On data rentiership in ‘Big Tech’: Why Silicon Valley might not be the innovation model we’re looking for

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Originally published at https://discoversociety.org on January 8, 2020.

Kean Birch

It’s interesting living in Toronto right now. It feels like we’re at the epicentre of global debate about the purpose and value of technological innovation, what with SideWalk Labs trying — but seemingly failing — to turn large parts of the downtown into the city of the future. What’s particularly noticeable is that innovation is almost sacrosanct, being almost impossible to criticize. Who could be against marvelous new technologies? Yet, the more I study innovation the more I find to criticize in the prevailing political and policy mindset that regards its promotion as the essential ingredient for our happy futures.

So, what do I mean when I say there is much to criticize? Innovation is on the rise, after all, and isn’t that a good thing?

Well, I’m undertaking a 5-year research project examining different forms of rentiership that are emerging in the ‘tech’ world, including the social media, biotechnology, and artificial intelligence sectors. I define rentiership in a new article in the journal Science, Technology, & Human Values as the ownership and/or control of resources and assets whose value is determined by their inherent or artificial scarcity, productivity, or quality. As part of this project, Callum Ward and myself are interviewing policy-makers in Anglo-American countries to try to get a handle on the emerging backlash against ‘Big Tech’ — reflected in the ongoing debates about SideWalk Labs, such as the Block Sidewalk movement. Our contention is that this ‘techlash’ is a direct result of the increasing trend amongst tech companies towards innovation goals and strategies framed by the pursuit and creation of monopolies, market power, or regulatory capture — that is, of economic rents — as opposed to the creation of new goods, services, and markets.

Why is this happening? It’s a consequence of a particular innovation model, one based on valorizing and replicating Silicon Valley.

Most policy-makers, politicians, journalists, and businesspeople would love to be able to recreate Silicon Valley — it’s the global epitome of an innovation cluster for many. But, a key characteristic of Silicon Valley is the pursuit and entrenchment of a strong intellectual property (IP) regime. Strong IP is often framed as a way for countries like Canada or the UK — which have lost their competitive advantage in manufacturing — to compete more effectively in world markets. An IP-intensive innovation model is presented as the best way to ensure or renew national competitiveness in the face of lower labour costs elsewhere. Notably, some voices — like the US-based Information Technology and Innovation Foundation — go so far as to argue that the pursuit of this IP-intensive regime smacks of ‘innovation mercantilism’. As the ITIF points out, the idea that countries should pursue monopoly power — represented by strengthening IP — in order to buttress their global market competition is somewhat hypocritical: any country that seeks to strengthen its IP ends up creating an unfair advantage. Evidently, American commentators are prone to lament when other countries try to do what they do so well — namely, entrench IP-intensive innovation in their economy and society.

That comment notwithstanding, it’s important to consider the problems this IP-intensive model of innovation might create, based as it is on locking down new ideas and technologies.

First, although IP rights are supposed to provide an incentive to promote innovation, it’s debatable whether this is still the case. Nowadays, IP often ends up as an investment asset to extract economic rents through legal processes. On the one hand, companies monetize their research and development (R&D) by selling unwanted IP to non-performing entities, or ‘patent trolls’. This monetization of knowledge is now a big business, with patent trolls suing infringers — imagined or otherwise — and costing US companies around US$29 billion in 2011 alone. On the other hand, an increasing numbers of international investment treaties — which have cropped up as a result of stalling WTO multilateralism — enable companies to sue national governments whose policies threaten the expected returns from their IP investment assets. As legal scholars Rochelle Dreyfuss and Susy Fankel point out, it’s notable that these returns can be ‘expectations’ of future revenues, rather than actual revenues. Either way, though, the expectations of investors can end up trumping the interests of innovators or citizens, meaning that increasingly IP has become an incentive for finance rather than a reward for innovation. As Dreyfuss and Frankel note, Legal protection has effectively shifted from IP as property to IP as a financial investment asset promising future returns.

Second, even when IP does support innovators, it often ends up being used as a handy tool for reducing corporate tax liabilities through the shifting of the IP to low corporate tax jurisdictions: hi-tech startups do it, large established businesses do it — it’s not illegal, just sensible tax planning. Shifting profits out of countries like Canada and the UK this way ends up reducing the government’s tax take, which then impacts further public spending — including public funding on research and innovation. And the economist Mariana Mazzucato has spelled out how important government funding is for stimulating technological change through its investment in R&D. The Missing Profits website estimates that “8% of corporate tax revenue has been lost” to Canada as a result of strategies of shifting corporate tax liabilities, which is relatively low compared with 17% for the USA, 21% for the UK, and 29% for Germany. While Mazzucato may be correct to say that public research and innovation funding leads to the most significant breakthroughs — because the state can take the risks that private investors don’t want to — it’s noticeable that private funding of research and innovation has increased significantly over time. This is especially the case when it comes to ‘intellectual property products’ where investment by US firms, for example, has increased 29 percent since 2008. But, these companies are pursuing IP-intensive innovation not only as a mechanism for tax planning; they are also innovating to make economic rents.

Third, the Silicon Valley model of innovation turns out to be a chimera of sorts. Much of it has more to do with finance than technology: it’s about finding ways to convince investors to finance a business whether or not it intends to — or even can — create something new or useful. We can see this play out in the $1-billion ‘unicorns’ that make no profits but are somehow expected to disrupt and capture existing markets. Some have collapsed, like Theranos, and others are near collapse, like WeWork, but yet more are buttressed by continuing investment as a future monopoly play, like Uber. Finance is backing these types of innovators because of the monopolies they see coming over the horizon. Monopolies generate economic rents because they enable firms to extract revenues from the surplus earned by a factor of production — like land or knowledge — through ownership and control rights, rather than through the production of new goods and services. A whole slew of books have come out recently about this problem of monopoly and market concentration in contemporary, technoscientific capitalism: for example, The Value of Everything by Mariana Mazzucato, The Myth of Capitalism by Tepper and Hearn, Goliath by Matt Stoller, and The Great Reversal by Thomas Philippon.

In my research, I use the term rentiership to characterize these monopoly strategies emerging in this Silicon Valley model of innovation, and that are being entrenched in our economies all around the world. I’m trying to go beyond the monopoly arguments in the books mentioned above by considering the different modes of ownership and control being rolled-out by tech firms, especially in data-driven sectors — two colleagues and I have got a new article coming out in the journal Policy Studies on the implications of this, called “The problem of innovation in technoscientific capitalism: Data rentiership and the policy implications of turning personal digital data into a private asset”. Now, our point in this article is that while innovation might be — or perhaps, has been — a key driver of capitalism, the Silicon Valley model of innovation is entrenching monopoly to deleterious effect. As such, the ideas of the economist Joseph Schumpeter need updating; he argued that innovation was the key driver of economic dynamism, primarily because it led to the ‘creative destruction’ of old industries and technologies and their replacement by new ones. Here, IP is meant to provide a temporary reward for risk-taking entrepreneurs who created these new firms and technologies. But when there is a constant innovation churn underpinned by an IP-intensive regime, as with the Silicon Valley model, then this means that we’re facing the threat of permanent monopoly. Today, constant innovation means permanent monopoly.

For me, then, this entrenching of monopoly through constant IP-intensive innovation is only going strengthen the growing backlash against large technology companies and their management strategies: it’s a key reason why SideWalk Labs has faced such opposition in Toronto. And this ‘techlash’ is unlikely to go away any time soon without rethinking our approach to innovation.

Kean D Birch is an Associate Professor in the Department of Geography at York University, Canada. His recent research is on assetization and rentiership in technological sectors. His recent books include Neoliberal Bio-economies? The Co-construction of Markets and Natures (2019, Palgrave Macmillan) and A Research Agenda for Neoliberalism (2017, Edward Elgar).

Professor at York University, Canada who's interested in Big Tech and emerging forms of digital rentiership; obsessed with thinking about assets!

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