A Subtle Call to Action in the Wealth Inequality Battle (Posing as a popular business Book)
The Four: The Hidden DNA of Amazon, Apple, Facebook and Google
By Scott Galloway
Review by John Fraim
In 2013, French economist Thomas Picketty published a book titled Capital in the Twenty First Century. It focused on the increasing inequity between workers and ownership. His viewpoint represents a particular side of a great economic debate going on today. Picketty’s side is worried about this rising wealth inequality as the great “elephant in the room” today that everyone feels yet no one talks about.
Picketty is a leading spokesperson for an apocalyptic view of culture and society caused by this rising inequality. He has studied this subject all of his career and is now professor (directeur d’études) at the Etude des hautes etudes en sciences sociales (EHESS), associate chair at the Paris Economics and Centennial professor at the International Inequalities Institute, which is part of the London School of Economics. (LSE)
On May 18, 2014, the English edition Picketty’s book was published by Harvard University Press. It reached number one on the New York Times Best Seller list for best-selling hardcover nonfiction and became the greatest sales success ever for academic publisher Harvard University Press. As of January 2015, the book had sold 1.5 million copies in French, English, German, Chinese and Spanish.
The book’s central thesis is that when the rate of return on capital r is greater than the rate of economic growth g over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability. Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority.
However, at the end of 2014, Piketty released a paper where he stated that he does not consider the relationship between the rate of return on capital and the rate of economic growth as the only or primary tool for considering changes in income and wealth inequality. He began with a long-range historical analysis between labor and ownership. This has continued an upward progression throughout its entire history. He also noted that r > g is not a useful tool for the discussion of rising inequality of labor income.
Overall, Pickitty’s book reignited one of the great debates of modern economics. It had many critics and many fans. Amongst the top elite from both the left and the right.
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Yet the Picketty’s brilliant book never saw any type of adequate follow-up from American business writing or academic journals.
The task seemed fit for some young professor at Harvard, representing the perfect zeitgeist of his generation, in tune with all the technology. As a teacher, someone who wants to give. As a student, someone who also needs to receive. An entrepreneur and reformer, upset with the inequality of modern business. Or, perhaps an aging, legendary professor would write a response to the Picketty book for modern business perhaps. A wise old professor who surveys the modern business landscape with the wisdom a western movie hero looks across the landscape of Utah in a John Ford film.
Neither of the above came forth to apply the Piketty theory to modern America. Rather, a combination these persons above appeared in the person of Stern Business School professor Scott Galloway. He possesses an entrepreneurial spark that has always challenged authority founding six businesses. At the same time, a certain wisdom from seeing the battlefield different from other business writers. He is one of the most popular professors in the country and speaks at many events.
Galloway’s new book The Four: The Hidden DNA of Amazon, Apple, Facebook and Google (Portfolio, 2017) is positioned as a general business book focused on revealing the “hidden DNA” of the great four companies today. And Galloway does a good job at giving us some glimpses of this hidden DNA. He talks about common things they all possess in a chapter on T-Algorithms. He relates how they are all treated special by the government and by investors. He talks about the human senses each of them appeal to: the head, heart and groins. He speculates on the new members of the club of four in the future. Which ones might drop out or consolidate with another in the future years? What are the new upcoming (high market cap) companies? He mentions Tesla, Uber, B-N-B, among a few others. He talks about coming battles and the dynamics that will affect all of them in the race to be the first trillion-dollar corporation (Apple reported $900 million market cap on 11/2/17).
An Amazon Warehouse
Yet, as one reads the book, one gets the increasing feeling that Galloway is not out to tell us how the great four works as to show us the incredible inequality in society they are creating. For example, there are many places in the book where the business activist Galloway comes out. Even as he tries to be the popular business professor writing a book for the general public. Quick outbursts from him are scattered throughout the book. They come in short statements, sometime using cuss words (and even the F word to single how mad he really is while acting as a tour guide to the big four. He is upset at what the big four get away observing, “These companies avoid taxes, invade privacy and destroy jobs to increase profits because … they can.” And then, back to his brief, entertaining textual tour of the big four that control our surrounding media like water around fish.
Galloway talks about the powerful manipulation of human emotions by the big four. His connection of Google to the head, Facebook to the heart and Apple to sex makes sense to a certain extent. Yet the real power of the four is a mutual product (experience) they all manufacture: distraction. Galloway says this a few times (indirectly and directly) and then moves on back to his tour of the big four. Yet distraction is truly the opioid created by all four of the companies.
And, it is more than coincidence that modern political power is increasingly linked to distraction rather than force. The old world of power was discussed in George Orwell’s 1984 (1949). The new world of power, though, was prophesized in Aldous Huxley’s Brave New World (1932). Few have stated the contrast between these types of power better than Neil Postman in Amusing Ourselves To Death. “What Orwell feared,” writes Postman, “were those who would ban books. What Huxley feared was that there would be no reason to ban a book, for there would be no one who wanted to read one. Orwell feared those who would deprive us of information. Huxley feared those who would give us so much that we would be reduced to passivity and egotism.” As Huxley remarked in Brave New World Revisited, the civil libertarians and rationalists who are ever on the alert to oppose tyranny “failed to take into account man’s almost infinite appetite for distractions.”
Apple’s New Headquarters
It should be little surprise that political power today is linked to the great four digital companies. Super phones and apps keep the general populace quiet and happy and distracted from the controlling actions of government. The products of the big four might be wonderful devices of technology but more than this, they are powerful, subliminal devices of distraction.
Amazon distracts by fulfilling our basic hunter instincts. We can have anything we hunt for within a day. Apple distracts by providing the great, sexy luxury products of our time. Facebook distracts by being the great digital town square where we meet old friends and constantly shout “I exist” to the world. Google is a type of God controlling knowledge through information.
The book shows (in simple charts) and tells in entertaining and dramatic story of the big four of today. (The big four of the past come to mind). Yet the Sinclair Lewis social commentary in Galloway’s book always remains a little under the surface, always burning like hot embers, yet never exploding into a full rant against the inequality the four bring into the world.
One learns of Galloways activist venture of getting of the board of Apple and attempting to change things. The experience is related with a certain bitterness. Galloway made an attempt to change one of the big four from within but it was not a success. Now, he provides “hidden DNA” secrets of the big four in his book b, at the same time, hopes to stir activism for more wealth equality among business students. Things need to change and no one is about to do anything about it. The nation is not only distracted from the great divide in wealth today. It is also distracted by the more vocal, visible narrative of race, sex and religion.
What makes Galloway’s book even more interesting is that it does not consciously set out to be a type of American link to the Picketty theory of inequality. Yet, by putting his sights on the four great digital corporations, Galloway shows how Picketty’s historic theories of wealth inequality play out in the modern world. Not just play out but rather explode like a great supernova creating greater inequality at a faster rate than any time in history.
Galloway calls the great four companies “The Four Horsemen” almost settling for calling them “The Four Horsemen of the Apocalypse.” He pulls back from this designation but by the end of the book one knows this is how Galloway views them.
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In effect, The Four places Piketty’s ideas into ground zero where the huge gaps in wealth inequality are manufactured. It is a rarified (and surprisingly little understood) business world known to very few, inhabited by the world’s four greatest corporations … Amazon, Apple, Facebook and Google.
Americans blame so many different things for our problems today. Diversity is alive in opinions and feelings across the nation. Many argue the cause of our problems is either race, sex or religion. A few, like Picketty and Galloway, argue it is wealth inequality. The disappearance of a middle class and the division of America into a two-class society.
While the stated purpose of Galloway’s book is to reveal “hidden DNA” of the four horsemen, (so that the rest of us regular people can navigate in these new waters), the subtext of the book offers a type of visual manifesto of wealth inequality through many, simple, cartoonish but powerful charts. In these charts, one can see the amazing inequality between the four corporations and the traditional corporations. Galloway laments that the traditional corporations – like GM – created the middle class and did not have such grand income inequality. The big four are quickly wiping out the middle class in America. Galloway presents a scary business landscapes patrolled by these grand monsters of modern business. Does anyone dare challenge them? Should they be made into utilities? Are they platforms or more than platforms?
The book provides interesting insights into the big four and the way they operate. Yet, much more important, it sounds the alarm to young business students. What the book says about the big four is not as important as sounding it’s “call to arms” to young business people and computer engineers today. Galloway talks about his T-Algorithm that studies various aspects of the four horsemen and has come up with common elements of the them. It offers eight elements within the T-Algorithm. Yet, for me, there is not much new here other than a restating of common business elements such as product differentiation, global reach, likeability, vertical integration and geography.
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Galloway is at his best when he discusses the inequality created by the big four. The most interesting part of the book for me was the beginning chapters and charts where this incredible gap of wealth being created is shown in powerful visual charts and simple ratios and indexes. In the first few pages of Galloway’s book, there is an amazing statistic that speaks to the power and the threat of the four great tech companies today. There is a chart called Return on Human Capital that lists two statistics of companies in 2016: the number of employees and the market cap per employee.
Return of Human Capital – Note the almost equal vertical lines of GM and the unequal vertical lines of Facebook
One corporation – GM – is representative of the old era of American business. The other corporation – Facebook – is representative of the new era of digital business:
GM (on date of chart) had 215,000 employees (NE) and a $231,000 market cap (MC) per employee. Dividing MC/NE produces a 1.07% index. On the other hand, Facebook with 17,048 employees has a $20.5 million market cap per employee producing a 1,202% index. The heart of income inequality is represented in this incredible variation from the leader of the old economy to the leader of the new economy.
A companies’ market cap (MC) divided by number of employees (NE) produces these Return on Human Capital (RHC) percentage numbers. It can be expressed like this:
MC/NE = RHC
One of the truths Galloway writes about with simple, powerful charts and exciting words, is the fact that the big four has a formula very different from old corporations. Again, it can be expressed in this way:
Big Four / High MC/Low NE = High RHC
Old Economy Company / Lower MC/High NE = Low RHC
Galloway mentions a few of the old companies in these figures: Unilever has $156 MC/171,000 NE (middle-class households) and Intel with $165 MC/107,000 NE. The old economy formula produced a middle class but the new formula destroys this middle class. America goes from three grand classes to just two. The middle class always provided the buffer between poverty and wealth in America yet the Return on Human Capital formulas of the big four have destroyed this middle buffer.
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“In a democratic society, the existence of large centers of private power is dangerous to the continuing vitality of a free people.” Louis Brandeis
The last chapter of The Four is led off by the above quote from Supreme Court Justice Louis Brandeis. Galloway continues to express versions of this view through the (much too) short chapter. It is where Galloway expresses his activism by giving a good recruiting talk to business students and engineers at the big four. He has been impressed with the great four. Yet he is angry at them also.
He notes Facebook is a company with 17,000 employees valued at a $448 billion market cap. “The riches flow to the lucky few,” he says. “Disney, a hugely successful media company by traditional standards, commands less than half that market capitalization ($181 billion), but employs 185,000 people.” The “uber-productivity” of Facebook “creates growth, but not necessarily prosperity.” Galloway notes that, “Giants of the industrial age, including General Motors and IBM, employed hundreds of thousands of workers. The spoils were carved up more fairly than today. Investors and executives got rich, though not billionaires, and workers, many of them unionized, could buy homes and motorboats and send their kids to college.”
He laments the passing of the old economy which created the middle class. “That’s the America that millions of angry voters want back. They tend to blame global trade and immigrants, but the tech economy, and its fetishization, is as much to blame.”
The big four believe much that the opioid of the masses will be streaming video content and a crazy-powerful phone. This might sound like a crazy conspiracy theory. Yet they have proven right time after time by their massize sea of behavioral data on their customers.
The four employ 418,000 employees. Value of public shares of stock is $2.3 trillion. As much wealth as the gross domestic product of France with 67 million citizens.
As Galloway notes, “It’s dangerous for society, and it shows no signs of slowing down. It hollows out the middle class, which leads to bankrupt towns, feeds the angry politics of those who feel cheated, and underpins the rise of demagogues … the distortions are visible and disturbing.”
At the end of his book, Galloway says “We have a perception of these large companies (the four) that they must be creating a lot of jobs, but in fact they have a small number of high-paying jobs, and everybody else is fighting over the scraps. America is on pace to be home to 3 million lords and 350 million serfs.”
He ends the book on a positive note. “I am certain that understanding the Four gives insight into our digital age and a greater capacity to build economic security for you and your family.”
Yet Galloway does not feel an answer is coming anytime too quickly from a distracted culture today.
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In a program for an event sponsored by Gartner in October of 2017, Galloway says “We now worship at the Altar of Innovation as opposed to character and kindness. And we have to remember that these companies, they have one mission, and that is to increase shareholder value. They’re not concerned with the condition of our souls, they’re not going to take care of us when we’re old. So, we assign them these very positive attributes, and we’re generous with them, and we give them what I would refer to as the Mother of All Hall Passes, when in fact we should be treating them like any other company.”
At the end of the book, Galloway shys away from suggesting policy changes required to lessen the inequality caused by the big four. He says that he is no policy wonk. But of course, he really is one at heart. The change in wealth inequality ratios is not some force going to start up randomly in a capitalistic system on steroids. Never in history has this wealth accumulation by a few happened so fast and powerfully. There were a few times – like the period of the Robber Barons – that had elements of today’s income inequality. But for the most part American companies of the old economy generally had low capitalization and many employees. A middle class was created this way.
This of course is where the liberals and conservatives part ways. Galloway and Picketty feel some type of government intervention is needed in our relatively “hands off” capitalistic economy on steroids. All of this might offer the material for a new type of modern Admen television series. Another distraction from the real problem. But in the end, it seems best expressed not through scenes in a movie (or novel) but rather in the starkly changing indexes of ratios like MC, NE and RHC.
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Galloway’s book was one of those books that stayed with me after I finished reading it.
I asked myself, how could anything ever happen to change all of this? Certainly, Galloway didn’t provide many enlightening answers to this question in his book chapter. In one chapter, he suggests ways to compete with the great four. But the advice is little more than things we are always told about competition. It is obvious he feels that the deck is rigged against all employees outside the scope of the big four.
Where will the change come from I asked myself?
Perhaps it needs to come not from the government busting the four up as monopolies or calling them public utilities but rather from the young engineers and business people of today. It perhaps should come from the technology of the four. From the world of math in effect. For the world of numbers has created the great inequality by its formulas and algorithms. Can the world of math change inequality to more equality? Might the algorithms and MC, NE and RHC indexes be used to create more equality today rather than more inequality?
The math that the four are created on maximizes High MC and Low NE. This is a formula for inequality. Their needs to be a new formula. Into the formula we highlighted above, needs to be placed another number. This is the numbers relating to a few large companies (associated with inequality) and many smaller companies (associated with equality). A new formula might look something like the below.
__________________
Inequality = Few Large Companies/High MC/Low NE = High RHC
Equality = Many Smaller Companies/Lower MC/High NE = Low RHC
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The big four are good on creating distraction from inequality. One might argue this is the real phenomenology behind them. But what if they put their math and formulas and incredible databases towards creating more equality in American business? More smaller companies with low market caps yet high number of employees? The government can step in a create change but isn’t it better that the desire for equality comes from within the big four?
Scott Galloway has taken Frenchman Thomas Piketty’s ideas on historic inequality and placed them in the middle of the greatest producer of inequality in history … the four leaders of the business world today, Amazon, Apple, Facebook and Google. All intimate friends of virtually everyone in culture today.
Hopefully, Galloway will take off in another book where he left off in The Four. Not as a tour guide and navigator of the big four but as an activist again. Perhaps he will be joined by other business professors or bright software engineers and managers from the big four or leading tech firms with high MC and low NE. Will his book stir further debate and perhaps a movement? Will it cause a distraction from our current distraction?
Or, will it come and go from today’s news like all other distractions of the world? And, the big four will continue to make our phones crazier, our world fuller of robots and artificial intelligence, our music louder, our images shinier and our content more seductive.
(Buy the book on Amazon. Google information on it. Like it on Facebook. Tweet about it on smartphones. Post it on Instagram. Coming, a Big Four App for iPhones)