Smartphones and apps have created a gig-economy world. And a new California law could reshape that into a different world with a groundbreaking shift in defining who’s a contract worker and whose duties make him or her an actual employee, with the company responsible for healthcare, payroll taxes and the like. Supporters of the law — like Assembly Speaker Anthony Renden (D-Whittier), who called the gig economy “[bleeping] feudalism” — argue that people who work like employees deserve employees’ benefits. The law went into effect on New Year’s Day, but there’s a rush to the courthouse doors by companies like Uber and delivery service Postmates to challenge it.
California also rang in the new year with a pioneering data privacy law, which gives consumers more power to demand to know what online data companies are collecting about them, and more power to tell companies not to sell their personal information — or to get rid of it altogether.
Scott Galloway is a marketing professor at New York University with serious chops in the business world, and serious insights into how Big Tech has maneuvered itself into positions of invulnerability in this culture. He has some ideas about how California’s new laws will fare against the power of the mega-companies of Silicon Valley.
What do you make of the employment law? Is it unworkable? Is it a step in the right direction? Is it too little, too late?
Well, it’s significant because it’s from California. I do think it’s a step in the right direction. The general playbook around value creation across Big Tech is, one, innovation. These companies create better products, full stop, and they get tremendous momentum and capture a lot of value. The second step is obfuscation. And that is their incredible products typically lead to something close to monopoly power. And they begin to abuse that monopoly power and avoid taxes and avoid antitrust regulation or avoid regulation in general.
And then, unfortunately, the third leg of the stool of value creation and Big Tech seems to be around exploitation. Several years ago, we as a populace were outraged by the notion that certain fast food organizations put in place software that automatically clocked out minimum wage employees when the restaurant was not busy.
And we now have a gig economy, which is Latin for the ability to clock out minimum wage workers when it’s not busy.
In addition, when Uber says that they have 5 million driver-partners, “partners” is Latin for no minimum wage protection, no access to benefits, and most likely they do not share in the unbelievable fruits and economic spoils these companies create.
The 22,000 full-time employees at Uber will split the value of Ford Motor times 1.5. The 5 million driver-partners, many of them do not make minimum wage or even have processes in place to guarantee bathroom breaks.
The gig economy is rife with this type of exploitation and I think consumers, citizens and the workers themselves are fed up with it.
Now, there will be unintended consequences. And that is the gig economy contractors are prevalent across all types of industries. There’ll be some gymnastics that firms have to go through to comply with the law.
But when we have a society where, in 2009, the Nasdaq was at 2000, and federal minimum wage was $7.25, and then, as we stand here today, the Nasdaq has breached 9000 and federal minimum wage is $7.25, it’s clear that we have totally de-prioritized the dignity of work and that we are not protecting our unskilled workers.
And the result is that we immediately default to this notion that supply and demand in the labor force is the right way to run a capitalist economy.
But the problem is ... pure supply and demand, and offering people flexibility instead of compensation or benefits, results in an economy and in a country where a third of children live in households that are food insecure.
So this recognition that unskilled laborers have not kept pace with the rest of the economy is overdue.
There are already lawsuits against this. There are already arguments that this is killing the golden goose that, look, the Industrial Revolution was also disruptive. Families no longer worked as families at home. The father, the mother went out to work. And this is the same thing.
There’s a kernel of truth in that, and that is as the economy [changes], we need new types of legislation. I think the argument that carries the most water is we need a new classification of workers, that someone is subject to minimum wage protection, maybe gets to share in the upside, but in fact recognizes that gig economy workers are different than full-time workers and maybe don’t want to be employees.
However, the argument that in the past, in the Industrial Revolution, there was tremendous disruption, and we should just sit on our hands, ignores the fact that during the industrial revolution and during periods of disruption, we also recognized there were negative externalities and we implemented things such as minimum wage. We implemented things such as child labor laws. There were a lot of companies taking advantage of child labor and we decided that was bad for our society and we put in place regulation and laws.
We have come to the same point here where we have decided that supply-demand economics, coupled with smartphones and distributed technology, has resulted in an ability for some of the most valuable companies in the world to exploit human capital.
The data about our online habits and practices are cumulatively worth billions to tech companies, and now a new California law gives us more control over that data, if we exercise it to push back against Big Tech.
The concern I would have around the legislation is that it prohibits or creates liability around the sale of data, not necessarily the abuse of data.
So the No. 1 culprit is not affected, probably, by this legislation, and that is Facebook, as a majority of abuse from Facebook around data does not involve them selling data, but them selling access to certain types of targeting based on their ability to manipulate the data they collect from their user base.
So I think it’s a step in the right direction. However, I’m worried that it doesn’t impact the central culprit here, and that’s Facebook.
There’s a sense of deja vu about this, when you think about the Gilded Age and titans like Andrew Carnegie, who employed thousands but paid no income tax, and oil men like Rockefeller and the trusts. Why are we so besotted with the tech culture that we seem to suspend our sense of wariness about some practices?
I think our society has been somewhat perverted by what I would call a gross idolatry of innovators, and that is, as a society becomes less reliant on religion, which happens when it becomes more educated and more wealthy, typically, we have a void of spiritual leaders or icons or heroes.
And I think young people who are able to create what feels almost like magic-like technology have filled that void. As a result, they are not subject to the same scrutiny the typical businesses are.
So for example, if the Los Angeles Times writes something that damages the economic well-being of an individual, and there doesn’t appear to be any substance around that content or those allegations, you’re subject to certain libel laws. You are subject to a certain legal action.
We have decided that other media companies, including Facebook and Google, are not subject to that same scrutiny. Why? Because we considered them nascent technology companies in 1997 when we passed legislation protecting them.
In addition, Amazon is not subject to the same liability laws; if they allow counterfeit child safety seats to be sold on their platform, and children die as a function of insufficient child safety laws, they are not subject to the same product liability or legal liability as a Kohl’s or a Walmart who sold the same counterfeit child seat.
So these companies are not only more capable of handling this type of legislation or regulation — they have avoided it. They are playing by a different set of standards and rules.
Our lawmakers do not have the domain expertise to figure out these very complicated issues.
Is it their lack of technological expertise that keeps anything from being done? Because one hundred some years ago we broke up monopolies and went after the trusts. We had progressive Republicans like Teddy Roosevelt, like California Gov. Hiram Johnson.
Your point is an important one. Teddy Roosevelt, a lot of people would argue, was elected by the railroad constituency and then he was a class traitor and he turned around and said, thanks very much, but you’re bad for the economy, and we need to oxygenate the economy by creating a series of smaller firms such that big, traditional companies that tend to be better employers and better taxpayers are not prematurely euthanized, and also the smaller companies can get out of the crib.
The sad truth is, twice as many companies were being formed every day during the Carter administration than are being formed today. We actually live in an era of non-innovation. Now, why is that?
The fastest-growing parts of our economy — whether it’s cloud, whether it’s handsets, whether it’s search, whether it’s social media — are all controlled by one or two firms that spend a great deal of time examining the horizon, the competitive landscape, and when they see any competitive threat, they do one of two things:
They allocate tremendous resources to put that company out of business, and if they fail to perform infanticide on the new company, the fledgling competitor, they buy it.
Typically, when we have gotten to this point in our economy and to this type of dynamic, we have a long, proud legacy of going in and breaking up these companies.
We are well past the point where we broke up AT&T, where we broke up the aluminum companies, where we broke up the railroads. However, we seem to have a feckless Department of Justice, an FTC [Federal Trade Commission] that start very few actions against these companies.
And as a result, these companies continue to grow unfettered and suppress innovation. And in my view, suppress job growth.
What we have then is not capitalism, but a funhouse mirror version of capitalism?
I would argue that key to capitalism is antitrust and a certain amount of empathy for workers and for our citizenship, while the Republican administration and the president would argue that this is in fact one of the ugly sides of a largely good thing. I think they mistake capitalism for cronyism, and that is, we have decided there are a few players that we like more than others.
They get special treatment. That is the worst type of socialism.
What you speak of is from the top down, but what about from the bottom up? One smartphone at a time? When people say, well, it’s convenient for me to give up my information; it’s easier for me? In a sense, we’ve forfeited our identities as citizens in favor of identities as consumers.
There is no doubt about it: There are individuals, and the majority of young people — it is generational — that have decided they will give up their privacy in exchange for utility. And a lot of these companies offer tremendous utility. Many of them have fantastic products.
The issue is consumers don’t know what we’re missing, and that is, there hasn’t been a social media company started in the U.S. since 2011 when Snap came on the scene.
Google controls 93% of searches globally. Two-thirds of all digital media spend is controlled by two companies, Facebook and Google. So if we’re waiting on a consumer revolution, it’s probably not going to happen, nor did it happen in the past.
The reason we elect people to government, the reason we allocate 23 cents on the dollar to the government, is that we hope they will think long term for us.
We hope they will take a longer view and put in place regulation and break up companies when they see that over the medium and the long term, the activity of these companies, the dynamics of these industries, are bad for our economy and bad for the commonwealth.
This is a failure of citizenship to elect the officials that have the backbone and the domain expertise to put in place the same regulation and the same safeguards that leaders in the past have done repeatedly.
Technology has been seen as the deus ex machina for virtually any human problem. You can go back to Malthus; we are not starving because of a global population that relies on technology. How do we know where to say that’s enough? That’s too much?
That’s a very difficult question. Technology has, in many points in history, been an unbelievable tool and asset. It was technology that turned back Hitler. It was technology that has largely arrested the damaging impact of AIDS.
So we have a certain reverence for technology. The problem is we have that same reverence for these companies that, quite frankly, aren’t focused on the betterment of the commonwealth.
Technology used to be 90% how to improve the world and 10% the pursuit of shareholder value. Those ratios have flipped. The majority of technology now is in the pursuit of shareholder value, with very little concern for how we improve the state of the world.
Unfortunately, I think this idolatry that carries over from our same admiration for technologists who put a man on the moon now infects us with a little bit of negligence and irresponsible oversight of, quote unquote, technology companies,
These companies are not magical. They’re not putting a man on the moon. They’re not curing polio. They’re figuring out a way to more effectively target Nissan ads.
If you play out the consequences to none of these things being regulated effectively, what could happen to this economy?
Well, we’ve seen what’s happening: massive income inequality; a perversion of our democracy, where bad actors can weaponize the platforms to suppress the vote; teen depression — there is an emerging mental health crisis among our children where teen suicide and self-harm is up across boys and has skyrocketed across girls.
We have threats to the things that are the most important things in our lives: our democracy, the health and well-being of our children, and our economic well-being. So the stakes couldn’t be higher.
How do you use technology?
I don’t use Facebook. I enjoy Instagram. I like Amazon and I want to be clear — I own their stock. I think your obligation is to create economic security for you and your family. And I only invest in unregulated monopolies. So I typically only own the stocks of the companies that I criticize.
Do you own that stock as a shareholder activist or for the money it’s making?
Purely as a selfish capitalist. If you do not invest in these stocks, if you have not invested in Amazon, Apple, Facebook, Google, Netflix and Microsoft over the last 10 years, you have largely been excluded from the unbelievable economic gain of the stock market over the last 10 years.
To not invest in these companies right now, as long as they continue to innovate, not be subject to the same scrutiny as everyone else, means you are going to pick from a series of stocks that are subject to a different playing field and will not have the same type of shareholder returns.
Are you opening yourself to charges of hypocrisy?
One-hundred percent, yes. I am more focused on my family’s economic well-being than barking at the moon. I respect people who’ve decided they’re not going to own their stocks. I’m not one of them. I’ve made that choice and I agree, there’s a certain level of hypocrisy.
What do you see for the future of these twin California regulations?
I think the real impact will be felt across the other 49 states. And that is, what do the other 49 states or what does the federal government decide to do?
I think there will be tremendous legal challenge. Already we see Uber and DoorDash funding, I believe, ballot initiatives to counter this legislation or regulation.
California, as it usually is, is about to become the main event, a heavyweight prizefight. You have Big Tech, their money, a certain feeling that to remain innovators, to remain national champions, we have to be supportive of them, and that regulation can hamstring them.
And on the other side will be individuals saying this has gotten out of control. And even if the legislation can be ham-handed or have unintended consequences, as most regulation does, we need to do something.
This is going to be a fascinating case study that will largely set the tone for the rest of the nation around employment rights or the gig economy and also privacy.
I think the most dangerous thing for our country is there are certain people who seem somewhat bereft, and believe that we can’t fix this problem.
And I would argue the world is what we make of it and we can absolutely fix these problems.
There is no reason that we still can’t continue to capture the majority of the upside of these technologies while limiting the downside.