A Short History of Digital Capitalism

The late 90s were a high for economic liberalism. The end of history – with porous borders and no-holds barred trade – was all but coming, and inequality, it seemed, could be overcome. The advent of the digital era compounded this heady sentiment. By the 2000s, the free market had met its most suitable other in the decentralizing affordances of the internet. This was a time when a handful of companies like Amazon had emerged as rugged survivors of the dot-com bubble. Google’s search engine seemed like a gift to the world. Some theorists did recognize in these trends, the birth of a new cognitive capitalism that was enclosing the information commons for monopoly rents. But the pace and magnitude of digital capitalism’s planetary conquest was still to unfold.

Today, the digital revolution is emblematic of a pervasive societal anomie. The rising economic concentration, deepening labor-capital income divide, and an unconscionable geo-economic inequality marking our shared present tell us that the economic policy playbook of capitalist democracy has completely crumbled. A bubbling populist stew of hate and misinformation has also rendered the ‘right to be left alone’ – the cornerstone of the liberal-political democratic order – rather anachronistic.

In the Western world, the past few years have seen a rising techlash in calls for regulatory action to rein in the digital behemoths. The European Union (EU), impatient to build back after the Covid pandemic, has initiated a flurry of legislative proposals. The United States (US) has witnessed bi-partisan support in favor of Big Tech regulation. Both EU and US are also contemplating content governance measures to hold social media platforms accountable for misinformation, hate speech, and behavioral nudging.

Meanwhile, China is racing ahead with measures to check Big Tech. Beginning with the suspension of Ant Group’s IPO in Shanghai and Hong Kong stock exchanges in October 2020, the Chinese state has enacted an array of anti-trust, financial, consumer data protection, and algorithmic governance laws and policies to discipline its home-grown Big Tech companies.

The Chinese Fix and What Sets it Apart

The response of the Chinese state stands out not only for its rapidity, but also for its decisive, and arguably, radical, edge. China’s tryst with political capitalism has seen the country adopt the market system and, even more importantly, a market culture. Rising income inequality, exploited gig workers, survival woes of small businesses, widespread sexism in the tech industry, exploitation of consumers by fintech firms, all suggest a runaway market culture that shares much with Big Tech-led sociality elsewhere.

China’s crackdown on Big Tech stands out in three critical areas where Western governments continue to dither.

Regulating the Anti-Competitive Conduct of Big Tech Companies

As early as 2018, China introduced an e-commerce law that required platform owners to clearly distinguish their offerings from that of third parties (who sell on the platform), so that consumers are not misled. In August 2021, through the Internet Information Service Algorithmic Recommendation Management provisions, the administration tightened regulatory protection for a level-playing field in the e-commerce marketplace, targeting the use of algorithmic recommendation systems for manipulative, self-preferential treatment (Article 13). While instituting such tough measures, Chinese regulators seem unfazed by the prospect of negative capital market sentiment. In June 2021, even as home-grown Didi Chuxing was listing on the New York stock exchange, Chinese regulators announced a probe against it for anti-trust violations.

The lack of regulatory teeth to make the switch from behavioral fixes to structural remedies in competition law speak to the singular bottom-line in the US case – Capitol Hill lobbying by Silicon Valley, combined with a perennial fixation with stock market performance.

This is in stark contrast to the US. The episodic highs and lows of public whistleblower testimonies, Senate hearings, and civil society outrage notwithstanding, so far, US policymakers have taken little concrete action to assuage the interests of consumers and small firms in the digital marketplace. In October 2021, the American Innovation and Choice Online Bill was introduced in the legislature with much fanfare. This piece of legislation seeks to lay out “commonsense rules of the road for major digital platforms to ensure they cannot unfairly preference their own products and services”. But whether the hype will translate into real impacts for leveling the playing field is anybody’s guess. As the Electronic Frontier Foundation has highlighted, the House version of the bill has an “escape valve” where companies are only required to justify why users are directed to their own offerings; there is no outright ban on such anti-competitive practices. The recent exposé about how Amazon ripped off its third-party sellers’ products and rigged search results to favor its own products in India, points to extreme abuse of market power. Regulation must therefore target and prevent the vertical integration between the marketplace layer and product layer in e-commerce. Yet, the lack of regulatory teeth to make the switch from behavioral fixes to structural remedies in competition law speak to the singular bottom-line in the US case – Capitol Hill lobbying by Silicon Valley, combined with a perennial fixation with stock market performance.

Taking Cognizance of Big Tech’s Wider Impact on Society

In July 2021, an unexpected new policy was jointly announced by top-level party and government bodies in China (the General Office of the Central Committee and the General Office of the State Council) mandating ed-tech and after-school tutoring companies to re-register as non-profits. Additionally, investment in the sector from foreign capital as well as raising public funds through Initial Public Offerings (IPOs) were also banned. A high premium on educational achievements of their children has meant that Chinese parents are willing to pay out a lot for children’s education. The booming market for tutoring has seen investors getting a five-fold return on education companies.

An excessive and unjustifiable incursion of the market into the social sphere is the sine qua non of digital capitalism. The kind of regulatory moves being made in Chinese ed-tech are structural shifts that are bound to present organizational challenges to startups in adapting their business model. But this also means that in the longer term there will be less room for cash burn tactics of first movers who monopolize the digital market place through anti-competitive practices like deep discounting and predatory pricing. Innovation could potentially move to create value that is both commercial and societal. As the Chinese Ministry of Education noted, for-profit utilitarian approaches that are “severely hijacked by capital” and “ignore the laws of education” are not socially sustainable.

In a similar vein, through its new provisions on recommendation algorithms, discussed above, the Chinese state has also attempted to tackle the excesses of social media platforms front and center. The guidelines prohibit creation of recommendation algorithms that “lead users to addiction or high-value consumption” (Article 8), place the onus of curtailing the circulation of unlawful content immediately after detection on platform operators (Article 9), and disallow the creation of discriminatory or biased user tags (Article 10). In September 2021, Chinese regulators also cracked down on the online gaming industry, introducing curbs on the total hours of service that video game platforms can offer children.

The wanton deployment of engagement-based ranking by these companies to keep up the circulation of harmful, inflammatory, or untrue content needs to be the focus of liability.

While the jury is out on the exact nature of policies and regulation needed for online addiction and gaming, it is worthwhile remembering that algorithm-driven social engineering is a pervasive malady – one with huge implications for civic participation and public reason in democracy. Ironically, in liberal societies – despite strong values about individual autonomy – the response to the social media dilemma has been somewhat lack-luster. Frances Haugen’s testimony to the US Congress in October 2021 on Facebook’s internal handling of content highlights why reforms to Section 230 of the US Communications Decency Act cannot stop with making social media giants liable only for content that its users post. The wanton deployment of engagement-based ranking by these companies to keep up the circulation of harmful, inflammatory, or untrue content needs to be the focus of liability. Beneath all the hype about bipartisan support for social media regulation, political faultlines continue to play a part in stalling online content regulation in the US – with no consensus among the Republicans and Democrats on who should be pinned down, and how, for algorithmic justice.

With respect to recommender algorithms, the EU’s draft Digital Services Act has received much acclaim. The law requires large online platforms to be transparent about the main parameters used in such algorithms, provide users with easy options to modify them, and make available at least one service option not based on profiling. But as the global civil society organization, Article 19, observes, the legislation stops short of incorporating measures to dismantle the surveillance advertising business model. The duty of recommender algorithm transparency could have been extended to all platforms. More importantly, it could have been mandataory to ensure that recommender systems not based on profiling are the default option for all platformized services.

The proposed AI Act of the EU does attempt to address this gap, by instituting an explicit ban on algorithmic recommendation systems that are “designed or used in a manner that manipulates human behaviour, opinions or decisions…causing a person to behave, form an opinion or take a decision to their detriment”. But as observed by Ansgar Koene, European scholar of AI ethics in an interview with the authors, applying this provision in practice can be tricky, “given that behavioral modification is the objective of all advertising, how is one to determine the threshold at which such nudging becomes detrimental”? Furthermore, in his final analysis, Ansgar adds, “with the EU always trying to both be a proponent of globalization and open markets while countering the excessive market forces that occur from network effects”, the law unfortunately is likely to give the benefit of doubt to social media companies.

Policy Intervention to Tackle Social Inequality

During the 2020 US presidential election, California’s ballot included a referendum called ‘Proposition 22’ (Prop 22), supported by firms such as Uber, DoorDash, and Lyft. Ride-hailing companies spent over $200 million bombarding Californian voters with emails, fliers, text messages, and video spots claiming that the proposition was fair to gig-economy drivers. Over 58% of California’s voters endorsed Prop 22, classifying drivers at these services as contractors. An exemplar of big capital pandering, Prop 22 reflects the historical delegitimization of worker rights in the US – undercutting, in this instance, the health and safety and social protection benefits of gig economy workers. In contrast, the EU has always positioned itself as the flag-bearer of labor rights. Yet, studies in the EU point to increasing intra-country inequality stemming from the unequal distribution of the benefits of economic development, linked to reduced investments in social protection, health, and education since 2009. McKinsey’s recent research on the future of work in the EU suggests that the digital revolution and the ripple effects of the pandemic will heighten the geographic concentration of job growth in a few hubs, leaving low-skilled workers with little choice in the job market. Unfortunately, the EU does not seem to have a real game plan to address the state of affairs. As the UN Special Rapporteur of Poverty, Olivier de Schutter, rather damningly observed, “the Green Deal is not a substitute for a poverty eradication strategy… for all its ambition, (it) stops short of questioning the macroeconomic policy framework under which the EU operates”.

China’s state-backed alliance capitalism has had its fair share of problems in managing the foundational antagonism between capital and labor. Though independent trade unions are not permitted in China, the increasing visibility of extensive labor exploitation in the country has produced a crisis of legitimacy for authorities and forced their hand. In July 2021, seven government agencies in China jointly enacted guidelines directing online food delivery platforms to provide a minimum wage with social insurance to their gig workers in response to mounting public opinion against exploitative platform work arrangements. This could be dismissed as a move to prevent social unrest. But where China stands out is in its professed commitment to an alternative vision of economic development.

China may not have exhausted all options for economic justice, but its track record on poverty alleviation does inspire some hope for the future. Even as incomes for the poorest Americans have fallen since 1980, incomes for Chinese citizens have soared.

In early 2021, President Xi Jinping called for a return to the “common prosperity” economic vision of earlier eras in order to “properly deal with the relationship between efficiency and fairness”. The slew of regulation introduced over the past year to rein in runaway digital capitalism may be construed as a step in this larger project to “rebalance the economy toward labor, tackling social inequality with redistribution, social welfare, taxes and inclusive education”. China may not have exhausted all options for economic justice, but its track record on poverty alleviation does inspire some hope for the future. Even as incomes for the poorest Americans have fallen since 1980, incomes for Chinese citizens have soared.

Why Should Developing Countries Look to China?

Everyone agrees that Big Tech needs restraining. The difference, however, is in the exact nature of truce with the market. The development race today hinges on born-private platform infrastructures owned and managed by Big Tech. The pandemic was a sobering moment, but recovery in its aftermath is heavily predicated on getting a share of the growing digital economy. This, by every measure, entails making good the resources of data and data-dependent AI – both controlled by corporate behemoths.

The US, already in control of a large share of the digital economy, is all set to usher in a new imperial frontier. The EU is readying itself with a firm claim to its techno-sovereignty. European firms may have lost the e-commerce and social media game to US firms, but Europe is banking on its cloud and analytics prowess – a crucial part of the data value chain – to get its share of the pie. A digital future on Europe’s terms will be based on unlocking data value through a federated cloud-based architecture, managed in partnership with Google (paradoxical as it may be).

But Europe’s ambitions extend much further. In a world that runs on data as the raw material, economic power depends on being the predator – ensuring access to more and more data. This is why the EU and US have been using trade deals to push for hyperliberalization of e-commerce markets and cross-border data flows seeking permanent channels to fortify their future digital advantage. These efforts to rapidly integrate developing countries on adverse terms into the digital economy is built on an evident dualism – my-data-mine and your-data-mine.

This brings us to China, US’ nemesis in the data and AI game. Having embarked on an internet journey of its own that has spawned the uniquely Chinese brand of the platform economy, the country’s data localization has been a typical product of its concerns around cybersecurity and internet sovereignty. China has maintained that domestic laws must dictate the regulation of data flows. Thus, China’s draft Personal Information Protection Law represents a third way between US’ sector-specific, patchwork approach and the EU’s comprehensive General Data Protection Regulation (GDPR), which enshrines fundamental rights across contexts. With the draft law, China’s evolving data governance regime emphasizes consumer privacy while also prioritizing national security through data localization measures, and cross-border data flow restrictions.

This is not an uncritical eulogy to Chinese data and digital policy approaches. Rather, it is an appeal against impulsive detraction of the complex political economy of data – entrenched firmly in a neoliberal order of digitalization and marketization of every aspect of human society. Developing countries are forced to react to the policy whims and political ploys of US and EU to join the digital economy bandwagon, sadly, succumbing to institutional frameworks simply not designed to safeguard the interests of their own citizens. This geopolitical contradiction reflects the fallacy of unlimited opportunity relentlessly promoted by the purveyors of digital capitalism.

The surveillance and law enforcement powers that the Chinese state arrogates to itself do remain a concern, antithetical as they are to civic freedom. However, making China the bogeyman for government surveillance does disservice to the key issues at hand for Big Tech governance, democracy, and human rights. One, it legitimizes half-baked Western narratives about Chinese social engineering, glibly converting programs, such as social credit, that mainly target and nudge business behaviors into a convenient strawman about a totalitarian dystopia. In fact, through the pandemic, the Chinese state employed risk assessment models leveraging its social credit data to measure the viability of lending to encourage banks to offer greater loan access for SMEs. Two, and relatedly, liberal alarmism about China obscures the universality of state excesses under digital capitalism. From the Snowden revelations to Cambridge Analytica and the most recent, Pegasus Project, it is more than evident that a global data order requires an international regime for data governance that can ensure standards in surveillance practices attentive to legality, necessity, proportionality and individual redress rights.

Making China the bogeyman for government surveillance does disservice to the key issues at hand for Big Tech governance, democracy, and human rights.

What liberal digital rights activism seems to miss is the more-than-urgent imperative to look Westward for the predictable lessons of history about colonization; this time, through the data route. As Walden Bello argues, demonizing the Chinese Belt and Road initiative may simply miss the point about Western imperialism. Indeed, political freedoms are not up for barter in the quest for social stability. But at the same time, the unfreedoms of capability deprivation – of nations and peoples – in the ostensibly free data epoch are not to be brushed aside either.

Back in the 90s, the immense misery arising from neoliberal dogma – foisted upon developing countries through the infamous Washington consensus – clearly established the limits of the market. Development did not trickle down with market deregulation, privatization, and trade liberalization. Then came digital capitalism, with its cavalier excesses. No one knew that the internet promise would be capital’s ultimate triumph.

Today, across the developing world, as countries scamper to go digital, they are being forced to contend with a new neoliberal moment; a now-or-never marketization dogma. China’s digital policy playbook shows that there are, and can be, diverse pathways to rethink development in the digital age. Undeniably, each country needs to calibrate its own cost-benefit calculus in deciding how best to integrate into the global digital order. This need not be a zero-sum exercise of accommodate or perish. The Chinese road is one plausible policy pathway for nation states to contain Big Tech, work towards proactive policies for governing and building data and AI infrastructures, and prioritize socio-economic equality. Digital justice, no doubt, hinges on a new international institutional order based on human rights, social justice, and the rule of law. Much ground needs to be covered still to get there, but what is quite clear is that we need much more than the classical fixes of liberalism to measure up to the challenges of digital capitalism.