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Salvo 02.09.2022 15 minutes

The Zaibatsu-ization of America

US-IT-lifestyle-Amazon-internet-technology-economy-computers

Our tech overlords have forsaken innovation for consolidation.

Enthusiasts of “the new economy” long cherished the notion that it would be different from the unenlightened, sluggish, and piggish older one. Yet our economy seems increasingly to resemble not some hippy capitalist utopia, but the deeply concentrated economy of pre-war Japan.

At the time, Japan had developed an economic model around a handful of large corporate conglomerates called zaibatsu. Organized as a “financial clique,” with a bank at the center, these firms extended their interests into virtually all economic activity. They included Mitsui, Mitsubishi, Sumitomo, and Yasuda. Mitsubishi led the way in shipbuilding, steel, and of course aircraft, being the creator of the famous Zero fighter.

Until bested by their onetime allies in the military, the zaibatsu dominated Japan. The war initially benefited them, but ultimately ruined their businesses as Japan was devastated. Yet they were so essential to the function of the economy that they were gradually rehabilitated during the U.S. occupation, recreating their historic pattern of using smaller firms as convenient subordinates.

Today we see the rise of a few companies, who have moved into virtually every aspect of our economy. The nerds of Silicon Valley are no longer just interested in gadgets to make life better but are seizing control of both the production and dissemination of information. Arguably the greatest beneficiaries of a pandemic that hooked people ever more on their products, the tech giants now have the capital to lead the drive into space and the forced march to electrical vehicles, while also looking into dominating more prosaic fields like healthcare and finance. 

The zaibatu-ization of America’s economy presents an enormous problem of governance. Our constitutional structure is based on the notion of many competing players. When concentration became too evident, and politically potent, as during the early decades of the last century, measures were taken to slow, and even reverse, over-concentration. Yet in the past few decades, the largest emerging corporate interests—Meta, Google, Apple, Microsoft, Amazon—and a handful of large financial institutions gained unprecedented control over the economy. By last summer six tech firms, including Tesla, accounted for half the value of the NASQAQ 100.  By 2020, the five largest tech companies had total revenue amounting to half of those of all state governments combined.

The new tech industry rose dramatically in the eighties. Achieving an almost mythological status, these companies faced few barriers to ascendency. Unlike corporate rivals in sectors like energy and telecommunications, there was little to prevent their hegemony over the digital domain. They have extended that rule to other fields in a way that would have made zaibatsu executives, or further back, powerful feudal daimyo envious. In virtually every key field— operating systems, social media, search, the cloud—a handful of firms now dominate. For example, Google and Apple account for nearly 90 percent of all mobile browsers worldwide, while Microsoft by itself controls 90 percent of all operating system software. Three tech firms now account for two-thirds of all on-line advertising revenues, which comprises the vast majority of all ad sales.

Small business are now waiting to be gutted. Amazon secretly mined sales data from independent sellers who were using the company’s e-commerce platform in order to guide Amazon’s development of cheaper knock-off products. Google has been fined billions of dollars for giving preferential treatment to its own shopping service on its search site and has been accused by one of its few competitors, the much smaller Duck Duck Go, of manipulating browser extensions to drive customers from rival products. Apple continues to place strict limits on who can join its App Store and how developers can receive money from apps.

Days of Innovation Past

We are a long way from the early days of Silicon Valley, a remarkable mashup of new and old companies, full of enthusiasts eager to build new products that often challenged the existing corporate hierarchy. I personally witnessed the exciting birth of this revolution; now these same companies are the hierarchy, and like hierarchies in general, they have become oppressive towards competitors and far less creative than they once were.

They are busily taking control of the means of information. Amazon, Microsoft, and Google     already dominate the cloud and are now seeking control of underwater cables; in the past decade the large tech giants have boosted their share of undersea cable traffic from less than ten percent to roughly two-thirds.

The CEOs may still wear hoodies and speak woke, but they essentially seek, like other monopolists, to consolidate their market position, making them both essentially risk-averse, anti-competitive, and overweening. Mike Malone, who has chronicled Silicon Valley over the past quarter century, sees the Valley as having lost much of its egalitarian ethos; the new masters of tech, he suggests, have shifted “from…blue-collar kids to the children of privilege,” while also moving away from the production ethos that made the Valley so inspiring and egalitarian. “An intensely competitive industry,” he suggests, has become enamored with the allure of “the sure thing” backed by massive capital. If there is a potential competitor, they simply buy it.

Yet in many ways, the new tech zaibatsu differ from their Japanese counterparts in critical ways, particular in terms of place and national loyalty. The traditional Japanese business combines, like their German equivalents, had an international ambition, but were solidly tied to   national interests. They wanted a diversified economy, which at the time was based around the key industries of the time—shipbuilding, aircraft, and steel. These all required a domestic concentration of skills, capital, and plants. Competition came from foreign firms, but managers worked to limit penetration into domestic markets.

Our new chieftains have no national allegiance. Today’s corporate hegemons see themselves not as national identities, but global ones. They don’t even depend much on our own education system: some 75 percent of Silicon Valley’s workforce are not even citizens. Many are H-IB indentured servants, “technocoolies,” brought in short-term contracts to do work they don’t have to pay Americans to do.

The Rich Have More Money

The rich, as Fitzgerald noted, may always have been “different” from us but, for the most part, they used to identify as Americans, and with few exceptions, rallied to the nation’s cause in time of crisis and foreign confrontations. The new elites  represent something very different. They largely see no need, for example, to confront China’s challenge for global preeminence, as long as they can get a piece of the action. Virtually all our elite, particularly on Wall Street as well as Silicon Valley,  is betting on China, and seem far less than interested in helping America, or liberal capitalism, stand up to autocracy than making ever more profits in the short-term. Their advocacy for “zero-carbon,” which will make energy far more expensive, reflects a priority expressive of both virtue signaling and an opportunity to make profits, even at national expense.

Apple’s $275 billion deal with China, which guarantees the firm’s continued dependence on the Middle Kingdom, and also promises to hand over technology to the center of an emerging authoritarian world-state, epitomizes the antinational tech perspective. China certainly has trained the tech oligarchs well to ignore human rights violations in Xinxiang and Hong Kong, as was made frightening clear by one of them who claims, probably correctly, that “no one” cares about these issues. Perhaps they won’t stand up against an invasion of Taiwan as long as Xi gives them the microchips they need once the party has secured control of the island republic’s fabled fabs.

But if the American zaibatsu are uninterested in the prosperity or health of their fellow countrymen, they have broad ambitions to control virtually all aspects of American culture, politics, and news. This has had a chilling effect on free speech. If the different companies and individuals represented a diversity of opinion that might be a neutral matter. But, with few exceptions, virtually all the tech companies embrace the same progressive politics, particularly on issues like the environment, gender, and race that do not directly assault their own wealth and power.

This process reflects the milieu in which these companies operate. For one thing, they are almost all centered in two places—the San Francisco Bay Area and the Puget Sound—that have long been among the deepest blue areas in the country. They recruit heavily from both foreigners, who are now told not to embrace supposedly corrupt “American values,” and from elite colleges where political indoctrination has made many CEOs, notes the Bay Area Council’s Jim Wunderman, “afraid of their own employees.”

Donald Trump’s 2020 loss may have been caused by his far from adept handling of the pandemic, but   also efforts heavily financed by tech oligarchs like Mark Zuckerberg, who spent hundreds of millions of dollars on getting the desired electoral result. The oligarchs had many business reasons to detest both Trump and his loudly nationalist policies, and have openly boasted, as pointed out in Time (owned by Salesforce’s Mark Benioff) of their success in removing the former President.

Consolidation

The oligarchs increasingly are moving to consolidate their hegemony. The big media backed by the oligarchs tends to be woke, and their donations often go to groups that are at best left of liberal. The Washington Post under Jeff Bezos, an unrepentant and voracious capitalist, has become more far-left progressive than under its previous more genteel, though clearly liberal, owners.  

In the largest platforms, increasingly, Covid and climate policy skeptics—even when highly credentialed are consigned to the  digital gulag. Unlike traditional media barons, they  don’t have to worry much about losing customers, because, , notes Peter Thiel, they operate from the high space of monopoly or oligarchy, where their market shares reach 80 to 90 percent. As  Mike Lind has noted, these are exemplars of “tollbooth capitalism,” which receive revenues on transactions that far exceed anything they lose on media.

This influences their approach to culture and entertainment. A woke television series may not do well, much like the remakes of popular movies, the premium cable stations could be losing their audience at a rapid rate, but in the end, this represents little more than petty change to the oligarchs while vastly increasing their influence and access to celebrities. Amazon Prime, for example, in 2020 spent $11 billion on entertainment content, barely a rounding area  in a company enjoying over $330 billion in revenues.

The consequences for the future of society, however, is less than trifling. In entertainment. Netflix, essentially a creation of the venture capital industry, turned out to be just the harbinger. Now Apple has its own studio, as does Amazon, which is also looking to buy MGM. The streaming world is run from Palo Alto or Seattle, not from Hollywood. And as we move into the much larger game industry, Microsoft struck a $75 billion deal for Activision, expanding its already enormous presence in videogames. Meanwhile, while the much touted metaverse— now the latest Wall Street dream—could turn experience into a branded product for the new overlords.

In the coming years, there is still an opportunity to control, and limit, the zaibatsuing of our economy and society. Some, including right-wing libertarians, place their bets on “creative destruction” to limit oligarchic power. And to be sure, we may see even some of the mega-giants change hands, or merge, and an occasional new player could emerge. But in the “one and done” era, there’s not much evidence for such wishful thinking; these firms generally are not losing market share, and, if they do, they can acquire new opportunities by buying competitors, much as Facebook, now Meta, swallowed Instagram, What’sApp and then Oculus, whose technology stands at the core of the metaverse.

For the current Administration, with strong ties to both tech and Wall Street oligarchs, the future presents difficult choices. The public is increasingly skeptical about the tech zaibatsu, fearing for both privacy and censorship. The far left driving the party, epitomized by Senator Bernie Sanders, is constitutionally hostile to ultra-wealth corporate powers, and demands harsh constraints on their power. Smaller tech firms, like Yelp, Sonos and Y Combinator also are seeking constraints on zaibatsu power.

But something more important than the political fate of Joe Biden is at stake. Zaibatu-ization essentially undermines the promise of liberal capitalism. The current order is not winning over the populace; a strong majority of people in 28 countries around the world, according to a recent Edelman survey, believe capitalism does more harm than good. More than four in five worry about job loss, most particularly from automation. Rising inequality and general fear of downward mobility have boosted support for expanded government and greater re-distribution of wealth.    

Instead, we will have to see some policies, as we saw over 100 years, that control these firms or even break them up, as occurred to their Japanese equivalents after the Second World War. Their well-financed backers in Washington, with firms like Meta, Amazon and Google  employing lobbyists on right and left, will resist. But here’s to think that the public is not quite as stupid as the hegemons believe. They know that the tech zaibatsu limit economic opportunity and competitions while threatening free speech and our basic privacy. The question is whether Washington has the appetite to control them before it’s too late.

The American Mind presents a range of perspectives. Views are writers’ own and do not necessarily represent those of The Claremont Institute.

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