The Kennedy-era guru on capitalism John Kenneth Galbraith presciently proclaimed in his 1967 book, The New Industrial State, that “the imperatives of technology and organisation, not the images of ideology, are what determine the shape of economic society”.
According to the World Inequality Report 2022 stated, the richest 10 per cent of the world’s population takes in 52 per cent of the income, owns 76 per cent of all wealth and accounts for 48 per cent of global carbon emissions.
At the same time, the workforce is concerned about the rise of artificial intelligence and automation, which will have an unknown impact on jobs. Those in lower-skilled work are likely to lose their job, and there is a skewed demand for those with high knowledge and intensive creativity.
What we see today is a winner-takes-all competition in technology, geopolitics and education, with those who cannot adjust as fast at risk of being left behind. The Magnificent Seven group of tech stocks represents the cutting edge of the interaction between the three forces that drive innovation – markets, speculators and the state. Venture capitalist William Janeway called this the “three-player game”.
The Magnificent Seven have a combined market capitalisation of about US$13.2 trillion. So far this year, five of them – Nvidia, Microsoft, Meta, Alphabet and Amazon – are still creating value while Apple and Tesla are facing new headwinds. Nvidia rose from US$300 billion in market cap in October 2022, after it announced its new Hopper graphics processing unit, to more than US$2.2 trillion now, an evaluation that is larger than the Canadian economy (US$2.1 trillion).
People walk behind a Meta Platforms logo during a conference in Mumbai, India, on September 20 last year. Meta and its fellow Magnificent Seven tech stocks have a combined market capitalisation of about US$13.2 trillion. Photo: Reuters
So far, investors around the world have been happy to accept tech companies having price-to-earnings ratios that are well above historical averages so innovators can monetise their technology. While some are focusing on applying technology to finance, others are financialising technology for innovative companies to take a commanding lead over their competitors and dominate the market.
In effect, the dotcom bubble of the late 1990s – whose collapse did not lead to lasting systemic consequences for the economy – gave Western policymakers a reason not to fear tech bubbles. By contrast, banking crises such as the 2008 subprime mortgage crash have done widespread damage, which is why banks are regulated more tightly.
As Janeway wrote, “two overlapping sets of institutions – markets and the political process – compete in the allocation of resources and the distribution of income and wealth generated by their application”. If the bulk of the population loses in the tech game and markets, populism could rise up to shackle the tech sector and the rich. The Chinese government’s regulation of tech platforms reflects some of this populist sentiment.
The kind of fragility Janeway wrote about also showed up in the 1930s, when the state failed to intervene in the economy to prevent the collapse of banks and companies that led to the Great Depression. Eventually, economist John Maynard Keynes convinced governments that the state should intervene through fiscal spending to lift the world out of that depression.
But one factor today is fundamentally different from that era – the influence of climate change. Until recently, mainstream economic models did not have to incorporate environmental factors into their GDP calculations. Today, governments face a complex nexus of slowing economic growth, natural disasters, collapsing biodiversity, widening societal inequality and accelerating tech disruption.
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Cop28 climate summit closes with agreement to ‘transition’ from fossil fuels
Cop28 climate summit closes with agreement to ‘transition’ from fossil fuels
In their book Climate Change, Capitalism andCorporations, Christopher Wright and Daniel Nyberg identify that “despite the need for dramatic economic and political change, corporate capitalism continues to rely on the maintenance of ‘business as usual’”. This implies that if the corporate sector cannot solve climate change and social inequality – the two existential issues of our time – the state must step in.
Unfortunately, geopolitical tensions are such that governments appear more preoccupied with rivalry and industrial policies than supporting cooperation and competitive free markets.
Big tech companies could be seen almost as adding another legion to the armed forces. This suggests that non-tech companies, other than big oil and gas and natural monopolies, will continue to struggle to cope with decoupling supply chains and tougher regulations, tariffs and sanctions, as well as natural disasters and conflict.
The story of the tech sector’s increasing influence could mean the world will see a smaller group of winners who have financial, technological and political clout far beyond the masses, who have less and less confidence in governments to solve their daily problems. No game can continue if all the chips end up with only a handful of winners and the rest feeling that the game is rigged against them.
In this new tech game, the tech giants will have captive customers who subscribe to their AI software and data centres that allow them to algorithmically influence their spending behaviour. But if such algorithmic biases disturb the delicate balance between people as well as between humans and nature, the system is neither politically sustainable nor ecologically viable. The Magnificent Seven do not have a mission to change that trajectory.
Enjoy the tech bubble while it lasts. Just as night follows day, nightmares can follow beautiful dreams.
Andrew Sheng is a former central banker who writes on global issues from an Asian perspective
