Silicon Valley’s Tax-Avoiding, Job-Killing, Soul-Sucking Machine

Silicon Valley’s Tax-Avoiding, Job-Killing, Soul-Sucking Machine, by Scott Galloway.

Four companies dominate our daily lives unlike any other in human history: Amazon, Apple, Facebook, and Google. We love our nifty phones and just-a-click-away services, but these behemoths enjoy unfettered economic domination and hoard riches on a scale not seen since the monopolies of the gilded age. The only logical conclusion? We must bust up big tech. …

Over the past decade, Amazon, Apple, Facebook, and Google — or, as I call them, “the Four” — have aggregated more economic value and influence than nearly any other commercial entity in history. Together, they have a market capitalization of $2.8 trillion (the GDP of France), a staggering 24 percent share of the S&P 500 Top 50, close to the value of every stock traded on the Nasdaq in 2001. …

A Dell computer may be powerful and fast, but it doesn’t indicate membership in the innovation class as a MacBook Air does. Likewise, the iPhone is something more than a phone, or even a smartphone. Consumers aren’t paying $1,000 for an iPhone X because they’re passionate about facial recognition. They’re signaling they make a good living, appreciate the arts, and have disposable income. It’s a sign to others: If you mate with me, your kids are more likely to survive than if you mate with someone carrying an Android phone. After all, iPhone users on average earn 40 percent more than Android users. Mating with someone who is on the iOS platform is a shorter path to a better life. …

Between 2007 and 2015, Amazon paid only 13 percent of its profits in taxes, Apple paid 17 percent, Google paid 16 percent, and Facebook paid just 4 percent. In contrast, the average tax rate for the S&P 500 was 27 percent. So, yes, the Four do avoid taxes . . . and so do you. They’re just better at it. Apple, for example, uses an accounting trick to move its profits to domains such as Ireland, which results in lower taxes for the most profitable firm in the world. …

Advertising — whether digital or analog — is a low-growth (increasingly flat) business, meaning that the sector is largely zero-sum. Google doesn’t earn an extra dollar by growing the market; it takes a dollar from another firm. …

The new economy:

I believe that the primary purpose of the economy, and one of its key agents, the firm, is to create and sustain the middle class. The U. S. middle class from 1941 to 2000 was one of the most ferocious sources of good in world history. The American middle class financed, fought, and won good wars; took care of the aged; funded a cure for polio; put men on the moon; and showed the rest of the world that self-interest, and the consumption and innovation it inspired, could be an engine for social and economic transformation. …

So why are we witnessing, for the first time in decades, other countries grow their middle class while ours is declining? If an economy is meant to sustain a middle class, and the social stability it fosters, then our economy is failing. …

The result is a winner-takes-all economy, both for companies and for people. Society is bifurcating into those who are part of the innovation economy (lords) and those who aren’t (serfs). One great idea will make a twenty- something the darling of venture capital, while those who are average, or even just unlucky (most of us), have to work much harder to save for retirement.

It’s never been easier to be a billionaire or harder to be a millionaire. It’s painfully clear that the invisible hand, for the past three decades, has been screwing the middle class. For the first time since the Great Depression, a thirty-year-old is less well-off than his or her parents at thirty. …

There’s no question that the markets sent a strong signal in 2017 that our economy is sated on regulation. But there’s a difference between regulation and trust busting. What’s missing from the story we tell ourselves about the economy is that trust busting is meant to protect the health of the market. It’s the antidote to crude, ham-handed regulation. When markets fail, and they do, we need those referees on the field who will throw a yellow flag and restore order. We are so there. …

Not like Microsoft:

Unlike Microsoft, which was typecast early on as the “Evil Empire,” Google, Apple, Facebook, and Amazon have combined savvy public-relations efforts with sophisticated political lobbying operations — think Oprah Winfrey crossed with the Koch brothers — to make themselves nearly immune to the scrutiny endured by Microsoft. ….

Facebook even has an internal database that tells it when a competitive app is gaining traction with its users, so that the social network can either acquire the firm (as it did with Instagram and WhatsApp) or kill it by mimicking its features (as it’s trying to do with Stories and Bonfire, which are aimed at Snapchat and Houseparty).

Google, for its part, now commands a 92 percent share of a market, Internet search, that is worth $92.4 billion worldwide. …

Apple [is] the most successful firm selling a low-cost product at a premium price. The total material cost for the iPhone 8 Plus is $288, a fraction of the $799 price tag. Put another way, Apple has the profit margin of Ferrari with the production volume of Toyota. Apple’s users are among the most loyal, too.

hat-tip Scott of the Pacific