 A generation of young people has never known a world without knowledge, entertainment and communication at the touch of a button. For digital natives who have grown up with the Internet and social media, life is as much online as in the real world. And almost all industries are now using big data, artificial intelligence, automation and the Internet of Things to improve their processes and products. And that has meant boom time for the companies providing those services, companies that didn't exist just a few years ago, but now are among the biggest in the world. But this has come with a unique set of challenges that our society is grappling to address. Created in an ethos of the free market, does their size and power now mean that they are making it hard or impossible for competitors to thrive and innovate? Is big tech just too big? Hello and welcome back to another episode of Stakeholder Capitalism, a show from the World Economic Forum exploring how economies can be made to work for progress, people and the planet. I'm Natalie Pierce. And I'm Peter Vanham. And in today's episode, we'll be exploring the topic of technology, and particularly the market power of big tech firms. Peter, can you lay out the problem that we'll explore in today's episode? Of course. Let's look at some graphs. Let's talk about big tech and their economic impact. I want to show you first a graph that shows the largest companies in the world by market capitalization. In 2004, their average market capitalization was close to $250 billion. By 2019, it had quadrupled to, in some cases, over $1 trillion. And what are those biggest companies in the world? Well, in 2004, they were all kinds of companies, industrial companies, you name it. By 2019, they were mostly tech companies, companies like Amazon, Apple, Microsoft, tech companies, big tech. And then let's look at what happened in the economy at the same time. I want to show you two things. First is what we call labor productivity growth. That is, how much faster are we getting at making things in a given unit of time? And that productivity growth fell from over 2% in 2004 to less than 1% in 2019. In other words, we didn't get as much better at producing things as we did in the beginning of the century. And the second thing that happened is that the income share of the bottom 50% of workers in that same period declined. In 2004, in the US, the share of the total of income of the poorest or the lowest 50% of income earners was 14.5%. By 2019, it was edging towards 13%. So the workers got a lower share of income and productivity growth in that time went down. So if I understand correctly, the value of companies is going up drastically. And yet we still see a decrease in the income of workers. So how linked are these two trends? Well, we don't know. I think it's something that we have to find out. Our first expert guest is Zia Koreshi. He is a fellow at the Brookings Institute where he explores economic development and the relationship between technology and productivity. Hello, Zia. Thank you for joining us on today's episode. Hello. Pleasure to join both of you. Zia, Peter just showed us a very interesting graph. And on that graph, he showed as big tech firms have rose, productivity has actually fallen. I was wondering if you could tell me more about the correlation between those two things, but first define what productivity actually is and why it matters for our economy. Productivity, it's the level of efficiency of an economy. If you can produce more with the same level of inputs, you have higher productivity. Better human skills, improvements in organizational capital, different way of organizing and managing things. So in order to achieve the same level of economic growth or to increase it, you need higher labor productivity. Productivity is not everything, but in the long run, it is almost everything. So Zia, we've seen now that there is this correlation between the rise of big tech companies and a decline in productivity growth. What explains this contradiction? The successful firms, the big tech now, the tech giants, I mean, they are doing well. The problem is that the benefits of technological change, they have not diffused widely throughout the economy. There are several reasons why we see this phenomenon. There has been a decline in competition in markets. When you have the rise of monopoly power and a weakening of competition, that is not good for a wider diffusion of technologies and for future innovation because competition is a major force that promotes these kinds of outcomes. So the way big companies exercise market power matters too to keep their potential competitors at bay. There are a number of other complementary things that need to happen in terms of skill, in terms of adapting your organization, making investment in new technologies. For small to medium firms, the slow response on the supply side in education and training system to respond to the change in demand for skills, these are all sort of factors that have played a role. You said that there is increased monopoly and oligopoly. What explains that? What does that look like in the market? For instance, in the U.S., if you look at the share of top three, four firms in the total sales of that industry in which they function, they have captured an increasing share of profits. That is profits in excess of competitive market conditions. That share is estimated to have increased to about one-fifth compared to negligible levels in the 80s. So this is a whopping increase. So building on what you just said, in Peter's graph, we saw that the value of big tech firms is going up, but in turn decreasing is middle class incomes. Is big tech, do you think, to blame? These elements are connected with the emergence of tech giants. But there is also a larger overarching phenomenon, which is technology and the nature of technological change itself, which has shifted demand for labor away from low to middle level skills to higher level skills. So that has, in a very significant way, increased inequality of labor income. And there has been a polarization in markets, especially with the share of jobs which use routine middle level skills declining because these types of work are more easily automated. And some of this is just the larger macroeconomic impact of technological change and how it has transformed labor market. Ziya, as we close part one of this episode, what do you think are the specific policy responses that are needed? What has been happening is that technology has causing major transformations in markets. But policies have not adapted to those transformations in a way that could produce better outcomes. So in terms of the role of policies, there needs to be a strengthening revamping of competition policy. One is, of course, a toughening antitrust. More importantly, responding to the new regulatory challenges of digital economy, the regulation of data. Second is to improve the innovation ecosystem so that it promotes innovation, but at the same time, it promotes a wider diffusion of knowledge embodied in new technologies through reform of pattern system. Third is the strengthening of infrastructure that supports digital transformation so that we reduce digital divide in its various manifestations. I mean, today, access to broadband is as important as access to electricity was in the last series. Fourth is that we need to revamp education and training systems to emphasize the acquisition of skills that complement new technologies. So there needs to be much more investment and the right kind of investment in upskilling, reskilling workers, lifelong learning, et cetera. And fourth, the social protection systems to align them with the change in markets and the natural work so that they better support workers in retraining and then transitioning to new jobs. If we have more responsive policies in these areas, policies that adapt better and quicker to the changes and transformation that technology is unleashing, that would make the growth process itself more inclusive. So before we pose the question how we redistribute gains from growth, we will have growth itself more inclusive. So to get our economy more productive again and to have less inequality, there's a whole host of things we'll need to do. Thank you so much, Zia. Thank you, Peter. I enjoyed this conversation very much. Our second guest is Maritje Schaake. Maritje is a former member of the European Parliament for the Netherlands and she's now studying tech policy at Stanford University. Hello, Maritje. Hi. Nice to see you. Maritje, we are looking today at the power of big tech. I want to ask you to start us off. We've seen, of course, that the biggest companies in the world today are indeed technology companies. They're just very big. What you've also looked at is, let's say, their market power and the structure of the markets in which they operate. Could you tell us a little bit more how those markets look like? There's a handful of very big players and there is a growing concern about what abuse of their market power these big tech companies might wage. So there are economic harms, a question of whether newcomers will ever be able to catch up. But there's also growing discussion in the United States, in the European Union, about what societal harms stem from having a handful of these excessively powerful companies, particularly because a number of companies are essentially data companies and advertising companies. They're commercially driven. That's not a surprise, but they feel a lot of spaces where the public debate takes place, where political debates take place. And so there's a lot of questions about what it means when advertising giants are actually designing the information architecture of our democratic society. So it's a lively debate, I would say, about what is a proper role in the market for big tech and where has it become excessive and in need of regulation? Maritja, you talk about this market power as if it is self-evident that this market power exists. What is the reason, though, for big companies to have market power? Is it because they operate in a competitive market? That wouldn't be the case. Is it because they are operating in a monopolistic or an oligopolistic market? What's your take on that? Well, my take is there's not enough competition and also that the rules that we have for preventing monopolies from existing, preventing cartels, preventing price discrimination and consumer harms really stem from an era before these big tech companies were so prevalent. Now, imagine a service where the consumer essentially doesn't pay, right? They are quote unquote free services, but at the same time, the consumer contributes with all the data trails that they leave behind through the friends that they make, through the hobbies that they have, through the purchases that they do. And so for the data giants, this is the most valuable contribution. But the rules that we have don't exactly match with assessing whether that is a fair proposition. Is the market being assessed for whether there's dominant players or rather, does all this data end up in one big pile? And should we say that the market really is that of data? Another way in which these big tech companies have become so, so significant and so powerful is through mergers and acquisitions. And their scale and size plays another role, because if you have billions in the bank, it's easy to buy your competitor before they even have a chance, assemble more data, be less competitive. And this is kind of the vicious circle that we have to break. Maurice, is more regulation simply the answer? Well, I don't think they're simple answers, but regulation is certainly part of the answer. I think in the US for a long time, the message from Silicon Valley has been regulation stifles innovation. But in fact, the inverse is also true. If there's not a fair market, innovation is stifled. If there's only a handful of very comfortable, very wealthy players, then small competitors, innovative startups don't get the chance that they deserve. I think of regulation as enabling condition for freedom as a framework for an open society. I think it's time to get to the next step and ask regulation of what for what, because regulation is a process. It can end in a gazillion different destinations. So we need to also look at the substance. You know, what is the regulatory process leading to? And is it an improvement? That's what public policy is all about. And I think that public policy decisions should be made with the public mandates, not in boardrooms, the way that they are now. We've really seen a privatization of public policy in an unprecedented way, which, you know, I do think also requires regulation in the interest of preserving democracy and, you know, the kind of transparent rule of law based process that we believe in in democracies. Another way that you said you can restore the balance in the market is by introducing something you called middleware companies. Could you tell us a little bit more about that idea? So the idea of middleware is that it sort of sits between the internet user and the big tech companies and could help them curate the information that they find on the internet to be more to their own choices, not the advertisers choices or the big tech firm choices. So imagine you have middleware that is made by the public libraries and that will give you more search results with literature, for example, or middleware that could be made by the EFF, a civil rights organization focused on the internet and digital rights. They could, you know, prefer privacy protecting conditions when you surf the internet and so on and so forth. So the idea would lead to more agency for the individual internet user, more interoperability, and also therefore more competition on these massively powerful platforms. And hopefully they would give more of an ability to self select instead of sort of being fed all this information that people don't really have a way of knowing why and how they got the results that they did. One potential solution could be for consumers to pool their data to collectively bargain against big tech firms. Of course, this was a solution advocated by prominent businessman Andrew Yang. And I'm curious, what's your take on this strategy? Well, there's a lot of talk about how data governance can be more in service of the public, public values, but also individuals. And I think data trusts, which is probably the direction of thinking that he was articulating, are an interesting thought, but it really depends on who then governs these trusts. And I think one pitfall of data trusts is that they could sort of entrench the model of commodifying data, whereas at least in Europe, there's also a big conviction that actually, for example, the right to privacy and therefore your personal data are fundamental rights. And so you don't really want to go into a model where, for example, people who can afford it can pay more for better privacy protection and others are incentivized to trade their data. So I think there's a real risk that data governance could could end up being sort of a class battle. And I think that would be the wrong direction. I do think that we need democratization of data governance vis-a-vis the big tech companies. And so I see a lot of potential to empower public values and both individual and collective rights. Is bigness in itself a problem in terms of corporate companies? The fact of the matter is that some markets are dominated by very few companies and it can very easily lead to abuse as we have seen. I think it's important that not only through antitrust, but also through transparency, through better protection of anti-discrimination principles, the whole idea of having independent oversight over products and services should also really apply to tech companies. They've somehow carved out a bit of an exceptional position for themselves. And I don't think it's sustainable. We see a huge erosion of trust in tech companies. And it is also, therefore, in their interest to restore that trust. And I think the only way that can be done is by having clear and fair rules of the road that can be independently verified. Maurici, what is your call to action? What are the specific policies or regulations that you would recommend? Well, I really wish there was a silver bullet, but there's not. So it will have to be a series of initiatives that, on the one hand, for example, would force more transparency when it comes to political advertisements or the handling of data, like micro-targeting. Why are people seeing the ads that they're seeing? Another aspect is this access to information. There is a real problem, particularly when we look at the growing use of AI, to really be able as an individual, as a regulator, as a journalist, as a civil society actor to understand, to have insight into how these systems work. And the more powerful they become, the more important it is to have a sense of how they work and an ability to learn, not only on the part of companies, but on the part of the public and society. Well, we talked a lot about antitrust. I think antitrust competition rules need to be beefed up. But I'm also quite enthusiastic about what we see coming out of the EU when it comes to data governance provisions, when it comes to a democracy action plan that really seeks to protect democracy for its own sakes. So a lot of this is interrelated. A lot of this is, you know, twisting one knob here and making sure it doesn't spill over on the other hand. But it's just to say that there's such a vast impact of the digital revolution and of the fact that there is a handful of dominant players, that it is important to look into all the directions of where harms are felt, whether it's the mistreatment of minority populations or people in sensitive categories, or whether it's the lack of opportunity for new startups that just don't get a chance in the current environment. So lots of work to do, and I hope we can continue this conversation about, you know, what the market looks like, why it matters to basically everyone and what can be done to keep it fair and safe and open. Thank you so much, Marie-Jaye, for being with us and sharing your tremendous insight. Up next is our post-match analysis. In today's episode, we explored the market power of big tech and we asked the question, is big tech too big? This leads us to our post-match analysis. Peter, I found the paradox that you and Zia presented to be particularly striking. We're living in the modern era of tremendous technological innovation. And yet we see productivity declining, which has been a major driver of economic growth. I found this so surprising. Yeah, it's surprising and indeed a paradox. And so that leads us to the question, well, what went wrong? And it seems that a possible explanation, a strong possible explanation, is the fact that we've seen an increase in market concentration. Those companies that have created this huge technological progress are in fact holding on to them a little bit too strongly for it to translate into broad societal and economic progress. Thankfully, Zia, he obviously presented the challenges, but he also presented some solutions and potential ways forward. Yeah, that's right, because of course, when you have established that the problem is the market structure, the fact that there is a lack of competition, then of course the solution is to restore competition into the market. You need to make sure that there's enough new entrants that can come and create that competition, that they can grow into the market, become challengers to the established large corporations. And of course, there's the question of tax policies. You have to make sure that that very, very large company of course pays its fair share of taxes and you have to reform those tax policies if that's needed. Those two solutions stood out to me. Yeah, the policy reform element also came up in Marucci's conclusions. So she talked about particularly the need for policy reform to protect digital privacy, also to secure and safeguard democracy. So she talked about some solutions not only to combat the economic consequences, but also some of the social consequences of big tech. Yeah, because of course we've been looking mostly through the lens of the economy to the impact of technology. But there is of course also the question of the societal consequences that it has. You need to make sure that there is better digital privacy, that data are better protected. We have control over our data. And in turn, that may also lead again to a better competition into the market. So it all comes back to that question of market concentration and restoring competition. Thank you, Peter. What an insightful conversation. It feels like we've just scratched the surface, but I hope we'll continue to talk more. That brings us to the end of today's episode. Thank you for joining us. And we hope to see you in the final episode of our series where we will explore the tangible steps needed in order to implement stakeholder capitalism. See you next time.