Geopolitics and Economic Power in Today’s Digital Capitalism

Presentation to the Hans Crescent Seminar, London[i]
13 December 2015
Dan Schiller

During the second half of the 20th century, U.S. power was notably deployed in order to generalize capitalist imperatives in and around world communications. The technological revolution that was underway – the digitization of information processing – thus developed within a sharply altering political economy. Its very triumph, however, opened digital capitalism[1] to new geopolitical conflicts.

Digital Capitalism

Aggregate U.S. corporate investment in “Information Processing Equipment and Software” began to accelerate after the recession of the early 1970s.  It is the largest category of capital equipment spending overall and, amounting to $331 billion in 2013, it totals more than the GDPs of all but around 35 countries.[2] Collectively, the largest sectoral investor in information processing equipment and software is the information industry itself – a point I’ll come back to.[3] Network systems and services, however, lace through all sectors of the capitalist political economy: they are the predicate of big capital’s operations and profit projects across the world.  To comprehend this development it must be situated theoretically and historically.

If, as Ellen Wood has explained, the capitalist mode of production is distinctive for separating economic and political power then, paradoxically, this selfsame separation means that capital must depend fundamentally on the state – both to guarantee existing commodity relations, and to impose these relations in new fields to enable capital’s further expansion. [4]  Sweeping political intervention by the U.S. state was the demonstrable prerequisite of escalating corporate investments in information processing and software.

Corporate demands to liberalize and modernize proprietary networks developed domestically during the 1950s and 1960s, and the U.S. Government repeatedly acceded to these demands.[5]  A U.S. push to liberalize and upgrade networks soon also radiated outward. First of all, the U.S. intervened to preempt or to deflect political counter-movements.  U.S. state-directed attacks were waged against import-substitution policies for computerization [“informatics”], notably in Brazil; against European initiatives to restrict corporate trans-border data flows; against what were deemed lax intellectual property laws worldwide; and against the Non-Aligned Movement’s drive for a New International Information Order, which expressly prioritized economic redistribution rather than profit maximization in international communications.[6]

A fundamental feature of this U.S. state offensive – this new imperialism – was to plant capitalist imperatives and -property relations throughout global communications[7] even as it forcefully generalized a U.S.-centric data communications system, the Internet.[8] These, not coincidentally, were the years of the “hyper-power” that saw the collapse of the Soviet Union and the restoration of capitalism in China. Some nations opposed (Brazil) or tried to sidestep (France) the Internet’s U.S.-centric control structure; however, they gave way as the U.S. successfully established a worldwide data infrastructure for capital.

The Internet is often heralded as a democratizing force, however, its overriding function has been to deepen and renovate capitalism.  The Internet provides an unprecedentedly wide platform for driving capitalist imperatives into new industries, and restructuring existing industries.  This process is, however, neither democratic nor contradiction-free.

Digital Depression and a New Cycle of Commodification

The economic slump that began in 2007-08 confirmed beyond all doubt that capitalism’s crisis tendencies are still with us.  Eight years on, the world political economy remains mired in a “digital depression.”[9] Capital has responded to the stagnation by embarking on a new cycle of commodification, in which profit-projects are configured around network systems and applications.  Returning to an earlier point, the information industry is the largest sectoral contributor to US ICT investment because it is spearheading so many of these initiatives, often by partnering with corporations based in other industries.

The most visible instance of commodification involves a bottomless commercialization of cultural interaction and private life, via smartphones, search engines, social networks, e-commerce, and 24/7 surveillance.  However, close ties to finance capital and multibillion-dollar R&D spending and back-end investments in data centers, data analytics, Internet exchange facilities and private networks, are enabling the big U.S. Internet companies to diversify beyond this.  Amazon has seized a lead in marketing specialized cloud computing services to industrial and governmental users.[10] Software-intensive cars, under development at Google and Apple, have placed the world’s automakers on defense. Sensors, IP addresses, and technical standards to enable machine-to-machine interoperability, are helping the tech giants to scale the walls of other industries, as they attempt to synthesize what GE, IBM, and Cisco call “the industrial Internet.”[11] Agriculture and medicine, education and transport and construction reveal additional pathways to digital commodification.[12] Digital systems are being used to claw nonmarket institutions – universities, museums, hospitals and even government agencies – into the for-profit sector.[13] We are nowhere near the finish-line.  Digital capitalism is still in its formative stage.

In this same context, however, capitalism’s tendency to stagnation is paradoxically also evident.  Huge cash hoards are the critical feature here.  The U.S. corporate hoard was estimated at $1.7 trillion in May 2015, and Apple, Microsoft, Google, Pfizer and Cisco alone accounted for more than one-quarter of this immense total.  Investor pressure is intense to transfer these super-sized profits to big shareholders, but underlying this is a structural ailment:  the tech companies cannot find outlets for profitable investment on a sufficient scale.[14]

Will accelerated commodification around digital networks be enough to renew economic growth?  It’s an important question but, for individual units of capital, even more urgent is, who – which companies, headquartered in which countries – will capture the new sites of profit? The answer has been thrown open, by far-reaching changes in the global political economy.

The Geo-Political Economy of Information

Far from being unseated, as the NIIO had sought, capitalist imperatives were both territorially extended and imposed on digital systems and services. The result was fundamentally lopsided. In 2010, overall U.S. expenditures on ICTs exceeded those of the China, Japan, the UK and Russia combined; and the U.S. accounted for more than half of global ICT research and development spending.[15]  Correspondingly, as a report to the U.S. Council on Foreign Relations underlined in 2013, “The United States captures more than 30 percent of global Internet revenues and more than 40 percent of net income.”[16] In the most recent quarter, Apple took no less than 94% of global smartphone profits[17] while Google’s Android mobile operating system was installed on about 83% of smartphones sold worldwide (albeit spread across many variants).[18]

This result, however, also reflected the fact that U.S. digital capital was now ever-more reliant on foreign markets for its profits.  Hollywood, for example, recognizes that it must make strategic changes because China will soon surpass the US to be the world’s largest national movie market.[19] A more sweeping example is that the US absorbed three-quarters of global advertising in 1950, but only less than one-third in 2015, even as dollar expenditures on advertising – and especially digital advertising – skyrocketed.[20] Just 40 of the world’s one hundred largest advertisers are now based in the U.S.; Europe boasts 32, and Asia Pacific 24.  (Africa, Latin America and the “Middle East” each have only one “top 100” advertiser.)[21]  If U.S. companies account for a disproportionate 40 percent of net income from Internet services and applications worldwide, then this means that a majority of Internet profits gravitate to capital based elsewhere.  Though the structure of digital markets may be grossly skewed, therefore, it is invalid to reduce it to a simple U.S. power-projection.

There is a crucial ramification: commodification projects within a suddenly universalized digital capitalism have ignited a new geopolitics of information.    The Obama Administration has worked dutifully to enable U.S. capital’s continued digital expansionism.  In one important theater – Europe – the U.S. has tried to deflect or contain sometimes-complex European Commission and European Parliament attempts (via antitrust investigations and a “digital platforms” inquiry) to open space for European capital.[22]  President Obama himself charged – entirely unfairly, in light of the U.S. state’s own unremitting efforts – that European media companies were unfairly turning to state authorities, to help them succeed at what they had not been able to accomplish in the marketplace:  “We have owned the internet,” declared Obama: “Our companies have created it, expanded it, perfected it.  [European companies] who you know, can’t compete with ours, are essentially trying to set up some roadblocks.”[23]

As 2015 came to a close, this geopolitical contest showed no sign of abating.  In October, the European Court of Justice invalidated the safe-harbor provision under which some 4500 corporations, from Facebook to General Electric, had been sending personal data from the EU to the US.[24]  In December, Deutsche Telekom took advantage of Germany’s data security laws to announce a roll-out of local cloud computing facilities – which, an executive boasted, perhaps too optimistically, will be “100 percent out of the reach of the US authorities.”  To shore up their own cloud-services markets, Microsoft and Amazon likewise found it advantageous to proclaim that they would establish Europe-based data centers.[25]

A geopolitics of information rooted in inter-capitalist infighting over digital commodification spans beyond the EU.  Though the “BRICS” nations have lost cohesion, India, Russia and Brazil each have protested U.S. incursions.[26] The most significant expression of the new geopolitics, however, pits the U.S. against China.  These two countries have been close economic partners, but China’s very success has enabled it to project increasing political-economic power, both regionally and globally.  This trend is likely to grow further, as China is already the third-largest exporter of foreign direct investment (now over $100 billion annually) and is forecast to become the largest exporter soon.[27]  Early in 2015, reportedly, six of the 20 most valuable Internet companies were domiciled in China; and China also is home-base for the world’s most valuable carrier, China Mobile, and for an internationally successful equipment vendor, Huawei.[28] Xiaomi, one of the world’s largest mobile phone-makers, has targeted Latin America, South Asia and Africa for expansion.[29]

China-based economic cyber-espionage has been accorded heavy negative publicity in the United States. U.S. officials also are alarmed, however, that China’s domestic regulations for digital systems and applications “are about protectionism and favoring Chinese companies” – as the U.S. Trade Representative complains.[30] So far, Chinese policies aimed “at keeping U.S. businesses out”[31] have successfully reserved important chunks of the Chinese Internet market for locally headquartered conglomerates, notably, Baidu, Alibaba, and Tencent.[32] China is pursuing disparate digital commodification projects in its home market,[33] while it is helping to fuel an international campaign to pull the Internet’s control structure out of its U.S.-centric orbit.[34]

Many states, as a recent writer puts it, would like to reclaim “their ‘technological sovereignty’ from Silicon Valley and the National Security Agency.”[35] Might they gain a modicum of independence by playing off China against the United States, recalling somewhat how the Non-Aligned Movement played off the US and the USSR? In this connection, it is worth noting the fracas that broke out earlier this year, over China’s newly established Asian Infrastructure Investment Bank. Britain gave its close U.S. ally just 24 hours’ notice, before announcing that it would be a founding member of AIIB; with Britain in front, 57 other countries including Germany, South Korea, and Australia followed suit.[36]  The U.S. was not only displeased but, in some quarters, shocked.

This new geopolitics of information thus is becoming more complex.  It is likely that the U.S. will offer tactical concessions, however, U.S. political leaders are becoming more aggressive in asserting U.S. digital capital’s international claims – notably, with respect to China.[37] Though the U.S. remains the rule-maker for capital on the world stage, conflict over the digital pole of growth, such as it may be, bids fair to increase.

Conclusion

When we turn to ask, who is bearing the costs of digital commodification, and what will these costs be, then we move outside the zone that is occupied by capital. For most of the world’s peoples, whether profitable growth for capital may be renewed, and by whom, are far less important than the consequences of digital commodification for employment and exploitation and inequality; for the prospect of democratic self-government; for the ravaged environment; and for the character and quality of cultural services needed to sustain meaningful lives.  The shocks of digital commodification are writing a new chapter in capitalism’s long history of violent dislocation.  This makes discussion of strategies for social alternatives essential, indeed, urgent.

[i] Hans Crescent refers to the street where the Ecuadorian Embassy in London is located.

[1] The concept of digital capitalism tries to underline that a phase-change is occurring within capitalism.  Dan Schiller, Digital Capitalism: Networking the Global Market System.  Cambridge: MIT Press, 1999.

[2] U.S. Bureau of the Census, Information and Communication Technology Surveys, 2007 and 2013.

[3] Ibid.

[4] This “imposition of economic imperatives” has been a recurrent historical requirement for capital, and involves “introducing the compulsions of the market where they do not exist and sustaining them where they do.”  In this way the state helps “to transform the system of property,” by installing and repeatedly renovating the “capitalist imperatives of competition, capital accumulation and increasing labour productivity.” Ellen Meiksins Wood, Empire of Capital. London: Verso, 2003: 20, 119.  Also, Ellen Meiksins Wood, “The Separation of the Economic and the Political in Capitalism,” New Left Review 1/127, May-June 1981.

[5] Dan Schiller, Telematics and Government.  Norwood: Ablex, 1982; and Dan Schiller, Digital Capitalism: Networking the Global Market System.  Cambridge: MIT Press, 1999.

[6] Dan Schiller, How To Think about Information.  Urbana: University of Ilinois Press, 2007: 36-57; U.S. Senate, 98th Congress 1st Session, Committee on Commerce, Science, and Transportation, “Long-Range Goals in International Telecommunications and Information: An Outline for U.S. Policy,” Senate Print 98-22, March 11, 1983. Washington, D.C.: USGPO, 1983.

[7] With the privatization of dozens of national telecommunications systems, after 1990 foreign direct investment surged into the networks of the global South. Amid the swift transition to mobile services, networks drew more investment in less-developed countries —hundreds of billions of dollars—than any other industry. World Bank, Information and Communications for Development, 2006: 7; Comments of Computer & Communications Industry Association, “Global free flow of information on the Internet: Hearing before the Department of Commerce,” NTIA Docket No. 100921457–0457–01. Washington, D.C.: 2009, December 6: 8. According to the most recent ITU Measuring the Information Society Report, 43% of the world’s population (3.2 billion people) is now online; and 95% of global population has access to a mobile-cellular signal.ITU.

[8] Janet Abbate, Inventing The Internet.  Cambridge: MIT Press, 1999: 147-79.  A 1988 meeting of the International Telecommunication Union crucially relaxed policies that had restricted private corporate networks; the World Trade Organization’s 1997 Basic Telecommunications Agreement liberalized telecommunications markets across most of the world.  Between these two landmark agreements, the Internet took off.

[9] Dan Schiller, Digital Depression: Information Technology and Economic Crisis.  Urbana: University of Illinois Press, 2014.

[10] Vincent Mosco, To The Cloud.  Boulder:  Paradigm, 2014.

[11] Chris Bryant, “Germany is lagging behind disruptive US start-ups, warns Bosch chief,Financial Times,  February  2, 2015.

[12] Dan Schiller, Digital Depression: 240-45.

[13] Dan Schiller and Shinjoung Yeo, “Powered By Google: Widening Access and Tightening Corporate Control,” Leonardo Electronic Almanac 20 (1), 2014: 44-57.

[14] Eric Platt, “US Companies Hoard $1.7tn in Cash but Tap Debt Markets to Fund M&A,” Financial Times, May 11, 2015; also see Martin Wolf, “Corporate surpluses are contributing to the savings glut,Finanical Times, November 18 2015: ; Tim Bradshaw, “Apple iPhone boom as China switches on,” Financial Times, April 28, 2015.

[15] John D. Negroponte and Samuel Palmisano,” Defending an Open, Global, Secure, and Resilient Internet.”  Independent Task Force Report No. 70.  New York: Council on Foreign Relations, June 2013: 9.

[16] Ibid.

[17] Daniel Eran Dilger, “Apple Now Inhaling 94 Percent of Global Smartphone Profits, Selling Just 14.5 Percent of Total Volumes,” Apple Insider 16 November 2015.

[18] Though it should be added that Android’s success has engendered a lack of cohesion, as the software is used on more than 4,000 different devices, making it “challenging for Google to unify users on a single version.”  Dan Gallagher, “Android’s Dominance Has Limits,” Wall Street Journal, August 19, 2015: C12.  Also see Net Market Share, “Realtime Web Analytics,” October 2015; also see  IDC, “Smartphone OS Market Share, 2015 2Q.”

[19] Matthew Garahan, “China set to be world’s largest movie market in 2 years,” Financial Times, December 8, 2015: 18.

[20] Ad spend is measured differently by various forecasters.  A conservative estimate would put them at around $500 billion worldwide in 2015.  Lester Russell Brown, Michael Renner et al. Vital Signs 1999: The Environmental Trends that are Shaping Our Future.  WW Norton 1999: 70; “Advertisers Will Spend Nearly $600 Billion Worldwide In 2015,” eMarketer, December 10, 2014.

[21] Bradley Johnson, “What You Need to Know about the Global Ad Market,” Advertising Age, 7 December 2015.

[22] Mark Scott, “E.U. Commission Opens Antitrust Inquiry Into E-Commerce Sector,” New York Times,  May 1, 2015. The EU’s most recent antitrust investigation focuses on Qualcomm’s control over chips used in smartphones and other mobile devices.  Christian Oliver, “EU accuses Qualcomm of impeding rivals,” Financial Times,  December 9 2015: 18.  For a different recent initiative, see Duncan Robinson, “EU faces clash with media groups over access to subscriptions,” Financial Times, December 8, 2015.

[23] Murad Adhmed, Duncan Robinson and Richard Waters, “Brussels reels from Obama attack on probes into Silicon Valley companies,” Financial TImes, February 17, 2015: 1, first reported in Kara Swisher, “Obama: The Re/code interview,” February 15,2015.

[24]Transborder Data Flows,” Information Observatory, December 6, 2015.

[25] Guy Chazan, “Deutsche Telekom rolls out ‘secure’ cloud data storage,Financial Times,  December 8, 2015.

[26] Google is accused of abusing its dominance in online search by India’s Competition Commission. James Crabtree, “Google under fire for India market abuse,” Financial Times, August 31 2015.  Mark Scott, “Russian Antitrust Authorities Say Google Broke the Rules,” New York Times, September 15, 2015; Olga Razumovskaya, “Russia Gives Google a Month to Rectify Antitrust Breaches,” Wall Street Journal, October 6, 2015.

[27] Jamil Anderlini, “Beijing Set to Become World’s Biggest Cross-Border Investor by End of Decade,Financial Times,  June 26, 2015.

[28] Michael Moritz, “Tech’s next 25 years belong to the world, not the US,” Financial Times, February 4, 2015.

[29] Jane Perlez, “Hugo Barra of Xiaomi on the Company’s International Plans,” New York Times,  December 10, 2015.

[30] Shawn Donnan, “Beijing cyber rules raise fears of digital protectionism,” Financial Times,  March 5, 2015.

[31] Ibid.

[32] Contravening the prevailing view in the West, this policy has not been autarkic.  Apple, Microsoft, IBM, QualComm and other U.S. tech companies each have made inroads into China’s Internet market.  Baidu, Alibaba, Tencent and other Chinese Internet companies, on the other hand, have not been mere pawns of the Chinese state; and, typically, they have been built partly with U.S. finance capital.  Yu Hong, “Harnessing the Internet for Sustainable Economic Recovery: China’s New Communication Agenda and Its Trials,” September 2015, manuscript.

[33] Henny Sender, “Chinese Innovation: BGI’s code for Success,” Financial Times, February 17, 2015.

[34] Prabir Purkayastha and Rishab Bailey, “U.S. Control of the Internet: Problems Facing the Movement to International Governance,” Monthly Review 66 (3), 2014.

[35] Evgeny Morozov, “The Worldwide Fight Over Personal Data Has Barely Begun,” Financial Times, October 9, 2015.

[36] Geoff Dyer and George Parker, “US attacks UK’s ‘constant accommodation’ with China,” Financial Times, March 13, 2015; Jane Perlez, “Beijing’s Rival to World Bank Moves Forward Without U.S.,” New York Times, December 5, 2015.

[37] An influential segment of elite U.S. opinion about China has recently hardened, and economic issues pertaining to the tech industry are high on its list of concerns. Robert D. Blackwill and Ashley J. Tellis, “Revising U.S. Grand Strategy Toward China,” Council on Foreign Relations Special Report No. 72, March 2015; Lawrence Shoup, “’Dangerous Circumstances’ The Council on Foreign Relations Proposes a New Grand Strategy Towards China,” Monthly Review September 2015: 12-22.

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