In his new book, Hans Jürgen Jakobs describes the monopolies of our century in some depth. He examines issues, such as whether monopolies engender dependencies, forfeit diversity, erode healthy competition, and lead to anarchy. Are our contemporary monopolists clever enough to deprive statesmen of their power? Or has human creativity always brought down monopolies in the end?
In the latest of her Duet interviews, Dr Caldarola, author of Big Data and Law, and Hans-Jürgen Jakobs discuss the concept of monopolies and their effects on today’s life.
In your new book “Monopolies in the 21st Century” you write that the new “ism” is no longer socialism or capitalism, but monopolism. Which monopolies do you mean and in which countries are they especially prevalent?
In my opinion, there has been a sustained, almost frightening trend towards concentration in the economy for years. This trend is taking place across the borders of the various economic blocs. Monopolies have even become part of a new systems competition between capitalism, finance capitalism and state capitalism, between democracy and autocracy and between the USA in the West and the People’s Republic of China in the East. The monopolies that we encounter are either parity-type or privately owned and closely coordinated with governments. The economic monopolies have become decisive instruments or even weapons in geopolitical conflicts for a new world order. The most important monopolies are those for raw materials, capital and data.
Companies and states collect data on a large scale. What do you call this type of monopoly? Data monopoly? Data cartel? Human monopoly? Do those who control these monopolies have more users than traditional statesmen have with regard to their respective subjects?
The concentration trend just mentioned can be particularly seen in data economy – perhaps the key market for the development and shaping of future markets. We see how many businesses collect and analyze more and more data and base their business processes and developments on them. The dependence on data is increasing.
In autocratic dictatorships, this data economy allows governments to use unrestricted data aggregation to achieve perfect surveillance of the people. We see that in China. There is an app there, WeChat, which nobody in the People’s Republic can ignore. China is home to 1.4 billion people and over a billion use WeChat. It is the instrument used for handling almost all transactions.
In China, a concentration of data is emerging via WeChat. This fulfils the dream of every monopolist, because in China he receives the maximum amount of data via WeChat, which gives him maximum transparency concerning user behaviour. Based on this data, China’s Social Credit System was implemented, which can reward or penalise user behaviour with points.
This is a dangerous development in dictatorships which – as Shoshana Zuboff has impressively shown in her book – can lead to surveillance capitalism. Businesses are suggested for the supposed good of the users – in the case of China, the citizens – so that the user is gently guided to the respective business and consequently the government gains more transparency about the respective user and his work.
To what extent this is compatible with the self-determination of users and consumers, which is an important value in western countries, is another question. Here in Europe, digital business is less concentrated but rather distributed across various providers, platforms and device manufacturers. In democracies, it is more difficult for the state, as well as for the monopolists, to obtain sole and comprehensive insight into user behaviour. Data protection regulations in Western countries are still patchy, meaning not yet fully developed and not yet harmonised
. There is more harmonisation within the EU than there is in other Western democratic countries, with the EU being well on the way to securing informational self-determination.
You also write that monopolies mean concentration, effectiveness, efficiency, power and size, but at the same time they deprive people of diversity and competition and thus create dependency. Aren’t the monopolies you mention rivals? What can a monopolist get out of raw materials without ideas and money? What does a money monopoly want and what can it do without raw materials and ideas? It reminds me of the famous “desert game”, where the quintessence is that people, countries, rulers, monopolists achieve more together than alone. The “desert game”, in which a plane crashes in the desert, deals with items such as a flashlight with batteries, a pocket knife with a spring blade, a magnetic compass, a bottle with 1000 salt tablets, 1 litre of water per person, and a pistol, calibre 7.65mm, which the survivors are supposed to rank according to their importance for survival. How do you see the ranking of the existing monopolies? Who is best equipped to rule the world or win the power struggle?
In the best of all worlds, the principle of fair cooperation with everyone applies. All citizens of this world would achieve the most profit and prosperity with this principle if they could trade with each other under fair conditions and in open markets and there could be an optimal balance. This is the economic theory of the great fathers Marx and Engels.
What may be true in theory is usually different or even wrong in reality. We have recently observed that other political power motives have been crucial. The principle of the fair optimum is fading into the background and is even being instrumentalised for the goals of the respective governments. We currently see this in China’s claim to become the first world power replacing the US as a world power, which China perceives as unfair. Monopolies are being used in this struggle for first place. This changes the power game enormously.
We were naïve and believed in the idea of globalisation – meaning that goods can be obtained from anywhere at any price. This has now changed. The raw material monopolies (e.g., cobalt, rare earths, etc.), which are extremely important for the global economy, are concentrated in China. As these raw material monopolies are state-run in China, the money needed for this endeavour is available. With these monopolies, prices can be influenced at will. With a created scarcity in the market, the price rises while it goes down with an artificial surplus.
Monopolies create dependencies. Because of the monopoly, customers are unable to take advantage of other offers from other providers and to effectively enforce economic policy sanctions against the monopoly – including against the state – especially if they cannot agree to the policies of the country in which the respective monopoly is based (e.g., the Taiwan conflict). Then, they kill themselves. That is why monopolies are not dependent on each other. Instead, in the above-mentioned constellations, they are an absolute power being used in a targeted manner in geopolitical disputes
In the West, many are happy when GAFAM (data monopolists) become competitors in adjacent markets. This cements the dominance of five big corporations and demonstrates that no new competitors are entering the market. The five major corporations seem to have a territorial as well as a factual division. Should a new technology develop – such as AI or ChatGPT – then some will rejoice at the possibility of a power shift – even though we don’t know how a new technology will transform the market. I think there are three key factors: raw materials, data and capital. Regarding capital, we have to remember that we have an incredible concentration of financial and investment resources. Here we have asset management companies or asset managers who own shares in all listed companies. There are often 2 – 3 investment groups from the USA that have at least the blocking minority in the respective listed company – if not the majority of votes. And that, too is a concentration of capital and therefore power – and that, too, can be a decisive instrument of power in crises.
Who is behind the monopolies? Many of these people are unknown because their assets, their goods… mask the real owners through straw men, lobbyists, anonymous letterbox companies or also due to the lack of publicly accessible registers. This makes it very difficult to clarify and identify the true owners / monopolists – the Russia-Ukraine war has made this very clear. Is this an aspect of the new monopoly? How can it be dealt with?
Not everything is unknown. A monopoly is relatively open. The Chinese raw material monopolies mentioned are under state supervision. The four largest banks in China are also state-owned and are also the world’s largest banks.
In the West, GAFAM’s data monopolies are only moderately masked. It is known that the founders of Google and Facebook still have the majority of votes and determine the general meetings via shares.
The fiduciary relationships you mentioned take place particularly with regard to tax havens. In addition to tax savings, one goal may be to conceal influence. But it is clear who is behind the data, capital and commodity monopolies.
There are also large concentrations of power on the goods’ markets due to the presence of only a few suppliers. Let’s consider the vendors in the grocery stores. In Germany, 75 – 80% of food is owned by four corporate chains. When it comes to food suppliers, we have around 10 international multi-nationals that stock 60% of what is offered in the supermarket. They are in a price war and are very successfully passing on the costs of the Ukraine war, the rising energy costs and the additional costs caused by the pandemic to the consumers, due to their position of power. With trading companies, one must not forget that six companies have their own private labels, which have goods manufactured for them under their private label, sell them on their own shelves, set prices and are currently increasing them significantly. We are therefore currently experiencing high inflation in the food market, because monopoly structures result in inflation because higher prices are enforced and because the consumers have no alternatives. The entrepreneurs of the monopolies are well known. Only the flimsy “excuses” and the reasons for their behaviour differ.
Are we witnessing a change of power from the classic district presidents to the monopolists – be they private or state monopolies? If so, will it stop at the territorial borders or will the new territories be defined more as a digital ecosystem and its metaverse?
Here you address the conflict between significant economic and political power. Let’s look at China, where we were able to see how successful Chinese digital corporations became rebellious (e.g. Alibaba with Jack Ma) and how the (single) party acted very quickly. No company can easily evade the will of the state. Jack Ma disappeared from the scene and the Chinese Communist Party quickly cleared things up.
It’s a little different in the west. Our constitution and our laws arise from the principles of democracy, the separation of powers, the rule of law… and are organised by societal institutions. Power is spread across many levels and, unlike in China, for example, is not based on the power of individuals.
There is a belief in capitalism that competition relativises the power of individuals. With the developing monopolies, this cherished principle no longer works. In the last 30 years, there has been no effective competition policy, particularly in the USA. The emergence of monopolies and the failure to correct them with competition policies have enabled today’s concentration of power. Europe and Germany were a little better in their competition policy – even if they didn’t make the crucial corrections consistently.
If we consider progress and innovation – in particular the emergence of a new digital society – then the question arises whether this progress is still possible without GAFAM. It is symptomatic of the current situation that the EU has opened an external representation in Silicon Valley, thus recognising the importance and power of Silicon Valley today for the realisation and shaping of digitisation. It is also remarkable that the former Minister of Health, Jens Spahn, cooperated with Google for his health portal “gesundbund.de” and preferred to display information from the Ministry of Health as the result of a Google search query. It was only later that the court stopped the use of Google by the Ministry of Health with reference to antitrust violations.
Markets are first consolidated, bequeathed or cleaned up from the point of view of the corporations and reduced to a few. The state then has to subsidise or take over companies (see the recent example of Uniper). Then it becomes easier for the state and commercial enterprises to discuss something bilaterally and to act together – this is the previously mentioned relevance of monopolies in system competition.
If we think about the digitisation of our public administration, it is also important to remember, with which providers of cloud systems we can or should work together. Should it be Amazon or Microsoft or Google? Germany and the EU cannot ignore these GAFAM giants. Power just creates more power.
Let’s look at one of the monopolists, Mark Zuckerberg. Digital instruments actually enable democratic processes. Will these monopolies really be democratic, philanthropic and oriented towards the common good? Will the monopolists as the new “rulers” take over the welfare tasks of the state? For tax reasons, Mark Zuckerberg has set up foundations where he himself decides where to invest the money he earns. What happens to the interests of the common good that the state traditionally got from taxes?
The monopolists define the common good themselves. They want to be independent of specifications, laws, government and popular wishes. Rather, they have their own ideas about what can be good and bad for the world.
Firstly, everything has to benefit their company: share prices, profit, range… They argue that they want to make the world a better place and they know how to do it. They intend to improve the world through technology. That is the belief of the big companies in Silicon Valley- however they don’t have to worry about dissenting voices. Contrast arises from those who think differently – from the res publica, from citizens, voters, the community… who decide for themselves and do not let an individual determine everything.
When Mark Zuckerberg says “collectivity is a human right”, he means the right to connect everyone with the means at his disposal. He determines what the algorithms should be like, where and when they will be displayed (see the US presidential election 2020) – what results they deliver… He does not care about having a real overview of the arguments exchanged on a topic, but solely achieving maximum range and which content and algorithms will achieve this goal.
A corporation that depends on online advertising offers topics of debate in order to attract as much attention as possible from its users. This approach leads to polarisation, to good business figures and, ultimately, to the uprising and storming of the US Capitol on January 6, 2020.
The next escalation is that an individual – such as Elon Musk – uses the short message service Twitter to address and possibly also manipulate large parts of the global public. Therefore, the last chance we still have is the election of our government representatives – a chance that no longer exists in Hungary or even in Turkey. We need to make provisions for the common good. That requires responsibility.
More and more ecosystems are emerging in which data subject leave behind their data. This is now also shown by the dispute between Facebook and Apple, which is about the battle for data subjects. The reason is that whoever has the most data subjects can best develop algorithms and set trends. It seems as if the owners of the respective ecosystems want to give themselves an image. Apple wants to stand for “privacy and information security” while Facebook focuses on “networking”. Will the owners of these ecosystems be the rulers of tomorrow? Are these images the true “party programs” of these new owners and rulers? What are their true intentions?
Platform owners have the power to create. Since AI will also play a major role in future, those who use and control the interaction of AI with platforms will be in a decisive position of power.
Just as the various app stores are powerful paid door keepers (access controls), AI will also become a powerful influencer and power factor. Access to the store does not come cheap because it represents 30% of sales for those who wish to offer their products in the Apple Store. An agreement involving Apple not using its own search engine but instead integrating Google search would cost Google billions.
You cannot leave or emigrate from a digital ecosystem as quickly as you can from a party or a country. The portability of data is technically more difficult, although it is required by law. Where is this headed? Do antitrust laws, state budgets, tax laws, the Digital Markets and Service Act, the GDPR, the promotion of the start-up scene and medium-sized companies….do all these means offer enough opportunity for a correction to take place?
Yes, the new European laws provide for portability. The extent to which companies will actually implement this portability remains an open question at the moment. Of course, everyone will try to bind their users, customers… to themselves as closely and as skilfully as possible.
There are different strategies. One of these strategies is the use of the network effect. If friends, family, colleagues… are in an ecosystem (e.g., WhatsApp), others will also be in it because they don’t want to lose touch with the “community”, also enjoying the information exchanged their and wanting to take part in that type of social life.
Of course, these possibilities in an ecosystem of this type are not free- because we pay for them with our data. As long as privacy has no demand market and people are not willing to pay anything to protect their privacy, these tools and platforms will keep booming. At present, there is not enough awareness of the problem of privacy. In addition to the supposed “free services” there is the convenience for users, the network effects, the supposedly distant and vague threat as well as the commendably smooth technical functionality of these digital tools that ensure success.
Even though many people are struggling to survive every day because of inflation, the fewer jobs that Industry 4.0 is causing etc., this all means that people aren’t up to dealing with the social consequences of digitisation, and it is our task – especially that of the government – to provide information and initiate the debate.
You mention the “World Cartel Office” in your book. Is that another new monopoly? You also talk about “data trustee”. Isn’t that also a monopolist for data? You mention the use of a “data toll”. What form exactly do you think that could take? Who will pay for it and who will benefit from it?
We need data trustees so that we can have more transparency, traceability and quality with regard to the algorithms. The companies in question are currently sitting on their algorithms as if on a secret invention. They are like Coca-Cola, which continues to keep the recipe of their fizzy drink a secret. I imagine a data trustee to be an independent third party who takes a look at the company’s algorithms and checks them – maybe also has them certified and approved for the market. This is an idea that has been brought up by Bundesbank President Jens Weidmann. This is the only way we can identify and eliminate bias; this is the only way we can ensure equal treatment; this is the only way we can guarantee fair processes and equal rights for all users… It’s about fairness and objectivity with regard to the processing of news.
GAFAM views Europe as a colony. They make sales, save taxes at the same time through clever tax models, use the good infrastructure which is in place ‑such as the training of European citizens in Europe- use the data of European citizens for evaluations and AI developments… Here it would only be fair if GAFAM beneficiaries also had to pay data toll to a fund, which in turn could support the infrastructure of the digital tools and the necessary rules with money.
Our competition policy is still nationally oriented. There are also bilateral forms or the Cartel Office of the European Union. There are also many discussions among countries on how to deal with GAFAM.
If we open the markets and companies operate on a global basis, then we also need a globalised structure for competition and its institutions. There were considerations about this in the 1990s – e.g., by Jürgen Habermaas – but no concrete implementations took place. There have been advances in other areas – such as the International Criminal Court in The Hague – even if not all states have agreed to this.
My opinion is:
A world that wants to work together on a global basis also needs global rules.
I support regulated globalisation.Hans-Jürgen Jackobs
Globalisation is currently being politically misused. Today, globalisation is understood as thinking in terms of spheres of interest and of power blocs. This is a new globalisation – a globalisation that operates between power blocs. I’m very much in favour of exchange and plurality. At the same time, I am also for regulation and I am very much against the inequality that globalisation has brought so far. I’m all for people sharing the returns.
We certainly need “China capitalism” as a negative image in order to contrast it with a positive image in the West. IAR by Joe Biden is the first reaction to it We also need closer coordination between the FCC and the EU Commission on competition matters before we think about a world antitrust agency.
Are state monopolies such as China better equipped than private monopolies, democracies and so on?
Yes, these are state monopolies if you allow them to exist. These are constructions that work with the advantages of the market economy in order to actually work against them in the end. It’s a dialectic trick. It is a planned economy that is expanding by means of partial market solutions.
We need countermeasures – such as import duties into the EU – when it comes to imports into Europe – especially when dumping prices are specifically underpinned by government subsidy strategies (consider the example of dumping prices for solar technology). This is the only way to create balanced competitive conditions again. An industrial policy is needed in these power blocs – and Joe Biden is doing exactly that with IAR. Structural aid and compensatory measures are needed. We must maintain competition while supporting and maintaining promising, high-quality and just plain good industry.
Digitisation brings with it automation and enormous speed. Of course, digital media and tools reach the individual citizen directly and of course these means could be used for a direct and immediate analysis of the people’s wishes: for opinion-forming, clarification, transparency, and the finding of a viable consensus. In other words, democratic processes can be supported even more effectively by digital possibilities. On the other hand, these tools are also prone to misuse. Democracy needs time to form opinions and find a majority consensus so that decisions can be implemented that sometimes are in opposition to the speed of digitisation.
It is not always clear whether quick decisions are always the best ones. Even quick decisions can turn out to be bad. It’s about the quality of the decisions and I think it’s important that the affected people are involved – even if it’s cumbersome and involves many levels. There are advantages as well as disadvantages in digitality as well as in the various forms of government of democracy and autocracy. Let’s look at China’s Covid strategy, where vaccination, vaccine, lockdown, discussion opportunities etc. were quickly decided. Now, in retrospect, it is only possible to assess whether one or the other strategy was more successful, whether it was decided democratically or autocratically, whether it was implemented quickly or after a majority vote.
The range of digitality is also an important aspect. Data, information and knowledge do not stop at national borders. On the contrary, they cross them every second, so that influence from outside can be felt. Here democracies need precise rules of governance and improved voting qualities as a timely reaction to the speed of digital tools, the clout of central structures, the use of monopolies and the ideas of autocracies. The current status quo is still insufficient because many necessary adjustments are still pending. The USA is a democracy which, for example, wants to counter high inflation with a bold step in the form of the IRA Act (Inflation Reduction Act) and wants to promote climate protection in the USA. This allows foreign companies to establish themselves and, in this way, value is created. With start-up aid and start-up subsidies, the USA is aiming for a change in its national economy and an increase in its own value creation. That kind of goal can be designed. Ms. von der Leyen gave the European answer to the IRA Act in the form of the Green Deal. The implementation of the Green Deal will certainly take a long time because the European Community consists of many member states, requires different majorities (usually even unanimity) – in short, it is set up and organised very differently.
We see in the western states that the attacks from the left and from the right are becoming more and more powerful. We can also observe that the politically liberal centre continues to shrink. But I am convinced that democracies could be well prepared with better governance rules.
Could the monopolies arise because of digitisation and the growth of the real economy? In the 1980s, investments in the real economy were twice as high as in the financial economy. Today – that is, 50 years later – investments in the financial economy are 10 times higher than in the real economy. Is this financial economy and its returns financing the pandemic today and perhaps unconditional income tomorrow? If so, the real economy and the financial economy are dependent on one another. What effects will this have on the real economy – especially if the real economy employs fewer and fewer people, because the financial economy actually needs the real economy, its investments and the huge depreciation?
The financial sector has partially extricated itself from the real economy. Many things are now being created in the financial sector itself. The long-lasting low-interest policy has led to a large supply of capital markets. There has been a system emergency for more than 10 years. New problems and dependencies have arisen – especially when the money needed for old-age provisions needs to be found then there are big questions out there when crises occur.
After the financial crisis of 2008, there was – at least for a short while- the idea that banks and the financial system had to become an entity for and of its citizens and companies – in short, the real economy. That was forgotten just as quickly as the claim “too big to fail” wasn’t supposed to exist.
The inherent momentum in finance is so great and the concentration of capital so immense that the decisive change has not yet taken place. I am talking about laws to contain shadow banking (hedge funds, asset management, private equity…). Risky loans are offered here and the risks of a lack of liquidity in the event of a crisis also exist. This is a big problem that has been talked about and debated for years without any progress being made. In the event of a crisis, this can fall on our heads.
We see bank runs at regional banks, at Silicon Valley Bank and at Credit Suisse. In the shadow banking sector, the effects and thus the risks are even greater. The reasons for this are the low interest rate policy and digitisation. Many financial transactions are conducted digitally. There is no longer any human work at the ETF. It is computers, software and algorithms that invest the money. Investors are happy because they hardly have to pay any more fees.
The result is a massive concentration of capital. The rationale of the markets only works if there are enough market participants with different opinions. If everything follows the same mechanism and pursues the same goal, because algorithms and automatisms organise it that way, then the game changes enormously.
With AI, which we can use in both finance and the real economy, there is a new power factor that will change the current situation. Today we can only guess what will happen. There will certainly be changes in production processes, job creations, work restructuring, speeding up of decisions… It will be hard to accompany this new pace with good business decisions and balanced legislation. AI is a disruptive technology that brings many changes and therefore needs a public discussion. We can’t let this go unnoticed.
We have to think about the goal of digitisation. Digitisation is not an end in itself, but the result of a public debate. We need clarity about where the journey should go with the help of digitisation. AI is a driver of new business, markets and thus new profit. Stock trends will go up.
In social terms, AI can lead to an improvement in the relationship between public authorities and citizens by making administrative transactions easier and faster (e.g. tax returns, registration certificates, smart meters for optimal energy consumption…). AI could also lead to consumerism in society… Many of these advantages added to the mix will lead to a new world. Americans refer to this as the pursuit of happiness 4.0. The task of social discussion must be how we humans determine this “happiness”, how we control abuse and how the advantages of a changed world benefit everyone.
Does Europe still have a chance, even though it has few monopolies?
We have strong corporations. In Bernard Arnault we have one of the richest men in the world. But Europe doesn’t have really the biggest beacons.
What matters is where the decisions are made and who has the last word. These decision-making centres are mainly located in the USA and the People’s Republic of China.
Europe is struggling to organise itself. There are good programs, ideas, initiatives and money is being made available. Unfortunately, a lot of things get mixed up, such as Gaia X.
Progress cannot usually be achieved in large working groups. There are too many participants, the decision-making process is just too democratic and the organisation and the rules of the game are mostly unsuitable.
I am putting my hopes in start-ups. Due to our good education system, Europe has very well educated and resourceful young people. We have a lot of good universities that both the US and the People’s Republic have their eyes on in order to poach talent from there. Exactly this start-up scene as well as the inventiveness of the Europeans can be our strength. Europe should ensure that innovative companies that come from Europe stay in Europe. We should network strongly in Europe and let start-ups grow. Medium-sized companies have potential, while the large European corporations certainly had their peak in the industrial revolution and cannot assume the role of resourceful, agile speedboats. History has taught us over and over again that people have always been resourceful and have always found a way out from bottlenecks, a lack of raw materials, goods, capital and dependencies…. When the demand for natural rubber increased and resources were insufficient to meet demand, synthetic rubber came along. I am sure that Europe with its ideas and innovations will influence the monopoly game.
Mr Jakobs, thank you for sharing your insights on the evolution of monopolies and their impact on today’s geopolitical confrontations.
Thank you, Dr Caldarola, and I look forward to reading your upcoming interviews with recognised experts, delving even deeper into this fascinating topic.
1 Shoshana Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power