The Tech Industry and the Return of the Zero-Sum Game

Summary. In the tech industry we worship “disruption,” but to most people it’s a dirty word. In a world where insecurity and mistrust in institutions are on the rise, tech is increasingly out of step with the values of the public. This puts our companies at risk of hostile regulation and customer backlashes. We need to change our attitude and our behavior, or our industry may be seriously damaged in the years to come.

The situation: No more win-win.

Across many countries, and across the political spectrum, we are seeing a dramatic erosion in peoples' faith in win-win situations. Compared to the past couple of decades, there's less willingness to believe that the benefits of any change will outweigh the costs. Along with that, there's a general feeling of mistrust in institutions. Many people on both ends of the political spectrum believe the political and economic system is being gamed by insiders to the detriment of everyone else.

Those feelings have always been present in our culture to some extent, but today the feelings are very strong, and what's especially unusual is that fear of the future and mistrust in institutions are rising together. People are simultaneously afraid of change and unwilling to trust those who are supposed to protect them from its problems.

That's what gave us President Trump (link). People call him a businessman, but he actually practices a very particular type of business: He's a deal-maker from the real estate industry. If you've ever dealt with real estate developers (and I have) you know they live in a world dominated by zero-sum negotiations in which one side gains and the other one loses -- the taller your building gets, the more shade it casts on the neighbors. For one person to win, the other has to lose.

Mr. Trump is a perfect embodiment of the zero-sum attitude that's rising in society today. The attitude is showing up more and more frequently even in the supposedly-liberal press, but most of us in tech don't see it. We still believe in win-win situations. We have faith that the world will be better for the changes we create, and we expect that to be obvious to everyone else.

Silicon Valley is like a hothouse full of orchids in the middle of a blizzard. Warmed by our stock options and VC pitches, and insulated by the buzz of our fans on social media, we often fail to listen to the people out in the cold.

For at least a year I've seen a trend in the general press toward skeptical, if not downright hostile, coverage of leading tech companies. Airbnb and Uber/Lyft are prime examples. They're poster children for disruptive change, and increasingly I think the general press is covering the damage they cause far more than the benefits.

That's understandable. Among all the industries being disrupted at the moment, traditional journalism is one of the hardest hit. When reporters see their own careers threatened, can you really blame them when they show sympathy for other people in the same boat?

For example, in the Los Angeles Times, coverage of Uber and Lyft has focused very heavily on their damage to traditional taxi companies, with much less attention on their benefits for the average citizen.

An article in April 2016, headlined "Uber and Lyft have devastated L.A.'s taxi industry," (link) did a pretty thorough job of highlighting the economic pain being felt by taxi drivers in Los Angeles, but said next to nothing about the benefits of ride-hailing.

The taxi drivers' pain is real, and I don't want to dismiss it. But anyone who's lived in LA can tell you that taxi service there has always been dysfunctional: notoriously unreliable, slow, and expensive. If ever an industry deserved to be disrupted, the LA taxi industry is it.

Part of the challenge for the ride-hailing companies is that their benefits are very diffuse -- they make it a bit more convenient for lots of people to get around the city -- but the pain they cause is very localized and visible: Working class taxi drivers who can't make ends meet. Balanced coverage would talk about the costs and benefits of ride-hailing, and would explore ways to offset the pain for those who are on the losing side. But that balance is often missing.

A couple of other examples:

--A column in the NY Times detailed government efforts to regulate what it called the "frightful five:" Apple, Amazon, Facebook, Microsoft, and Google/Alphabet (link). The fact that the Times' tech columnist chose the word "frightful" to describe the nation's most successful consumer tech companies says a lot, but the column added to the problem by quoting academics who fear the companies' power. Did you know Amazon is about to destroy the nation-state? Dang! There was zero effort to describe the benefits those companies produce, or the consumer harm that could be caused by regulation of them.

--A ferocious column in the Guardian declared that the tech industry is destroying democracy (link)

--In a similar vein, a column in the NY Times credited tech with creating Donald Trump (link).

--This graphic on the front page of summed it up nicely:

The most disturbing thing to me is that the articles are becoming more and more shrill as time goes on. This is creating a toxic atmosphere for technology companies. Our industry is all about the benefits of change. For us, "disruption" is a positive thing. We welcome competition, because we assume that when a company or industry is destroyed, the new one that replaces it will be even better.

Our attitude is out of sync with the rest of the world. Our optimism makes us sound callous and arrogant. When we preach the benefits of something new, many people are reluctant to believe us, and some search avidly for any potential downside. The next step will be for them to actively oppose us, as is already happening to Uber and Airbnb.

In other words, tech companies no longer get the benefit of the doubt. Instead, any disruption we cause is likely to be assumed guilty until proven innocent.

What to do: It's time to eat humble pie

Om Malik recently wrote a commentary in the New Yorker suggesting that we in tech need to get outside the latte bubble and talk with normal people (link). That's a great beginning, but there's a lot more we need to do:

First step: Think. We should take these criticisms to heart. As a start, it you haven't done so already, read the Guardian article I linked above and think about it. In my opinion, the author is mistaking a transition for a collapse, but the important thing is for you to decide what you think, and then for all of us to have a rational conversation about it.

That sort of sober, logical discussion is very hard to do when everyone's frightened and reacting emotionally. So we need to drain some of the emotion out of the discussion of tech:

Shut up about destroying things. The tech industry thrives on negative energy; we love to brag about the brain-dead products and  industries that we're going to destroy. It's an old habit we picked up from Steve Jobs, and it doesn't serve us well in the new era. That sort of talk needs to stop. The only person who thinks disruption is sexy is your VC, and the only place for discussing it is a private presentation to investors.

Don't be a jerk. The culture in many successful tech companies isn't exactly compassionate. We tend to compete hard and talk bluntly, and sometimes we celebrate companies that will do anything to win. That leads to arrogant exec comments in public and employee behavior that skirts the edges of legality. When everyone loved the tech industry, that sort of behavior was often forgiven. But today it's more likely to get a company permanently branded as untrustworthy, and therefore in need of regulation. And it hurts the rest of us because it puts the whole industry in a bad light.

Don't overpromise. Hype is another long-time tech industry tradition, born of our own enthusiasm for our products. We sell the vision we're trying to build rather than its implementation today. But in the current environment, that comes across as lying. Every time we do it, there's damage to not just the company that exaggerates, but to the trustability of the tech industry in general.

Case in point: the term "artificial intelligence," which our industry applies to a technology that, when you strip away all the hype, basically consists of high-speed pattern matching. Are there potential job losses created by that pattern matching? Yes indeed. But the same thing happened with every technology breakthrough since the steam engine. You'll need to make a really strong case that this time is any different from the others. So far I have yet to see that case. But the term "AI" makes regular people think that we're about to create malevolent super-intelligent Skynet robots that crush humanity underfoot. That's not possible within the practical planning horizon of anyone who's not a singularity honk – and if Moore's Law continues to decelerate, it might not be possible ever. Meanwhile, our language terrorizes people and interferes with the real, rational discussion we need to have about productivity vs. job loss.

If you want a simpler example, consider the damage done when Tesla named its driver assist feature "Autopilot." That term has a very specific meaning to the public, and Tesla didn't deliver on that meaning. Every time we do something like that, we say to the public (and government) that we can't be trusted and need to be regulated.

Speaking of regulations, we need to make friends in the government(s). As a small-government guy, I dream of a world where companies are free to innovate, and the market alone chooses winners and losers. We don't live in that world. Government regulation is a fact of life in modern society, and in the current atmosphere, the more we disrupt things, the more we're going to be regulated.

So we have two choices: We can either partner with government, and get regulations we can live with; or we can ignore government and get rolled. That doesn't mean we all need to turn into influence-buying pond scum. Engaging with the government means being up front with regulators about any problems you create, and being willing to engage with them on solutions. I know from personal experience that most government regulators mean well and are just trying to enforce the law. They usually don't have a deep understanding of tech, though. So getting to them early, being honest, and sharing information freely can help them understand the difference between reasonable and unreasonable regulation.

This takes time and commitment, a price that most tech companies, especially startups, are not willing to pay. This is a case where the investment community should step in. The safety of your investments depends on good relations with the right regulators. You should be cultivating contacts in the government (national and local), and you should be teaching your portfolio companies how to use them, just the same as you teach them how to do Facebook advertising or agile product development.

There's a separate issue of lobbying politicians (as opposed to regulators). Some industries have become so enmeshed in government that they see political influence-peddling as a primary means of competing (aerospace, telecom, etc). I am not suggesting that we join that group. The thing that motivates all politicians is getting re-elected. If you're not going to fund their election campaigns, the key to influencing them is to have a lot of public support. You don't have to make huge campaign contributions if you have a lot of customers who love you and will speak up for you. That brings us to the next issue...

Measure and document your benefits to society. It may be obvious to you that your company produces a net benefit to society, but you should always assume that it's not obvious to anyone else. The press will focus on easily found victims: the mom-and-pop retail store put out of business by an online competitor, rather than the benefits of lower prices for everyone else in society. It's your job to document and communicate the good you do for society, preferably with charismatic examples of happy customers you've helped. If you can't find those, you need to get a better marketing team, and in the meantime you should hire a consultant to do a good economic analysis of the your benefits to society as a whole.

Take responsibility for the problems you cause. If there is a group that's hurt by your disruption, be sympathetic to them. Can you do something to ease their transition? Are there ways society can help them? Get out in front of the problem and help to solve it. If nothing else, don't act in denial of the downside; instead, make clear that the upside is better.

When we've done all of this – when we've calmed the panic and taken responsibility for the messes we create – then we can start rationally crafting a system in which we're allowed to innovate because the world trusts that we won't be irresponsible about it. That probably sounds like a tall order, but really I don't think we have any other choice. It's possible the public mood will improve dramatically on its own in the near future, but I doubt it. Big public swings between pessimism and optimism tend to last a decade or two, longer than the lifetime of most tech companies. For safety's sake, we should view the current situation as permanent and adapt ourselves to it, rather than huddling in the greenhouse and hoping the storm will pass.

What do you think? Am I overstating the problem? Am I wrong to believe that innovation is generally a force for good? Does the tech industry need to change in other ways? I welcome your comments.


Liberty said...

You forget that most tech companies now win by leveraging ever higher fixed costs with low marginal costs. The investments are disproportionately spent in the Valley, and when something needs to be made, it is often outsourced to China. In the past, the costs of transportation and communication ensured a much wider geographic dispersion of people benefiting from the new. Today, where are the pockets of new wealth that help sustain communities throughout the land?

rezpe said...

Hi, I agree with most of your points. As Liberty also points out, you miss one of the main problems, which is the non-redistribution of wealth. The high tech companies are amassing huge wealth and not sharing it with the community. I know it's not worse than what the finance companies have done, but they are not setting a good example. I guess that's a direct issue the industry has with the VC's which require huge ROI.

Anonymous said...

Also worth noting that if tech companies want to be trusted by society, they should also clearly consider if their business model is actually benefiting both them and society. Uber is a great example of the conflict here. It's disadvantaging the incumbents (taxi companies and their employees), arguably creating a less secure form of employment for people that work through the platform (current reporting suggests that the conditions are far from good for drivers, with some earning exceedingly low hourly wages), but benefiting riders with a cheaper and more reliable service. That's 2 negatives and only one upside.

Michael Mace said...

Thanks for the comments, folks! This is interesting stuff. Keep it up.

>>Liberty said... You forget that most tech companies now win by leveraging ever higher fixed costs with low marginal costs. The investments are disproportionately spent in the Valley, and when something needs to be made, it is often outsourced to China.

For hardware I can see that; for software I think the dynamic is different.

>>In the past, the costs of transportation and communication ensured a much wider geographic dispersion of people benefiting from the new.

Really? I think of Detroit in automobiles, Hollywood in movies, SoCal in aerospace, Pittsburgh in steel...I think there have been industry centers for as long as there's been industry. To me, the issue is that we haven't done a good job of repurposing those centers when the industries change.

>>Today, where are the pockets of new wealth that help sustain communities throughout the land?

I agree that's a key question. It's worthy of a full blog post...

>>rezpe said... The high tech companies are amassing huge wealth and not sharing it with the community....they are not setting a good example.

It varies from company to company. I think Bill Gates is setting an awesome example; I wish more execs behaved like him. (Wow, that is the first time I have EVER said that.) But yeah, there's a sense that the people in the tech industry get rich and have a lavish lifestyle and everyone else sits on the outside getting crumbs. I don't think the solution is to force them to share more crumbs, though; it's to figure out how we can make everyone rich.

>>Anonymous said... if tech companies want to be trusted by society, they should also clearly consider if their business model is actually benefiting both them and society.

I agree.

>>That's 2 negatives and only one upside.

Yeah, but you need to quantify the benefits and costs. One benefit might be sufficient if it's big enough. In this case, I think ride-hailing can make a significant dent in the commuting and transport problems that are strangling US cities. That's such a huge upside that I think it clearly outweighs the costs. Unfortunately, Uber has been fantastically inept and arrogant about telling that story. It's very disappointing.

Anonymous said...

In some ways what Tech companies perceive as "win-win" is actually a type of "win-lose".

Take for example the press industry. They used to live from advertisement on newspapers first, then in radio, cinema and then TV. Specially radio and TV were in lots of cases offered for free with ads.

Now if you calculate the wealth that was spent of Advertisement in the past with what is spent today you realize it is more of less the same, in real terms corrected by inflation, but guess what, to the press their income went downhill when to companies like google or facebook it went up by the same amount.

You don't have to be a rocket scientist to understand that google and facebook are taking what the press is losing. But with an important difference: It is creating billions of profits in California but creating locally loses in every country that has not the Silicon Valley ecosystem.

Also the average Google or Facebook worker earns more than 400.000 dollars a year because those companies are by definition huge automating machines, and they will be even worse, they are investing billions in neural networks and AI in order to automate everything than a human does. Every googler takes the salary of 10 people in the rest of the world, and they want to take 100 or 1000. Remember the Mark Zuckerberg famous phrase about not wanting to be a millionaire.

Of course this only could get to a point until countries and politicians start realizing that they are not being beneficiaries of the system and start building walls in order to create a new one that benefit most of the people, and people will support them, because if you think you are in bad situation in the US, in the rest of the world is 10 times worse. Just a normal balance benefits-cost tells them the current system does not benefit the country as a whole.

Real win wins in the future come from breakthroughs technologies like nuclear fusion in 5-10 years from now, but not for displaying "likes" or more beautiful emoticons. Things like tissue reparation and eternal youth(from stem cells), or going to Mars and other planets.

In some ways some breakthroughs are only possible when another happened. For example in order to go to Mars you will need to fix the cellular harm of radiation in Space, or have plenty of cheap energy fro creating water and oxygen. If you want to go to Saturn or exploit resources far away in the Universe you will need eternal youth as the voyage could take years.

Elia said...

>>>>In the past, the costs of transportation and communication ensured a much wider geographic dispersion of people benefiting from the new.

>>Really? I think of Detroit in automobiles, Hollywood in movies, SoCal in aerospace, Pittsburgh in steel...I think there have been industry centers for as long as there's been industry. To me, the issue is that we haven't done a good job of repurposing those centers when the industries change.

You are thinking way too shallow, Michael. Automobiles produced in Detroit required steel produced in Youngstown, bolts produced in Portland, and fabric produced in Raleigh. And those cars made it possible for truckers in Omaha, delivery drivers in Houston and taxi drivers in NYC to all earn a living. The benefit of cars produced in Detroit had wide-ranging economic impact all across the country.

Anonymous said...

Your statement that people are nowadays wincing whenever the "disruption" theme pops up is correct. There are growing doubts that "disruption" by itself, even of crummy incumbents, brings any genuine benefits to society, especially if, as other commentators point out, they are even less equitably distributed.

Those doubts obviously require a case-by-case analysis -- not throwing all babies with the paddling-pool water, sort of.

Uber is a good example why scepticism is growing. Some experts have studied the business model of Uber -- and the results are devastating; contrarily to Amazon, for instance, there is no positive economic justification for Uber. As a reference, look at the 5 parts investigation published at NakedCapitalism.

part 1

part 2

part 3

part 4

part 5

So when asked a bit harshly "where is the beef?", technologists, startup developers and managers will increasingly have to give proper, grounded answers -- as the shiny VC or kickstarter arguments raise suspicion.