Latest posts by Alexander Klemp (see all)
One of the most fascinating aspects of the ongoing Internet revolution is how wide and deep we can see technological changes affect society. The myriad questions we might have once asked a friend or coworker are now answered instantly via Google — which provides as many answers as our discretion and capacity for time and energy can absorb.
In the business world, many of our transactions are now done electronically, whether through Amazon or at a local hot dog stand via credit card. In a dynamic economy like ours, the rise of the Internet has caused our world to be even more dynamic and shifting.
When I say we are a “dynamic economy,” I mean primarily the process of creative destruction — that over time in an economy, jobs and capital shift from one sector or company to another, much like water that flows through the ablest channels of a river. However beneficial this is for society, the dynamism of creative destruction is immensely dangerous for the status quo.
FCC commissioner Ajit Pai documents in his July 9 piece in the Los Angeles Times titled “L.A., let Uber’s cars share the road” how taxi companies are protesting the competition from ride-sharing companies such as Uber, whereby a phone app lets people privately hitch a ride and effectively bypass the inefficiencies of a cab ride (the signaling, the waiting, the higher cost).
This is dynamism at its finest: an unregulated Internet service is upending an old, established company and reaping the rewards. The cab companies, however, are not pleased with the side-effects of a dynamic economy and are using the power of the state to preserve their power:
The city of Los Angeles ordered the company [Uber] to stop operating. In the last few weeks, four of Uber’s drivers have been arrested in undercover stings to catch “bandit taxicabs.” The city’s cease-and-desist order is premised in part on Uber’s vehicles allegedly lacking the proper permits …
Mr. Pai calls the cab companies “entrenched industries” and laments the power of the state being used to hinder innovation. When a company uses the power of the law to protect its own interests (in this case cab fares), the effect is akin to damming or diverting the water into channels that it otherwise would (and perhaps should) not go. This is crony capitalism, which serves complacent and connected rent-seekers, not consumers who demand innovation and better service.
Classical economics says that the entrenched power of a monopoly is ultimately detrimental for consumer welfare and harms society (and usually the least well-off) at the expense of the monopolist. The point to be made here is that monopolists fear creative destruction, and will use the power of the law to prevent an erosion of their power.
In today’s modern economy, fueled by a vibrant Internet, there is no telling what possibilities the future holds once these advanced technologies permeate entrenched society — that is, only if we allow it to happen.