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Gerald F. Davis, "Taming Corporate Power in the 21st Century" (Cambridge UP, 2022)
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to the New Books Network welcome to the New Books Network. I'm Alfred Marcus and this book is part of my series on the cusp between strategy and ethics. Before we begin, a brief personal note. My recent book Comeback explores how organizations and crises regain legitimacy, often by reconnecting with their core values and rebuilding trust with stakeholders. Comeback is about institutional renewal. Today's book asks a related but broader question. What happens when the very architecture of capitalism changes and are old tools for governing corporate power no longer work. The book is Taming Corporate power in the 21st century by Gerald F. Davis. Davis argues that the standard narrative that monopolies have taken over the American economy and that reviving antitrust will fix it, is fundamentally outdated. Information and communication technologies have transformed capital, labor, supply chains, and distribution so profoundly that our basic categories firm, industry, employee size, nationality no longer map onto economic reality. As Davis writes, information and communication technologies have undermined the basic categories we use to describe the economy. Instead of a simple story about monopoly, he argues that shareholder capitalism, not concentration per se, is the real engine of today's social and economic problems. Gerald F. Davis is a professor at the University of Michigan and one of the most influential scholars of corporate governance and organizational change. Jerry, welcome to the podcast.
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A
Thank you so much.
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B
Let's start with the big picture. What prompted you to write Taming Corporate power in the 21st century? What was the moment when you realized that the standard monopoly narrative, the idea that big tech is too big and antitrust will not save us, was missing something essential?
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A
Yeah, it's a lovely question. I didn't expect to be writing this book, certainly not about antitrust. But for several years I've been having a conversation with a literary agent, a friend of mine, who wanted me to write a popular book instead of the many unpopular books that I'd been writing up to that point. And I said I wanted to write about sort of the changing shape of corporate power. She said, oh, for heaven's sakes, the world does not need another book about corporate power. Everybody's just published a book on antitrust. I said, well, I'm not sure those are the same thing, but I went out, bought a bunch of books on antitrust and read them all. And they were all, maybe not all of them, but certainly about a half dozen at least. Tim Wu and David Diane like a lot of books about, about antitrust. Amy Klobuchar and Josh Holly put out books basically the same week about antitrust. I was like, okay, I'm going to read them and see what they have to say. And they all felt like variations on the same tale that we were reliving the, you know, the Gilded Age. But they didn't feel right. I felt like they weren't getting the story of corporate power right. And I thought, well, I have something new to contribute here. So. So that that was the moment.
- [05:21]
B
So you write that the categories underlying antitrust, industry, firm market share, no longer describe how the economy actually works. What convinced you that these categories had broken down?
- [05:36]
A
Yeah, it was one of the things that I discovered in all of these antitrust books was that they were all citing the same figure. Like, word for word, 75% of American industries have become more concentrated over the last 25 years. And they all cited that same number, 75%. I said, wow, that sounds pretty bad. As you know, I'm a data nerd. So I dug up the paper that made this claim and discovered that they were basing the claim on taking compustat tapes of companies, 10Ks, adding up corporate revenues, dividing them by market share, and said, look at this. Industries are becoming more concentrated. It was wrong in a hundred ways that our fellow nerds would immediately understand. But one of them is if you actually dig into the industry categories, they just don't fit anymore. If you look at what corporations do, they don't do things. We have a set of industry categories that were created in the 1930s, the Standard Industrial classification. They were created to describe the kind of companies you saw during the Great Depression. But they really break down in a world where software has eaten the world, where technology has invaded everything. So I just posted this morning on LinkedIn a discussion of Nvidia. It's the most valuable corporation in the world today, has a valuation of about $4.3 trillion. And according to their prospectus, they're in an industry category for semiconductor manufacturers. But if you actually read any of their corporate documents, they don't manufacture anything. They design stuff and then someone else manufactures for them. And that's been true since 1999. They've always been a design company and they rely on, you know, Taiwan Semiconductor and other firms to do the actual production. So I don't think they should be called a manufacturer if they don't actually manufacture things. They're kind of in the design industry. And, you know, I call that in the book Nike Fication because Nike's, you know, never really manufactured sneakers from the get go. They designed them but relied on contractors to make them. So that's part of it is that that a lot of the things that the way that we categorize industries really relies on a set of concepts that made sense in the Depression that just don't fit anymore.
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B
That's true of so many companies. Apple really doesn't make anything. Coca Cola doesn't really make anything. It makes concentrate, you know, but the production is really separated out. Yeah, I think that's a major phenomenon. You describe how information and communication technology firms have reshaped markets for capital, labor, supplies and distribution. You call this financialization NYCA tion You just use that term hard for me to pronounce. Amazonmidification and Uberization. Could you walk us through how these four transformations collectively eroded a traditional corporation?
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A
Yeah, no, thanks for that. As you mentioned, I put a lot of the blame or credit for this on information and communication technologies. And so there's something about the way that information technology gets into, implemented at the US that it seems to lead to the replacement of markets for hierarchies. That, that, that ICTs or information communication technologies makes it possible to rent things rather than own them. Would, would, would be one way to put this. So in the case of Nvidia, they rent a supply chain, you know, they, they don't manufacture things. They come up with great designs and work with suppliers to do the production. And that whole idea spread pretty broadly. I think of this as having happened in sequence, first with finance, then supply chains, then distribution, and then labor. And that's why I had to come up with these extremely ugly and hard to pronounce labels for this. But the first one, financialization is the idea of instead of going to a bank for a loan, we rely primarily on markets. And that's a pretty major substitution. Banks used to be the central pillars of every local economy. I'm sure Minneapolis St. Paul had one or two major local banks. Detroit had three big local banks. Boston had a couple of big local banks. So every city's business elite was organized around a couple of big banks. But over time, technology made it a lot easier to borrow money through markets rather than relying on banks. And so it's the substitution of markets for more concrete institutions. And of course this has happened to mortgage loans and business loans as well. If you go get a mortgage from First Minneapolis Bank, 10 minutes later they're going to resell that thing. It's going to be thrown into a giant pile with 3,000 other mortgages and then divided into tranches and, and sold as bonds. So that's, you know, that's what a mortgage backed security is. That same basic idea also works for business loans or auto loans or student loans. If it's got a cash flow associated with it, somebody on Wall street has turned it into a bond, thrown those things into a big pile, and then divided them up and sold them as bonds, which is called securitization. So that's, I think that's been a really big transformation because instead of being tied to one community or one particular bank, it's sort of traded on the markets, which is a bit more ephemeral. So, so that was the Financialization. The second one is Nike Fication. Basic ideas. You know, Nike famously designed sneakers but always relied on external manufacturers. And that core idea, it's been true in garments for a while, but in the 1990s it also spread to electronics. So that by about the midpoint in the decade, Hewlett Packard or Dell or other companies were primarily relying on external vendors to actually do the manufacturing. So there were a handful of these companies called board stuffers. And you buy a PC from Hewlett Packard, it's actually produced by somebody else, but then sold with a Hewlett Packard box and label on it. So that's what I call Nikefication. And what made it possible again was information and communication technologies that if you can basically create a set of design instructions and shop them around to vendors on the World Wide Web, as we used to call it, you can find a producer in China that can make that thing for you. And it just becomes cheaper to use external vendors for making things rather than doing them internally. And then that's spread widely to things like having your accounting or your payroll done, having your personnel management. There's vendors that will take on those tasks for you so that you don't need to do it internally.
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B
So that's in terms of strategy, you buy rather than make. The transaction costs, you externalize them.
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A
Exactly right. That's kind of my master explanation for this is that the transaction costs are changed by technologies to make it just cheaper to buy rather than make. And Amazon is really straightforward. You don't need to, you don't need to have a Salesforce going to JCPenney or Sears and getting your products on the shelves anymore. You got a product, Amazon will pick it up from the factory and deliver it for you. So you never really need to see or touch the thing that's got your company name on it. And then Uberization is the last one. And that's the most fraught one, which is a substitution of contractors or labor by the task or by the shift rather than having full time employees. And in the US this makes a ton of sense. The last time I checked, the average cost for a corporate health insurance policy for a head of household is $29,000 a year. That's about the average wage at Walmart. So it's just really expensive to hire employees if you have to give them benefits. And it's a very American thing. But because of that, American employers or American corporations do everything they can to avoid having a workforce. They don't want to have employees with demands and regular schedules and Health insurance.
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B
I once read that Google has 100,000 contractors outside of its regular employee base.
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A
I think you read that in this lovely book.
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B
Oh yeah, I probably read it in your book. And maybe I heard from you too when I've heard you give lectures. Why does Amazon then internalize the warehousing of everything? That's a little bit, goes against this. They're really putting Federal Express and the post office out of business by doing that.
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A
Yeah, so you're alluding to two parts of their business there. So the warehouse part, that happened around 2016. So the warehouse workers used to be primarily temps and then that switched. They made a conscious decision around 2016 to switch over to full time employees. And my sense is that at that point they had gotten to such a vast scale that they could not recruit enough temps year in and year out that they had to pay at least $15 an hour and provide benefits to be attractive because their turnover rate was incredibly high. I haven't checked this in a few years. Their turnover rate was something like 150%. And so they'd come to this, this conclusion that at some point they would run out of people to hire if they continued to have, if they continue to have a turnover rate. So for warehouse people, warehouse workers, those became full time employees, I assume, because the turnover was too high. But that's not really true of the truck drivers. Those are still primarily contractors.
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B
Contractors. Right. It surprised me though that they even become involved in the logistics site that they don't just rely on outside, you know, Federal Express, ups, the post office, et cetera.
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A
Yeah, well, if you read about what those jobs are like, although you may be nominally a contractor working for a freestanding company, you're driving a truck that says Amazon on it and it's got cameras that are watching you in the road around you and a robotic voice will tell you, hey, you cut that person off. Or hey, you're supposed to turn left there. So they managed to have their tentacles deep into, it's like they have what might be called vertical restraints. So they have a set of very detailed demands on what the contractors do. And you know, and the trucks say Amazon on them. So they are almost employees. And I don't think they could get away with that level of internal control with FedEx or UPS.
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B
Yeah, good. Oh, I see. What you think that like initially they relied on Ingram for warehousing, but they, they, they do, they, you know, that's what I'm wondering. Why, why do they want to have all those heavy duty assets at all why don't they just contract all that stuff out? But yeah, have you thought about that? Because that's a different pattern, I think somewhere.
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A
Yeah, I think the things that they've invested heavily in are the warehouses and being incredibly good at logistics of warehousing and so that you just, I think you need to own it to make it work. And I think they need to call people full time employees to get a workforce that's going to turn up every day. And then just the server farms, they are beyond comprehension. You look up almost any tech company smaller than the Magnificent Seven and they all use Amazon web Services, Netflix or Zoom.
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B
Yeah, they're all on every. It's all on Amazon, which is extraordinary.
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A
Yeah, true.
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B
What about when we go back to financialization, the role of private equity, which is in the newspaper constantly. Any thoughts about that?
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A
Yeah, none that I should have my name associated with, but yeah, I do have a few unkind thoughts about private equity. So, you know, a couple of books back 10 years ago, I had a book called the Vanishing American Corporation and that started with this observation that at that time there were about half as many companies listed on stock markets in the US as there had been 20 years before. There'd just been this long term decline in the number of listed companies. And your first thought is that's because they just acquired each other. And that's not it. That's, that's. It's a. Companies really weren't going public anymore because they could rent all of the parts that they needed. And so on the one hand, it's become a lot cheaper to become a company because you don't have to invest in long lived assets. On the other hand, the technology of gathering giant pools of money to invest in, you know, taking a Dell private, that technology has also gotten a lot better. So the private equity industry has become very, very good at getting universities and foundations and endowments and rich people to give them money that doesn't end up on the public markets. So as an innovation, so much money poured into private equity that it's become a viable long term alternative to the stock market. I have thoughts about what private equity does when it buys those companies, but they, but they wouldn't be polite.
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B
I kind of agree with you, but there are many people who I've spoken to doing these podcasts and people, other academics who defend private equity pretty strongly as a way of dealing with companies that break down in the United States and trying to turn them around. That's the way they do it oftentimes is very vicious. But other people sometimes argue to the contrary, that when you go private, you're not subject to the same kind of control from Wall Street. So I think there's a lot of different entities out there called private equity. So that's the other private.
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A
No, I think that's exactly right. That there's a lot of variation in what private equity can mean. And, and it's sort of like in the US we talk about nonprofit organizations as if that were a meaningful, you know, that were a kind of organization. And it's not. It's just a tax status. It doesn't tell you anything about what they do. So a university and a hospital and a country club and a soup kitchen are all nonprofits, but they're not the same kind of thing at all. I think that's similar to private equity that we use one label to describe pretty much any kind of business that isn't publicly traded at the moment. And so then it loses some leverage
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B
with the private equity and private debt escape regulation to much greater extent than real banks do and real corporations do.
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A
No, that's right. I mean, the requirements that we have for listed corporations, it's underappreciated by a lot of people. But the Foreign Corrupt Practices act is a securities act when it was originally passed in 1977. You know, Congress makes securities laws, but the states make corporate laws. And so oftentimes, if you want corporations to behave, you do it through securities laws and say, well, if you're listed on a US Stock market. So in the Dodd Frank act, there was a section on conflict minerals from the Democratic Republic of Congo. So every company listed on a US Stock market, if they used tantalum, tungsten tin or gold in their products, they had to submit a report showing that they were not supporting warlords with their purchases of conflict minerals. And so that applied to Hewlett Packard because they were listed on the stock market and it didn't apply to Dell because they'd gone private. So there's something peculiar that going private leaves you off certain flavors of rules that apply to listed companies. Make every get together chill this Memorial Day. Get up to an extra thousand dollars off select top brand appliances like LG. Plus get free delivery at the Home Depot Tackle pool towels and camp laundry with a large capacity washer. And host in style with the fridge serving craft ice, mini craft ice, cubed ice and crushed ice. Shop appliance Savings now through June 3rd at the Home Depot offer valid May
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online@statefarm.com like a good neighbor, State Farm is there there's much less transparency and and if you are these big endowments you have to believe ultimately reports that they're saying about how much more your money is worth and you can't and you don't have much you can't take it out and quickly either which is very constraining. So I mean I think I've read accounts that some of the endowments actually that their actual holdings are probably inflated by 5 to 10% because the private equity and the private debt that they have is actually not worth what the owners of it are claiming it's worth. And there's a lot of in buying the private equity holds hold something for maybe 10 years and maybe one out of 10 really is it's like a fix it up house as they really turned around. But a lot of it doesn't get really turned around. They earn management fees and they just sell it to another private equity entity
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A
or to themselves by opening up a new what are called continuation funds.
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B
Yes, right. Exactly.
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A
Yeah. Which which has someone who is heavily reliant on a solvent university for my income. Those kinds of things make me a little anxious.
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B
Yeah, I think it's a vulnerability to the entire economy because transparency is quite an important value. I shouldn't editorialize here. What about Zoom? Zoom is an example you use it just has a few thousand employees, it rents its infrastructure. Is it a big company? What does it really feel about size? Is that a misleading concept then? Size?
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A
Yeah. So we're using Zoom right now and I, I, I, I don't think a day goes past where I don't use Zoom. At least one or two Times like when I. We used to have conference calls with our kids, you know, on Sunday or holidays, using. And, and so at some level you say, why the hell can't Google or Microsoft or Facebook or Cisco, like, why can'. Giant tech companies giant in a financial sense, why can't they come up with something good? Like, I don't know if you've been stuck using Microsoft Teams, but I don't love it. And I do love Zoom. It's like, it feels intuitive. It gets better and better. I don't know if you remember what it was like when the, when the COVID pandemic started, but it's a lot. It keeps getting better. And that's very atypical.
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B
So this kind of features, it has amazing features. Yeah.
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A
It's like, how did this tiny company beat the monopolists coming out of nowhere? So that's always a puzzler, like, how is it, how is it possible for Zoom to be so much better than Google at something like this?
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B
Cisco had the original product.
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A
I think it had WebEx.
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B
Yeah, WebEx, yeah. Which is still there.
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A
It's still there. And every time I see an invitation from WebEx, I think, oh, please, can we just. But, but the fun thing about Zoom is that they quickly scaled to 300 million daily users during COVID which is, which is insane. But they didn't actually have to build out any server capacity because they use Amazon and Oracle. So they could go from being a small but excellent product to being utterly pervasive. But they didn't have to go building a bunch of server farms. They were able to rent server space. So that's one thing. It doesn't have a whole lot of assets. It basically rents the assets 300 million daily users. But I checked their most recent 10K. They have 7438 employees around the world, about half of those in the U.S. so that, you know, that's like 10 Walmart's, Walmart's worth of, you know, Walmart stores worth of employees are the US workforce of Zoom. So hardly any employees, hardly any assets yet completely pervasive. And at the, at the height of COVID their market cap was $150 billion, which is twice as big as Goldman Sachs. So that's like, wait, what? How is that possible? So is, is Zoom a giant corporation or not so much? And that's, I think it's a telling case that it feels giant, it feels pervasive, but in terms of assets or people, it's actually pretty, pretty tiny.
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B
Why, why hasn't, why has it stalled in the stock market? That's, you know, its valuation actually has fallen a great deal from the COVID period.
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A
Yeah. Right now they're at about 32 billion. So sad. But, but, I mean, at Zoom was how all humans seem to communicate. You know, if you think back to, like, September of 2020, everyone was on Zoom all day, every day, and now it's gone a bit back to normal. So there might have been a bit of a inflationary bubble, you know, or expectations about them taking over the world, but 32 billion is still pretty respectable, I think.
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B
So that's. That is a lot. So you, you talk about shareholder capitalism, and that means a lot of different things. So what is it, what do, what do you. What are you really saying when you, when you say about. When you use the term shareholder capitalism? And it. Because in my mind, I, I can think it's a publicly held company, but you're not really. You. Shareholder capitalism, really? In your framework, does that extend to private equity or.
- [29:38]
A
Yeah, it's a great question. And it is ironic that there's half as many listed corporations as, you know, 30 years ago, and yet we still seem to be very much oriented around the value of the stock market. So the current administration, I won't be using any names here, but the current administration brags incessantly about stock market records and how well the stock market is doing. If you go to a press conference and say, inflation is up, gas prices have doubled, unemployment, AI, they'll say, but the stock market is up. And that's like the universal response is, as long as the stock market's doing well. That's the truth about the economy. And I think a lot of people have bought into this. About 60% of American families are invested in the stock market. I imagine you and I, our ability to retire depends very heavily on the S&P 500's valuation. If the Magnificent Seven bubble collapses, I'm going to be eating cat food. Okay, that's not really true. I'm a vegetarian. But it's shocking how much of people's college and retirement savings depend on the valuation of the stock market. And so culturally, the stock market is hegemonic. We act as if it's like this glowing orb that we somehow orbit around. And that was not always the case. You and I are old enough to remember a world of Westinghouse and Eastman Kodak and Woolworth and American can and Bethlehem Steel. There was a time before this, but during the 1980s, about 1/3 of the Fortune 500 got taken over mostly through hostile takeover bids. And what happened was the value of the company was not reflected in the stock market value. There was a magnificent get rich quick scheme which is get junk bonds, buy a conglomerate, sell off all the parts and make a big stack of cash from unlocking all of that value. And what the 80s taught the world was that the stock market value is inescapable as the goal of the corporation. You might say you exist to make the world a better place or to feed the hungry or to provide refreshment or whatever mission statements might have said. But deep down, if you don't create shareholder value, if your valuation is not high enough, you're going to get takeover bids or activist investors that kind of knock you into shape. And they will have the sympathy of people like you and me who are invested in the s and P500 and saying, yeah, go in there and straighten them out. We need to see more shareholder value created. And so in some sense, even if it's only, you know, 4,000 companies traded on the market, it holds this central place in the culture as this organizing principle that we think of a stock market as being this sort of all seeing orb. It's like a mood ring telling you how the economy's doing. So I think that's, that's what's happened. Even though there's a lot fewer listed corporations, our dependence on the stock market is pretty vast. And even the existence of things like private equity is premised on the thought that once we get these guys back in shape, then we're going to, you know, take them public again so that we can cash out. So even private equity relies on the existence of a stock market for value. And you know, Silicon Valley and innovations and, and, and startups, overwhelmingly, they have to have somewhere in their deck or in their plan. And then we go public and get rich. Even if it doesn't happen very often, the fact that that dream is still alive requires there to be a stock
- [33:37]
B
market somewhere companies right now. But you're absolutely right, it doesn't always happen. That's a lot of. And, and, but it's an aspiration. And it's also true that most companies in the stock market are really not increasing in their value very rapidly. It's really being driven by very few companies. And even that changes like the Magnificent Seven. I don't know who Nvidia entered the, I don't know the number today.
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$5.3 trillion. They're worth $5.3 trillion.
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B
Right. It's the AI boom game that we're in right now. What do you think about AI? So might as well ask that question. And how does that change things? How do you think that's going to change things?
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A
Yeah. Do we have three hours or should we keep it to a couple of minutes?
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B
I didn't plan on asking you this, but it had to come up, right?
- [34:39]
A
Oh, it's like PFAS in the water. You can't escape the AI conversation. Well, there are not many things in this world where I've had such radically mixed emotions about exactly the same thing. So I'm an elderly man, and yet I spent a lot of my, my winter break this year writing a bunch of Python scripts using ChatGPT to gather and analyze data on nonprofit organizations and put together these board network maps showing all 3 million people on all 320,000 nonprofit boards and making network maps of Detroit and Pittsburgh and other cities. And I did all of that, even though I'm an elderly guy, because I could type some pretty good commands into ChatGPT and have it write scripts for me. And then I told it what it got wrong and then it fixed it and eventually it got it. Right now I've got these insane giant data sets with years of information about all the nonprofits in America. So that makes me very excited. It's like, dang. I now have, you know, with. With minimal training, I have the capacity to do amazing academic work and answer questions that nobody's answered before. So that is super exciting. And it only gets better. You know, this was, this was before Claude code existed. Now I could have done it in two hours. So super exciting. Like we can, we can beat back ignorance and do research. It's never been done. So that, that's the good part. I mean, I guess another good part is with Claude code. I don't know if you're a Star Trek nerd at all. I'm not much of one, but I remember, you know, I remember the bald characters. So Captain Jean Luc Picard used to use the Replicator and say, tea, Earl Grey, hot. And the Replicator would give him a cup of tea. Or if you needed a spare part for the Starship Enterprise, a Replicator would make that. So it's essentially a post scarcity world where physical goods could be created from energy and so scarcity was banished. Well, we are now at that moment when it comes to software that if you say, I want to have a version of Salesforce, but I want it customized for a university setting, and I want to have the following three features. You can call up Claude code and say, hey, make a knockoff of Salesforce for me. And I want it to add the following six features. It'll probably come up with a pretty good version of that. And so we've seen for the, you know, the past few months, every time ANTHROPIC MAKER OF CLAUDE every time they make a new product announcement, you see the valuation of software as a service companies going down. You look at Quicken or, or Oracle or Salesforce and it's been a very troubling time because suddenly anyone can code anything. So yay, magical Star Trek. That's the good part that makes it very exciting. The bad part is, oh my gosh, they're putting data centers absolutely everywhere, spraying the electric grid, using the water and threatening all of our students with unemployment. And we have as a society no capacity to deal with that. We just don't know what to do. We've got university graduates who are incredibly talented and skilled and have devoted themselves to learning things. They're no longer relevant because a bot can do it. So that is the. That's the existential dilemma is it's both magical and horrific at the same time.
- [38:19]
B
We're converting energy into intelligence, but we have to have huge amounts of energy to make that conversion. And the intelligence is conventional intelligence, but it makes, does everything so much faster. I just noticed myself, it feels like I can get so much done quickly. And I don't know if it's unsettling a little bit actually, because you just feel like you're always in a rush because you know you can get so much done as a consequence.
- [38:52]
A
Now you could write a book this afternoon with a few good prompts, a book that absolutely no one will ever read, which is, you know.
- [38:59]
B
Right, right. And so we're going to proliferate everything. I think that one of Organization Science, one of our academic journals, they just came out with an article about what's been happening. And I think, if I remember correctly, they're saying the number of articles that are being submitted to academic journals is going way up and lots of those articles were being reviewed by AI. So like, why don't we just hand over everything we do to AI?
- [39:32]
A
I think we're on the verge of that now. I wrote a thing for the ASQ blog a couple of months ago about apparently lots of doctoral students these days. Basically take the entire syllabus, take PDFs of the readings, feed it into NotebookLM, say, give me a good summary now, give me five smart things I can say if I'm cold, called in class and then come up with a paper topic for me based on a gap in the literature. And I mean, it won't write a brilliant paper, but it'll write a paper. And you could imagine a world where, as I described it, nobody reads, but everybody writes. Nobody actually does the readings, but they're all producing papers that then go to a bot to be reviewed and then they get posted in an open access journal online that no one ever reads, no human ever reads. And you know, you might make a pretty good career out of that, but it will not be the world that we thought it was.
- [40:38]
B
That's stuff that's better than average, but it doesn't do stuff this extraordinary. And it has to be checked all the time because it makes mistakes. And it's not just mistakes, factual mistakes, but it makes mistakes. It needs accountability. And that's what I'm afraid of, that we're going to let it really take over.
- [41:05]
A
No, I think that's right. I think the threat to higher ed is one of the most immediate and kind of horrifying when you think about what it means for civilization. Like imagine that an unnamed governor of Florida like Ron DeSantis created an online only educational institution that gives a University of Florida online. Oh, ufo. That would actually be genius. A UFO University of Florida online degree, entirely online. But it never taught any woke topics because the AI was tuned to never mention race or gender or inequality or sexuality or media studies. You know, that's not too, that's technically feasible right now. And so that's part of what one of the things about AI that worries me specific to our industry of higher education is. You know, a populist would say, if you want to take the prices down, get rid of the professors because they cost too much. Replace them with bots. You can't reason with the sun.
- [42:10]
B
Trust us, we've tried.
- [42:12]
A
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B
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A
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B
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A
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- [43:21]
B
Prices may be higher for delivery. Right. And the buildings, the whole infrastructure, people and capital is just how relevant is the thing to be. The football teams will continue, the sports teams, because they're big business now.
- [43:36]
A
And the sex in the parking. Yeah, that's important.
- [43:41]
B
That can't be. Well, maybe it can. That's not good. But you talk about also in the book about nationality. Companies really have not been. They're being placeless. Maybe comment a little bit about that.
- [43:59]
A
Yeah, I give a couple of examples in the book. So when I was writing the book, Coinbase went public. And Coinbase is a crypto exchange. It might be the biggest. It's one of the biggest. Funded by Andreessen Horowitz, inevitably. And when they went public, it was a few months after the COVID epidemic started. And so on their IPO prospectus there's a section that says address and it says not applicable asterisk. And if you go down to the footnote, it says, Since May of 2020, we have been a remote first business. And as such we do not maintain a physical headquarters. So at that time they said they had 1,249 employees, but apparently they all worked from home. You know, if you're coding, then zoom meetings and coding can be done whenever. Well, what, you know, when we talk about a company and its community, like what is your community when you're an entirely virtual company? So that one stood out to me. There have been, you know, tax avoidance techniques for a good long while. In 2020, Microsoft declared a profit of $350 billion in a subsidiary in Ireland that had literally zero employees. It's called Round Island One and it declared an appro A, I guess EU based profit in Ireland of $350 billion, which is 3/4 of Ireland's GDP. So companies have always been footloose. And Martin Wolf called them rootless cosmopolitans, which is a fun Stalinist throwback. But I think when so many businesses now are primarily online, when it's primarily, you know, server space or, or various flavors of software, social media, things like that, that their nationality just doesn't pan out the same way. It doesn't really fly. And so the the country of Estonia, which is an actual terrestrial country on the Baltic, they created something called E. Estonia a few years ago. And you can get citizenship in E. Estonia, which doesn't allow you to set foot in terrestrial Estonia. It's an entirely online citizenship. If you get E. Estonian citizenship, you're eligible to create an E. Estonian licensed corporation, which is a completely legitimate, know, corporate incorporation license and you can use payment and banking services entirely online. And so last I checked, they had about a hundred thousand Estonian citizens who had started tens of thousands of businesses that live in Estonia. And if you're selling, you know, online pornography or gambling or, you know, entirely online businesses, why the hell not? Bne Estonia. And so nationality feels more like a consumer choice rather than, you know, Benedict Anderson talked about the nation state as an imagined community that we all feel that we have something in common. Even though, you know, you're in Minnesota and I'm in Michigan, we feel that we have something in common as, as part of the same nation. And now that feels a bit like it's tapped out that people don't buy into that notion anymore. And because I can claim to be a citizen of E. Estonia and own a business that operates placelessly and so it's a bit disorienting. It gives you a feeling of vertigo to think about this post national world.
- [47:47]
B
I mean, the distinction between US and Chinese corporations because of security issues, I think actually has become greater, less than the world.
- [48:00]
A
Yeah, I guess there's, there's two things tugging in opposite directions. So one is because of trade wars and rising nationalism, there's a focus on, you know, community and nation and blood and soil, I guess, depending on whom you're reading. So a sense that, you know, we want to reshore and own things within our own boundaries. But that feels very much at odds with the fact that so much of the economy is online and really intrinsically does not have a place. And so, yeah, the New York Times
- [48:35]
B
yesterday had this article saying that the suppliers to the automobile industry today in the United States are largely Chinese companies and many of them are Chinese owned. And so the distinction between an American made company, American made car, and a car made anywhere else in the world is really not that great when you get down to it.
- [49:00]
A
Yeah, no, I feel that's right. I mean, I think one of the takeaways from thinking about this is, you know, think like a corporation. If you think like a corporation, the nationality is a lot like an operating system or an app. So your nationality is like Salesforce or Amazon Web Services, like Nationality is a service that you rent. So if you're Royal Caribbean Cruises, turns out that if you incorporate in Liberia, you don't have to pay taxes in the US and so from their perspective, laws and regulation are kind of like an operating system that you can opt into and sometimes opt out of.
- [49:40]
B
The shipping industry, the maritime industry, I think historically has always been incorporated in countries like Liberia or islands of the Caribbean.
- [49:53]
A
Yep. Panama. Yeah, right, right.
- [49:59]
B
The gate. The, the new sources of power then are they're not. It's not industry dominance, control over access, capital, labor, supply chains, distribution. So what, who, where, where does corporate power come from? How do we do, how do we understand corporate power in this world?
- [50:18]
A
One thing that I really liked in working on this book was thinking about how other nations think about corporate power. Like the US we're the only country in the world that calls it antitrust. Everywhere else in the world it's called competition law. But because of the peculiarities of American history, the Sherman act was passed in 1890 to regulate the trusts, which is a bunch of companies that got thrown together into a vessel like Standard Oil, and then they could coordinate on prices and things like that. So it was operated as a trust. So that's why we call it antitrust stock, because we don't like trust. We don't like trusts. But if you think back to what the businesses looked like in 1890 with the Sherman act, or 1914 with the Clayton act, the major parts of antitrust, the businesses that existed were like American sugar, United States Steel, American rubber, National lead. They were companies that operated in markets that made something very tangible that sold on a national market. And you could easily imagine what market share looked like and where power came from. So if I'm US Steel, if I control 80% of the steel market, that's a clear source of power. And so that's what we normally rely on. When we think industry concentration. We think of American tobacco controlling 60% of the tobacco market. Or in the 60s, General Motors had a 52% market share of the U.S. stock market. And so that's what we would think of as something where you can visualize what the market is and what it means to have a dominant place. And that's harder to do when you're an online, a social media company that also sells advertising and as a side hustle, send it selling phones or something like that. Like the companies that we think of as powerful now, like Google and Apple and Meta and Amazon, they do really different things. They often operate across a whole lot of different Industries, many of them are competitors. At the same time, I keep forgetting that Alphabet actually has a phone company or two. You know, they've, they got the Pixel, I think they still own Motorola. So they still have, they're still competing with Apple on the phones, but they're also collaborating up until the recent antitrust judgment by giving Apple a huge multi billion dollar payment every year to be the preferred search engine on the iPhone. So in some sense they're intertangled in a way that doesn't easily lend itself to just looking at market share. But if you look at what the EU is doing, they were a lot more clear eyed about the nature of corporate power and they did it a lot earlier than the US did and they're still mostly sticking with. So European competition law, like the Digital Markets act has a specific definition of a gatekeeper. I have to read this because it's worth saying it's a large digital platform that provides a core platform service like a search engine, app store, social network. That's an essential bottleneck between businesses and consumers. And so that seems pretty clear. If the only way for businesses and consumers to meet is through some kind of platform, that's a bottleneck. And they're a gatekeeper. So that would work for Amazon for buying and shipping goods, that would work for Google or Facebook if you have to buy their advertisements to reach out to customers. So I like Gatekeeper. I think that gets at the right notion, is like you have to pay the toll to make it through this gate.
- [54:01]
B
That's very good. There have been some major antitrust suits in recent years. You want to comment on those? And they seem very selective. And it's very hard to bring these suits too. They're expensive and they're time consuming. They last a long time. They do have an impact.
- [54:21]
A
I think they absolutely do. And in fact, one of the things that I did in preparing for this was to see what's the current disposition of antitrust suits against the Magnificent Seven. And they've all got a whole lot of suits that they've either, you know, some they've won, some they've lost, but a lot of them are still outstanding, or they're still at the penalty stage. And so you could actually spend an afternoon going through all of the judgments around Meta Alphabet, Apple and so on. And so it, it's really hard to come up with a single pithy answer to like, did this work? I will say that, you know, I published a book in 2022, I completed it in 21 and then it came out in 22. And at, at that time, I was very skeptical of antitrust. I said some. Something like, you know, trying to fix corporate power with antitrust is like trying to do surgery wearing oven mitts. I just didn't think it had the right tools. And I have to say, hats off to Lina Khan and Jonathan Kantor. But, but Lina Khan is, was a really brilliant head of the Federal Trade Commission. I think her, her analysis of what was going on was really astute and she was just very insightful about resurrecting tools that I had never heard of. So, side note, we're business professors. I've come to believe that the entire field of strategic management is probably illegal under the Clayton Act. Once I discovered that's what we teach,
- [55:59]
B
how to create monopoly.
- [56:00]
A
No, we really gotta do.
- [56:03]
B
That's what it's competitive advantages. Having moats. Having moats that nobody can get across.
- [56:10]
A
And it turns out that some of those moats might not be entirely kosher. So. So it turns out there's an actual section of the Clayton act about unfair business practices. So that was a bit of a side note. So a lot of what we do in business schools is teaching people how to be monopolists in ways that might not always be legal. But the FTC and the Justice Department don't enforce absolutely every law that's on their books. But Lina Khan, I thought, was very thoughtful and ingenious about sort of resurrecting some tools that were there in the kit but hadn't really been used. That being said, not every judge buys into it. You know, you can see Google lose a lawsuit, and yet judges requiring behavioral remedies, which is behave yourself rather than split off the offending business. And the Meta case did not end the way that I had anticipated it. So it's, it's, you know, the, the. If this one was one of the more recent cases that Meta was considered to be a monopolist because they bought Instagram and WhatsApp and proceeded to grow those to be giant businesses around the world. And the reasoning was, well, they're not a monopolist because TikTok got to be really, really big, therefore there are not sufficient barriers to entry. You can't say that, that, that, that Facebook or Meta is a monopoly because TikTok is even more popular and global, therefore they don't really dominate the social media space. So it's, it's, you know, knowing what counts as an industry or a market is, is perplexing now.
- [57:54]
B
Right, right, right. The economists, you know, joke about economists Economists on a desert, desert island and they have a can of tuna fish and they say, no problem. Imagine that there's a can opener. Assume the can opener. Assume we have industries. It's kind of the same situation we have right now. And there hasn't been any big breakup of companies. But the breakup of the Bell system, I think was really fundamental in starting this age of, of the Internet and communication technology is a very, very critical point in history.
- [58:37]
A
Yeah. And it was 1984 during the Reagan administration.
- [58:42]
B
Yeah, yeah. I mean, if you're a conservative, you can be on either side of that spectrum. I mean, if you're economically on the conservative side, you can be for breaking up companies. And you can also kind of say that as long as there's some potential competitor isn't a monopoly, you can go on either side of that spectrum. I think in the arguments I misspoke.
- [59:09]
A
82, not 84. Sorry about that. Double check myself.
- [59:13]
B
Okay, good. And you were able to do it instantaneously. When you wrote the book, you were more skeptical about antitrust or anti competitive actions on the part of governments. But so what do you, what do you think should be done now? You know, if you were the benevolent dictator, if you will, what would you, what would you do right now to get our economy to become fairer and more innovative and more productive and other positive aspects?
- [59:54]
A
Yeah, partly what I feel is also since the book came out, generative AI has become astounding and agentic AI and the ability to vibe code. So it could be that there are even more pressing problems now than Facebook or Google monopolies. There's still issues and we'll see how the cases continue to play out in court. So I don't want to abandon what progress has been made with antitrust, but I think there might. I did feel that a digital platform agency was a pretty good idea. That tech moves so fast, that innovations happen so quickly, that we really need to have an agency like the FAA or the FCC that is staffed with experts who are reasonably compensated and can keep up with the industry in a way that, you know, judges really cannot, and lawsuits or, you know, or regulatory agencies like the FTC might have a tricky problem. So something specifically devoted to digital platforms, that felt like a pretty good idea to me. But what I'm now thinking is that AI is creating issues that are so much bigger than anything we've dealt with to date, that that's forming, that that's creating a much bigger hazard that's going to need even more of our, of our energy and attention, which is not meant to be a punt, but just this is something that is posing existential threats to industries left and right. Like pretty much by the end of February, people had said, well, software as a service is basically doomed as a category, so write all of those off. And that's a level of meteors hitting the earth and killing off the dinosaurs. That seems even bigger than fine tuning current industry boundaries.
- [61:51]
B
Tech companies I think, understand that AI is the future and they're really heavily, heavily invested in the assets, actually, the hard assets as well as the basic technologies. So they may keep out, but I think there's a lot of room for startups too. This could transform everything.
- [62:17]
A
Yeah, exactly right. You know, I oversee a program in Detroit called the Detroit Neighborhood Entrepreneurs Project. And we're helping small businesses grow. And one of the fun tools that we had a third year law student create is called bambini. And it's basically, it's trained on all of the laws and regulations specific to Detroit for child care businesses. So if you run a child care business and you need to know, I want to run it out of my home, what are all the relevant regulations? This thing will tell you. Well, in Wayne County, Michigan, here's one rule and here's a staffing regulation, here's inspectors that you have to, inspections that you need to go through. It's like, dang, that's, this is enabling an entire business to do better by being able to answer questions, you know, specific to, you know, the city of Detroit, Michigan. Well, there's thousands of use cases that look just like that. Where, where a smart person can create a bot that can answer an awful lot of questions for people or can create software to enable small businesses to grow. So we've proposed an idea to the university and asked them for a million dollars to do it, which would be pairing university students with entrepreneurs in Detroit to design software that fits their exact needs and that, so that it's designed very much with the user's interests in mind. If they say, I want this to be a worker owned co op and I want the accounting system to be accessible to people so that they have visibility into how the business runs and know where the money's coming and going, it's great. We'll create an accounting system for co ops.
- [64:02]
B
I think we're living in what we've said we've been living in for a long time, which is an intelligence and information age. And intelligence and information is power and economic advantages gained through intelligence and information. But it's accelerated so rapidly and on the one hand it's become democratized, like anybody can do things, but on the other hand, there's aggregations of power in traditional sources. So everything's jumbled. It's very, very hard to really think about how this is going to evolve ultimately. There may be no stable point, it may be continuous. The continuous change may just be greater and greater.
- [64:48]
A
Yeah, I was spitting my dreams about this utopian world where everybody was speaking software into existence, like Jean Luc Picard with his, with his mug of tea. And my, my more realistic friend said, you do realize that you don't get claud code if you don't have giant companies with server farms. So ultimately you're not escaping big tech by using these new flavors of AI. You're, you're still reliant on a handful of corporations on America's west coast that might be run by peculiar tax dodging billionaires. It's like, ah, okay, is, is, is there another. Could you create what Trevor Scholes calls a solidarity stack? You know, maybe municipally owned, sort of AI base and, but if, if we don't imagine it, we won't build it. You know, we're at one of those moments where you want kids who actually took liberal arts classes and, and, and read fiction and think, what would a different world look like? Like how, how can we, how can we imagine this world before it comes into being? And you have to have that capacity for imagining a more democratic and equitable world before you can build it. And I think that's, that's why I don't want to see absolutely everyone going to business school. They'll know a lot about discounted casual analysis. They might not know as much about democracy and freedom.
- [66:16]
B
The resurgence of the liberal arts. I've heard that from a lot of people that imagination, creativity becomes so much more important in this world because the technical tasks can be done by AI and even human skills, social skills, become much more important because you still have to. After AI comes up with five great options, you still have to convince somebody to decide which of to choose. So what are you working on right now? You talked a little bit about before about the boards of public entities. You want to talk a little bit more about that or what is your passion now if it's consuming you?
- [67:02]
A
Yeah, so it's got two parts to it. One of them is just thinking about the changing shape of corporate power and what these things might look like. So I write a column for I by imd, which is a formerly quarterly, now bimonthly magazine published by IMD in Lausanne, Switzerland. They launched this about five years ago, intending it to be like the Harvard Business Review of Europe. And so I'm kind of like the token American. I have this column every month or every magazine, and I usually have something dark and dystopian to say. So the second to last thing that I wrote about Sam Altman, king of OpenAI, said he and his CEO buddies are betting when will the first one person unicorn exist? The first company that has one employee and all agentic AI doing all of the work that's worth a billion dollars. And I said, why stop at one? Why not a zero person unicorn? And I walk through, what exactly would that look like? And it turns out it is possible to create a legal entity that's controlled by an algorithm. You can create an algorithmically controlled LLC or corporation hidden behind a veil, and essentially you could give that thing a command, make as much shareholder value as possible in whatever way is legal somewhere on earth, and then have agentic AI setting the price, you know, creating products, setting prices for those things, recruiting labor and paying them. And at every step along the way, you could imagine, how would a gentic AI set prices? Well, if it went to business school, it would find what's the maximum willingness to pay for every different customer, and it would gather as much information as possible about you among public and private databases and then pitch you a price specific to your needs. And already we've got companies like, like Uber that use algorithmic pricing. They or airlines, they look at your search history and information they have about you to set a price specific to you. So the two people that are asking for the same ride to the airport might get quoted different prices depending on their history. So algorithmic pricing can be pretty tricky because you imagine agentic AI discovers, you know, they gain access to your Apple Watch and discover that you haven't, that your balance has been a bit off and that you haven't been taking certain specific expensive drugs that says, oh, this guy's going to need to go to the hospital soon. When he calls up Uber, we know we're going to charge him 2,000 bucks because he's having some kind of incident that needs to get to the emergency room. Or if you're laboring for them, they could say, huh, Alfie hasn't taken his high priced medications. He must be desperate for work. Let's lowball him. And so I kind of systematically go through what would a agentic AI that had gone to business school, how would it use its powers? And it doesn't look Pretty. It ends up with a world covered in gray goo and paper clips essentially. So I've been thinking there's something to that, that there's that essentially thinking through the dystopian fiction might give us a bit of a handle on what can we expect of business and how do we make it not do that? What are the guardrails that we could put in place to make sure that we don't have algo run corporations that are using agentic AI to get the lowest price for labor and, and suppliers and the highest price that, that consumers are willing to pay. Like how do we not end up in a world that looks like that? So that's, that's one thing I've been having fun with is that might be my next dystopian dark book is, you know, the Algorithmic Corporation.
- [71:13]
B
How do we do that then? Do you have any sense for. Yeah, because we have to admit that there's a certain amount of self interest that people do pursue, but that self interest has been limited by our ability to calculate what's really in our interest.
- [71:33]
A
I mean, I genuinely think that what I describe is the most pressing danger for business, for us in our relation to business, is these tools could enable some practices that we find to be absolutely horrific and unacceptable. And so that's what worries me. I mean we're already seeing this creeping in Google the phrase Uber for nursing after we get off this call. And you will be kind of horrified by what you see. There's several app companies that essentially place nurses by the shift at hospitals or home care. And the nurses bid for the shift, they have a capacity to bid and apparently the low bidder, the low bidder subject to a price constraint gets the job. Like imagine a world where every day you're bidding for a shift and your wage is going to vary from day to day depending on the conditions on the platform and market conditions like this is a nightmare that's coming true right now. So I think the world needs to know more about it. We need to be thinking what guardrails do you put up in this context? So you know, forewarned is forearmed in a sense. Can we think through the policies that would create. And you're an ethics guy, this is like, this is, this is a golden time for you to think how do we, how do we put up guardrails that make non human entities behave ethically?
- [73:03]
B
That is not simple at all. I mean we weren't willing to regulate social media and are we going to have the willingness to regulate AI? Do we will have the capability to do it. The political will. I don't think it's going to be unless things change a lot, it's not going to be very easy.
- [73:30]
A
Yeah, I'm going to a conference in three weeks in Rome on business and fascism and this is exactly what I'm going to focus on. Because you'll notice that the the AI Bros and the VC Bros of the world say no regulation on AI. You must keep out. It must go completely unregulated. Otherwise China wins and then we're all going to be enslaved by communists or I don't know what their case is, but but they genuinely want absolutely no regulation and we can already see the train coming for us right now. So this when you see AI bros and VCs saying no regulation, don't believe it. There's good reason to be anxious about some of these possibilities because they're already starting to come true and they have
- [74:21]
B
little interest in democracy 100%.
- [74:25]
A
We don't want Peter Thiel in charge of our national well being.
- [74:30]
B
I'm quite happy it's been a great conversation. Fascinating about Taming Corporate power in the 20th century. Your book Challenges is some of the most widely held assumptions about monopoly, big tech, and the future of capitalism. It shows if we want an economy that is humane, democratic and sustainable, we need to rethink not just antitrust, but the very architecture of corporate power. For listeners interested in how organizations rebuild legitimacy in times of crisis, I'll mention my book Comeback, Taken together Taming Corporate Power and come back suggests that the future of capitalism depends upon how deeply we embed accountability, democracy, and human values into our institutions. Jerry, thank you very much for joining me. This has been a really great conversation. Thanks to everybody for listening. And if you want to reach me about other books that I should do or you want to reach me, have comments about this or any other podcasts, my email us amarcusmn.edu. thank you for listening to this episode of the New Books Network. We are an academic podcast network with the mission of public education.
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