The Corporate Country

by John Ellis.

This column was published in The Boston Globe on 14 August 2019. A number of readers asked me for a link that would hop over the Globe’s paywall. That sounded complicated, so (with the Globe’s permission) I’ve republished it below.

I post it here because I keep reading (again and again) that Facebook is over-matched, in serious trouble, on and on. I don’t really think so.

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After years of operating with little government regulation or interference, Facebook and Alphabet (Google) are now on the menu of regulatory agencies and oversight committees, here in the United States and in foreign capitals. Each agency seems hungrier than the next — for the revenue that can be extracted from fines and judgments against the tech giants and for the opportunity to be seen as bringing two very large corporations to heel.

The assault on Facebook has been the big story of late. A month ago, “the Federal Trade Commission approved a fine of roughly $5 billion against Facebook for mishandling users’ personal information,” The New York Times reported, calling it “a landmark settlement that signals a newly aggressive stance by regulators toward the country’s most powerful technology companies.”

A month ago, Politico reported that President Trump had pledged to explore “all regulatory and legislative solutions” to address the market power of Big Tech. And in recent weeks, as the Times reported, “Facebook co-founder Chris Hughes has joined two leading antitrust academics, Scott Hemphill of New York University and Tim Wu of Columbia University, in meetings with the Federal Trade Commission, the Justice Department and state attorneys general. In those meetings, the three have laid out a potential antitrust case against Facebook, Mr. Wu and Mr. Hemphill said.”

Meanwhile, a Facebook board member and prominent Silicon Valley investor, Peter Thiel, took to The New York Times op-ed page to back up his recent characterization of Google’s work with Chinese researchers on artificial intelligence as “seemingly treasonous.” Thiel wrote, “AI’s military power is the simple reason that the recent behavior of America’s leading software company, Google — starting an AI lab in China while ending an AI contract with the Pentagon — is shocking.” As Ash Carter, who was defense secretary in the Obama administration, pointed out last month, “If you’re working in China, you don’t know whether you’re working on a project for the military or not.”

Google hasn’t said much in response to Thiel’s attacks or those of other critics. Facebook has responded by (1) preparing to lease vast amounts of office space in mid-town Manhattan, (2) announcing its intention to create a global cryptocurrency — Libra — that will “bank the unbanked” and completely disrupt the remittance business, and (3) declaring its intention to rebrand WhatsApp and Instagram as WhatsApp from Facebook and Instagram from Facebook.

The exploring of office space in Manhattan was an unsubtle message to Wall Street that Facebook is deadly serious about entering the financial services arena and unconcerned about competing with the incumbent banks. With about 1.6 billion daily average users, Facebook’s entrance into any business is almost automatically disruptive, because it is able to operate at almost unimaginable scale. If it takes dead aim at the endless cascade of fees on overdrafts, credit cards, remittances (and the like) that the banking business depends on, Facebook immediately poses an existential threat to those incumbent institutions.

Facebook’s entrance into the cryptocurrency arena was less an unveiling of a “Facebook Bitcoin” and more like the introduction of a sovereign currency. No less than the chairman of the Federal Reserve Bank, Jay Powell, took note, saying: “While the project’s sponsors hold out the possibility of public benefits, including improved financial access for consumers, Libra raises many serious concerns regarding privacy, money laundering, consumer protection, and financial stability. These are concerns that should be thoroughly and publicly addressed before proceeding.”

Finally, taking note of anti-trust proposals for breaking up Facebook by divesting it of Instagram, WhatsApp and perhaps its Messenger app, Facebook took the unusual step of making two of its most successful operating companies less attractive to millennial consumers by rebranding those applications with two words: “From Facebook.” As in: We own them.

In his seminal essay on Facebook, John Lanchester wrote: “It’s important to bear in mind that thefacebook — its original name — was launched exclusively for Harvard students in 2004. No human enterprise, no new technology or utility or service, has ever been adopted so widely so quickly. The speed of uptake far exceeds that of the Internet itself, let alone ancient technologies such as television or cinema or radio.”

Facebook didn’t get to where it is today by going along to get along. It got here by being opportunistic and ruthless and relentlessly determined. It understands its leverage and its power, as does Google, whose business success is every bit as astounding as that of Facebook.

The leverage both companies have, in dealing with the US government, is in the field of artificial intelligence. Everyone, from President Xi Jinping of China and his People’s Liberation Army to the Pentagon and the White House (and Vladimir Putin in between), understands the importance of AI leadership.

Indeed, Putin had this to say two years ago: “Artificial intelligence is the future, not only for Russia, but for all humankind. It comes with colossal opportunities, but also [with] threats that are difficult to predict. Whoever becomes the leader in this sphere will become the ruler of the world.”

Who is the leader in AI research at the moment? It depends on how you measure it, but the rough consensus is: The United States leads, followed by China, England, Canada, Japan, and Germany.

The United States is the leader in large measure because of the research being done at Facebook and Google.

According to Machine Box CEO Aaron Edell, “80 percent of all machine learning engineers work at Google or Facebook.” Of the three winners of the 2018 Turing Prize — the Nobel Prize of computer science, basically — one spends half his time working for Google and another is the chief AI scientist at Facebook.

What happens if Facebook and Google grow tired of what they almost certainly regard as regulatory encroachment and government overreach? What happens if Facebook and Google spin off their AI research companies and re-domicile those companies in, say, Canada?

One thing that happens is that Canada becomes the world’s leading superpower, overnight, by virtue of its being the new home to the world’s two greatest AI research organizations. Prime Minister Justin Trudeau and the people of Canada might find that prospect quite agreeable.

What happens if Facebook decides that it doesn’t want to get slow-rolled on its Libra project by the Federal Reserve and the SEC and the Comptroller of the Currency and the Treasury Department and the Department of Justice and ad infinitum?

One thing it might do is pay a visit to Trudeau and open up a dialogue about how a de facto sovereign state (Facebook) and a de jure sovereign state (Canada) might partner up to create a new global cryptocurrency tied in some fashion to the Canadian dollar (the aptly named “loonie”). To run that kind of operation on a global scale, a massive amount of electrical power will be needed to keep the computer servers working 24/7. And as it happens, the fourth largest hydropower producer in the world, Hydro-Quebec, stands ready to serve.

On the matter of breaking up Facebook in a far-reaching antitrust action, don’t look for resolution anytime soon. Facebook has vast amounts of cash and will no doubt spend as much as it takes to bollix up government prosecution. Eventually, some kind of settlement will be reached, and by that time it may not matter.

The fact is that Facebook and Google aren’t really companies in the traditional sense of that word. Because power in the modern era derives from AI, machine learning, and data science, they are more like corporate countries than companies.

One option available to them is to become a country, by partnering with a sovereign state like Canada. Such an undertaking, obviously, would be fiendishly difficult to execute. No one has ever sat down and written the legal code for a corporate-sovereign national partnership. But that doesn’t mean it can’t be done.

US regulators and legislators would be well-advised to proceed with caution on whatever plans they have in mind for Facebook and Google (and the rest of Big Tech). One might even say they should proceed with extreme caution, since in the realm of artificial intelligence, those companies are the difference between the balance of power and superpower.

John Ellis, a former Globe columnist, is editor of News Items. He can be reached at jellis41@protonmail.com.