at just how much money was in Silicon Valley and just one
quick stat before I tell you about my son 80 percent of corporate wealth today
is held by just 10% of firms and the biggest ones are the ones we know Amazon
Google Facebook Apple so these companies have basically ring-fenced the world’s
wealth so I was thinking about that I come home one day and I find a credit
card bill I open it up and I see all these tiny charges dollar ninety-nine
three dollars five dollars and I’m going through and I think my god I’ve been
hacked you know but then I start to notice they’re all from the App Store
and I think huh who else has my password my ten-year-old son Alex I go downstairs
and he’s of course on his phone as always I have to pry him off of it and I
ask him what’s going on he sort of you know turns white well it turns out he
has downloaded one of those free and I put free in quotation marks soccer games
and this is the sort of game that kids get into and it draws them in and then
they’re sold these what’s called in-app purchases
boxes they don’t know that they’re really spending real money but if they
want to move ahead in the game they have to buy virtual Ronaldo or they have to
get a pair of cool shoes for their player and that’s real money so over
$900 and one month later Alex was at the top of the league scores I am freaking
out I was horrified as a mother but I was fascinated as a journalist and so
where did that take you in terms of how you were diving into these tech
companies first of all I thought okay this is unbelievable this is the most
interesting business model I’ve ever seen because this is a business model
that gets inside your brain and pulls you where the companies want you to go
so I started looking into it and the first interesting thing I found was that
these technologies these persuasive technologies are actually part of an
entire industry many of them came out of something called a Stanford persuasive
technology lab which is rather Orwellian sounding else’ and you know they bring
kind of casino gaming techniques variable rewards you know the same kind
of things that keep you pulling a slot machine that’s now in your phone so you
have a slot machine in your pocket all the time and as I began to think about
that model I realized these companies are to quote Columbia academic to MU
attention merchants right it’s about keeping us online as long as possible so
that they can harvest our data I studied some of the cognitive effects for this
book and they’re particularly pernicious for children whose brains are sort of
more malleable I mean all of us get distracted by this Devon PS we touch our
phones hundreds of times a day you know and every time we do that that’s a
little pull away from our work but kids in particular are really being reshaped
by this it’s fascinating because a lot of college professors high school
teachers are finding that kids are coming in and they cannot do the sort of
core reading that you and I used to do as part of our curriculum you know in
college you go to college you’re probably reading a couple hundred pages
a week of text kids can’t do that anymore
they are so used to living in a world of high speed images and always-on
technology that they can’t focus they can’t concentrate anymore and it’s
interesting reading levels have been declining only about a third of
teenagers read more than once a month for pleasure now long-form text
this is having profound affection one of the things I recommend actually in the
book is that we probably need to have at some point an FDA of Technology just to
study what the impacts are is a bit like nicotine you know and everybody
everybody’s smelled everybody’s mom smoked until we knew hey this stuff’s
bad for you I want to get back to something you
started with which was about you know these companies have concentrations of
wealth and you go through all the data where they basically own each of their
industries they are essentially monopolies but you also say not as
monopolies is defined by law as of Robert Bork’s argument well exactly and
that’s such an important point so since the 1980s onward we’ve had this sort of
what’s called a Chicago school of thought Robert Bork was kind of one of
the big brain guys behind this that says as long as consumer prices are falling
you don’t have a monopoly problem so that’s why you can get a company in you
know in the previous generation like Walmart for example that can come in and
take over entire town squares and run small businesses out but that’s not a
monopoly problem because prices are falling we’ll take that paradigm and put
it onto these new digital giants like an Amazon
yeah prices are falling we all know and love
how cheap cheaply we can get stuff online but we’re not paying in dollars
we’re paying in data so that is a really different kind of transaction and you
can’t judge it by the same monopoly standards in fact we’re not customers to
some extent we’re the product behind our position well you know when anything’s
free you’re the product right that’s so true and the prices have come down but
they also gobble up their competition pretty aggressively Oh a hundred percent
you know one of the things that I found very interesting is that a lot of folks
in Silicon Valley are actually worried about the big companies because if
you’re a start-up if you’re a venture capitalist that’s trying to move into an
area that a Google or a Facebook or an Amazon is in it’s nearly impossible they
have ring-fenced all the data so think about it
Amazon is basically 60% of all e-commerce in the world right now you
know it’s where most people start their online shopping Google is 85% of
searches Facebook is almost the entire social media world if you’re trying to
get into these spaces you can’t either because companies are being bought up
or because they simply can’t get started there’s just no oxygen in the room and
you also recount that you know from a political point of view that these
companies kind of curried favor with the Obama administration so for those eight
years where there was real growth and a lot of things were going on I know the
financial crisis – occupied quite a bit of time and healthcare occupied a lot of
time but it seemed like there was what we used to call in financial services
regulatory capture it was almost like it’s like the capture there do you see
that changing we are hearing candidates talk about that but is this real or is
this just okay we ought to break up these big companies so it’s a it’s a
super interesting question right now just to go to your point big tech Google
and Amazon in particularly now the number one corporate lobbyists in
Washington so oh and by the way I studied that sort of regulatory capture
issue in the financial sector what has happened in big tech is so much more
profound because they’ve bought out not only the politicians they’ve bought out
all the academics I mean it was almost impossible to find neutral research at
this point because most academics in the field are being funded by one of these
companies for their work it’s an very fine print at the bottom of these
reports which you got to read is this gonna change well we’re hearing a lot
from say Elizabeth Warren about breaking up big tech which to be fair is a little
more of a slogan than a solution I do think though that you’re starting to see
this weird confluence of left and right political alignment over you know what
maybe this is not good for our economy and our politics and the reasons that
the left and the right have are different so liberals Democrats care
about corporate concentration of power they care about wages they’re worried
that we’re gonna see sort of the uber ization of everything the rise of a gig
economy so they’re worried about big tech for that reason conservatives are
worried for two other reasons one is that you know the kind of moderate
Midwestern conservatives are worried about small businesses just not being
able to be founded and indeed if you look at the numbers in the last 20 years
as big tech has risen and corporate concentrations gotten higher the number
of startups has fallen and the amount of entrepreneurial zeal in the economy has
gone down so Republicans worry about that but they also worry that they’re
getting a raw deal because a lot of these firms are in very blue state
California they’re they’re you know card-carrying down
crowds although I would argue that they’re more libertarian than liberal
but they worry that hey you know if there’s some algorithmic bias going on
we may be on the wrong side of that where does that leave the rest of the
country when it taught when you’re talking about job creation where does
that leave the the places that feel remote from these hubs a great question
I think big tech has contributed to what was already happening which is this rise
of a superstar economy of a real winner-take-all economy we were seeing
that concentration for a couple of reasons I mean globalization definitely
favored the coast but hollowed out the Rust Belt in parts of the Midwest as we
know technology has put all those trends on steroids so now you’ve got basically
four companies five companies that are driving the ESPY up or down and the
headquarters where those companies are or where you see huge real estate gains
a huge you know wage hikes for certain kinds of jobs you have a lot of PhD jobs
a lot of service jobs you know it’s basically the people that are coding and
the people that are giving them massages have work but nobody in between as work
right or you have like a bunch of warehouse jobs where these people are
working their butts off that’s a terrible back pains etc so I want to go
back to this comparison between financial services and big tech now I
look at technology and I think the part of it that annoys someone like me an old
fart like me is that they couch so much of what they do as virtue yes oh my gosh
and it is insane to me it isn’t you know do you remember when
Lloyd Blankfein from Goldman made that comment work God’s work well these guys
really believed it he was being ironic yeah the guys in the valley and they are
mostly guys let’s face it think that they are doing God’s work and that’s
what’s so interesting they they’ve had this holier-than-thou quality to all
this disruption you know it’s fine to move fast and break things disrupt
everything I mean society politics it’s all considered to be in the way and yet
they don’t want to take responsibility for the bad stuff but I think we’re
getting to a tipping point there I mean I think everything from the fact that
you now have public massacres like what happened to news at Christchurch New
Zealand being monetised on a platform like Facebook
that’s something that gives people real pause and it’s bringing up something
that they don’t want us to talk about which is the fact that this industry
benefits from huge loopholes so if you go back to mid 1990s they carved into
the Communications Decency Act a loophole that means that they’re not
liable for anything that anybody does or says on their platforms think about that
I mean this is Google and Facebook are giant media advertising companies that’s
the where they get 90 percent of their income and yet unlike you or I they are
not liable if one of their content creators does or says something not just
untrue but violent that’s not their problem well I think it is going to be
their problem you’re seeing again both on the left and the right not to mention
overseas people saying you know what why should this industry get special
exemptions now that it’s you know the largest most powerful companies in the
world not entrepreneurs in a garage this is chill on money hey gang it’s me Jill
Schlesinger you know that you listen to the pod certified financial planner CBS
News business analysts host of this here podcast Jill on money and I am here to
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and now back to our interview with Financial Times columnist Rana Farooq
are you right the leadership at YouTube Google Facebook and Twitter have known
for years about the risks of platforms being misused by nefarious actors to
send users down rabbit holes of propaganda they just decided that fixing
this problem wasn’t worth the risks to their own business model has that
changed I don’t think it has changed profoundly they they do a lot of
tweaking every few months you see a you know some new blog post from one of the
big platforms saying you know we’ve changed the algorithms we’re making them
more user-friendly we’re making them you know less vulnerable to disinformation I
don’t think it’s profoundly changed you know I had actually had an interesting
conversation with a YouTube engineer as part of the reporting for the book and
he had tried to convince but he was worried as many engineers have been
about political manipulation online and he had tried to shift the business model
so that when you are on YouTube for example as we all know if you click on
cat videos you get more cat videos but if you click on right-wing hate you get
more right-wing hate hey you’re like with the Nazis in five seconds exactly
he wanted to offer people a broader range of content the argument being that
this is not only good for society but maybe will actually get them to stay and
figure out different ways to use the platform and that’ll be good for us
business-wise well it was profitable in experiments that they ran but not as
profitable as just sending them down the rabbit hole so he wasn’t able to effect
that change and of course these are people who created amazing innovations
if they had decided they wanted to solve this problem they would that’s what I
can’t get my brain around I mean come on if you can create Google you can help us
fix this problem if you are so naive that you didn’t see it maybe they were
they are so opaque I mean nobody can see in it regulators don’t know what the
algorithms are doing there’s no public transparency you know a Google or an
Apple now almost under right new corporate bond offerings the way a
Goldman Sachs does they have so much spare cash that they don’t know what to
do with they’ve been going in recent years and buying up a lot of the new
bond offerings in the corporate world holding this record amount of corporate
debt now I mean whose debt is that I don’t know you don’t know they don’t
have to record it the idea that so many of the newer firms are well you know the
unicorns are not yet public is almost equally disturbing because then there’s
like even less disclosure I worked in a tech startup actually a venture capital
incubator in London in last com boom in 1999 and 2000 and it reminds me so much
of this period right now I mean there is so much froth in the market for starters
when I was offered that job I was a mid-level editor at Newsweek this VC
firm came in offered me this huge job you know I had no knowledge of
technology no knowledge of Finance I thought my god this is amazing I’m gonna
get to go be a venture capitalist in London well that was the sign of a
market ah I mean hello but you know I recognized so many of the things in the
market then and now you’ve got a lot of big money dumb money frankly chasing
valuations that are already too high and you can see that starting to change I
mean you look at uber very disappointing IPO we work which I think we work is
going to be the of this era you know I mean this is a company that it
was so lauded they had to pull their IPO eventually because people were like this
is not going to fly and now they’re crashing and they’re bringing down parts
of New York and London property prices with them let’s go back to that time
though in the the boom of the the tech boom of the late 90s early 2000s I
wonder if you can talk about the difference in these types of technology
companies what they’re doing their control and what those companies which
really were more direct to consumer right they were it was you know what we
used to call b2c that wonky term I you know there were there was some value
created back then it was more in the telecom sector interesting there there
was a lot of fibre being laid that kind of in some ways literally laid the
groundwork for the Amazons and the googles now these firms today are much
more powerful not to say that they’re not potentially overvalued I mean I
think that there is this this business model of which has kind of been the
Amazon business models certainly been the uber business model of go in grab a
ton of market share as fast as you can break as many regulations as you want
just you move fast and break things because
you’ve got to ring-fence all the data and get the network so that nobody else
can come in but don’t worry about profits I think we’re starting to see
the end of that business model I think profits are important now that said if
you can get in and be the network as companies like Amazon or Google have
shown then you’re there but I will a caveat this by saying that I think
investors are downplaying the fact that even for the most rich and powerful
firms the value is still predicated on two things loose regulation and the
ability to cross borders very easily and I think both of those things are
changing I mean you know we’re in the midst of this us-china ongoing trade war
which is really a tech war which is a cold war for who’s going to own the
innovation ecosystem of the future and china has its own big tech giant’s right
and so they’re ring-fencing that you know amazon can’t even get into china
they’ve got Alibaba doing all their e-commerce they’ve got Baidu $0.10 all
these giants we’ve got our own giants Europe may be going a separate direction
so we could see what I call a splinter net where you get different Internet’s
in different regions that will be tricky for users but it could really correct
the valuations of some of these companies that are expecting to grow in
all these markets all right you write for the Financial Times you’re not just
covering technology these days so although you haven’t had a nice focus on
that I’ve been cutting out articles I love I cut too by the way it helps you
if you hold things and touch them you remember them better finally I am NOT
just old-fashioned oh so you know here we are in the 11th year of the expansion
so I was wondering if I could pick your brain on a macro level under you know
job market keeps growing here in the US how do you see the world economy
progressing what do you think trips us up yeah what do you think so there’s
kind of two things in play in the global economy right now one is the us-china
relationship and I think that you are gonna see what what is called a
decoupling of that relationship and that’s not just about Trump’s trade war
that’s about worries again both on the left and the right for different reasons
that us-china relationship has really become kind of a dysfunctional marriage
where it worked for a while we sent them cheap
Capital they built their manufacturing industry we got lower prices
now there’s oh my god China’s innovating China’s leaping ahead of us what
happened to our industrial supply chains what’s happened in the Midwest that’s
led to all kinds of political polarization so I think that you’re
gonna see a continued decoupling now the markets don’t like that because that’s
like whoa globalization was good for the markets of for 40 years now this whole
decoupling thing they don’t know what to make of it but there is a countering
factor there and that is the Fed don’t fight the Fed right I mean the Fed is
dumped over four trillion dollars and money into the US markets in the last
decade I frankly thought it couldn’t last this long that the good times could
not last this long I thought we were gonna see a correction you know six
months ago I actually sold up a lot of my equities in August because I thought
this can’t last we’ve had a record long cycle we have prices that are as
expensive by some measures as they have been in 150 years like what goes up must
come down but you still have the Fed pumping up the markets I think though
depending on what happens in the election that could be the year that you
really started to see a correction and then how big will it be right I like a
little barf out I like it this is going on too long for me I don’t feel
comfortable when things are only going up we’ll see that’s what I mean you’re a
veteran I hear most of the veterans in the market I know have have really
shifted their portfolios and there’s a weird kind of dichotomy where some
people I know are still in stocks you know I know people that say hey I
believe this story that we’re gonna have a big correction but the music’s still
playing it got to be in stocks but they’re also in gold so how weird is
that it’s first of all that is like the dumb trade of the century I always hate
that traders from the former gold trader but there are a lot of others there were
a lot of other things that I would rather buy than gold and not Bitcoin so
if you look at the the landscape we have this tremendous amount of change that’s
about to occur what does that do to economic growth it would seem to me that
this puts downward pressure on growth does it doesn’t necessarily mean we’re
in a recession but what does that mean for the average human being well I think
if you look at it at a kind of planetary level yeah we’re not going to see the
sort of golden period that we did between you know 2002 and 2007
we’re literally that was the fastest global growth in history we were already
sort of beginning to shift away from that obviously because of the great
financial crisis we’re gonna see a lot of fragmentation now and it’s going to
be a tough environment for investors I think because we’ve had an environment
for 40 years in which all boats have been rising and so if you think about
the investment advice that the average retail person was given you know that we
were all given by our parents you know put your money in an index fund forget
about it I’m not so sure that’s the best advice anymore because I think that u.s.
multinational stocks in particular their growth is going to be constrained by
these new boundaries that are being set up where you’re gonna see China having
its own companies its own economic ecosystem China is kind of like the u.s.
in the post-world War two period where big single-language market plenty of
room to run they’re gonna grow their own economy the US is going to be at a real
pivot point and I think it could go one of two ways I think you could see a
major correction a fall in the dollar and we could kind of become the new
Great Britain where our glory days are past us
you could also though see a more enlightened leader let’s say come in and
say all right maybe this decoupling thing isn’t so bad
maybe new technologies like 3d printing and you know all the digital services
that make it theoretically easier to start your own business and work from
home maybe we can kind of create more local economies and make make this new
digital era a win/win era but I’ll tell you it’s a tricky game because you’ve
got to get the regulation right you’ve got to shift education you’ve got to you
know retool people in terms of skill sets so it’s a big lift in that
environment would you see that interest rates remain low or do you see interest
rates turning around and going back up well I tell you I was really surprised
by the most recent jobs report I was I was pretty fascinated and we have to say
I mean we did see a lot more jobs created but some of that was the GM
workers 66 41,000 or GM workers so let’s put a 220 print up there that would have
surprised me right there anyway it’s pretty amazing
again I I really did not think we were going to see that kind of quality going
up in terms of jobs if we see another two months of that yeah then I’ll start
to worry about inflation I always go you know I mean you know
three months cycles is what you look at but I think frankly if you see a big
stock market correction and you see a fall on the dollar then I think it would
be hard to see more inflation and then yeah do we get QE forever I mean do we
get load are we Japan we’re Japan except guess what we don’t
own all our debt like Japan does okay Rana before you go what was your worst
financial or career decision you’ve ever made was it taking this job in
boom you know I go back and forth about that it was a miserable job frankly
because I had to get up every day and sell something I really didn’t believe
in and that’s not a good feeling but I tell you what I learned a lot and
I thought when I went into it I kind of looked at this operation I thought I
think there’s about a 60% chance this whole thing is gonna blow up but I’m
still gonna know a lot more at the end which I did that’s good yeah you’re
listening to Jill on money welcome it’s time for the Marcus minute we are
presented by Marcus by Goldman Sachs in the hot seat today author journalist
Rana Faru Harr are you ready to play I am what’s one
word to describe your relationship with money fraud what’s always worth spending
on myself what’s the dumbest thing you’ve spent
money on my son’s video games how much do you spend on a haircut oh man do I
have to say you can like 200 bucks she says sheepishly it’s your last day
on earth you’ve got a hundred dollars in your pocket what’s your last meal Oh
steak au poivre really good French fries pecan pie with ice cream
Ronna Faru heart the book is don’t be evil we will link to it thank you so
much for joining us today for having me great interview thanks so much to Rana
for ruh heart don’t forget we dropped new episodes of this program every
Tuesday and Thursday we sometimes throw a bonus episode in as well if you don’t
want to miss any of this fun just subscribe to us Jill on money you can
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and our show is presented by Marcus by Goldman Sachs see you next week you

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