In Silicon Valley people like to call what they do ‘disruption’. But when it comes to the economic, social, and political concentrations of power, they haven’t disrupted them but exaggerated them. Platform monopolies like Google, Facebook and Amazon have taken advantage of ‘winner-takes-all’ network effects to gain unprecedented power and expand into more and more markets while regulatory frameworks scramble to catch up.
The percentage of tax paid by the big five tech companies has halved since 2013. The government is now, finally, addressing the ‘fairness’ of the mechanisms these firms use to avoid tax. The basic challenge policy-makers around the world face is how to ensure that the spoils of digital transformations in different sectors are more evenly distributed. The Chancellor’s ‘Digital Services Tax’ tries to answer this challenge - but it’s the wrong answer. The Digital Services Tax will take of 2% of the revenue generated from UK users of the tech giants operating in three areas: search engines, social media platforms and online marketplaces. The tax will only apply to profitable companies with global revenues of over £500million to ensure only large companies are taxed. The proposals are expected to raise £400million a year.
Following the announcement, critics immediately pointed out that £400million across all the firms is a negligible amount. Last year, the top five tech firms - Google, Facebook, Amazon, Apple and Cisco - made an estimated revenue of £6.6billion from UK customers. Corporation taxation is based not on revenue (how much a company makes), but profits (how much a company makes, minus its costs), and the global tech giants have used this to ensure that they record most of that profit in jurisdictions that attract the least tax.
Hammond’s new policy seeks to apply tax to revenue rather than profit. Since revenue is accounted for in the country it is generated in, any effort by companies to cleverly minimise the tax they owe through complex internal pricing transfers and structures won’t work. However, given that the new tax isn’t set to be implemented until 2020, the same time that tech giants will start to enjoy a 2% cut in their corporation tax rate, the net receipts will not even reach the rather meek £400million set out in the Budget.
The real challenge for policy makers (that the Budget made no attempt to address) is how to build and nurture an alternative models of platforms that work for the needs of citizens, not private profit. The Digital Services Tax is basically a green light for the dominant profit-driven platforms to keep amassing vast power through questionable means that include: exploiting labour, undermining democracy, and hoarding data to build ‘black-boxed’ AI. If Hammond is serious about ‘fairness’, he should be questioning the monopolistic and undemocratic structures on which these profits are built rather than just asking for a small slice of them. If you came home from work and your housemate had killed your pet hamster and cooked it in a pie, you wouldn’t just ask him to save you some leftovers in a tupperware. You would ask why he killed the hamster.
The top five tech firms are together worth more than the huge international businesses that make up the entire FTSE 100. But their vast power is not just based on the amount of money they have. They are also now hoarding most of the world’s data, 90% of which didn’t exist a few years ago. This enables them to develop unrivalled AI-based services that will shape the future of society while the public sector become more and more dependent on them. As tech writer Wendy Liu argues, “the battle over digital platforms… is a battle over technological development more broadly and who gets to control and deploy that.” The Digital Services Tax demonstrates a total misunderstanding of the nature of the threat the tech giants pose - one that goes far beyond tax avoidance.
Hammond claims that the UK will lead the way globally in holding the digital economy accountable. In fact, there are already global leaders in the fight to curb the power of tech giants with far more radical tactics than those proposed by the government. And they’re not national governments at all - they’re cities. There is significant potential for urban governments to regain control over technology, data and infrastructure, and therefore over the services they mediate. The cities of New York and Moscow have rewritten their contracts with tech firms to demand access to data and algorithmic transparency. In Barcelona and Amsterdam, authorities are working with communities to ensure that platforms serve people and that data is used to develop tools and services with clear public benefit, for example using pollution sensors to highlight difficult areas, or developing an ethical alternative to AirBnb. These services based on the logic of solidarity, social cooperation and collective rights.
Cities alone cannot tackle the threat that monopolistic tech firms pose to society, and Hammond is right that this will ultimately require global coordination. But governments can look to the radical strategies of these local governments as a blueprint for transforming how value is produced and distributed in the digital economy.
At New Economics Foundation, we have been exploring issues around the foundations of tech power, and will be looking at how we can begin to challenge these foundations.