Henry Farrell on weaponized interdependence & regulating the internet [Tyler Cowen interview]

A day later: I've had a chance to sleep on this conversation. My initial impression remains: one if Tyler's best. Why? I keep looking for hints of new ways of thinking about the world in-the-large, but I rarely find much. This conversation has hints, particularly concerning the relationships between large platform media companies and the nation-states in which they deploy their platforms. 

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Tyler Cowen converses with (Crooked Timber's) Henry Farrell on this that and the other, including the internet:

COWEN: Now, we’re chatting in early October, and there were two huge stories today, both about weaponized interdependence. The first is that the European Union seems to be insisting that Facebook take down material posted on internets outside the European Union. What’s your view? Is that a good decision or a bad decision?

FARRELL: Well, when I’m looking at this stuff, I try to wear my hat —

COWEN: But I’m interviewing Henry Farrell, the person. Right?

FARRELL: Okay, let me back up and say two things. First of all, if I’m to think about this as a political scientist under my political science hat, what I would say is that this is something which is inevitable. And this is something which we’re going to see more and more of, which is that the internet for a long period — there was a kind of an equilibrium in which the United States managed to persuade everybody that self-regulation and platforms looking after their own business was more or less okay for most purposes.

That equilibrium has broken down. It has broken down in the US. It has broken down in Europe, and it has broken down in authoritarian societies in particular. So I think we’re going to see more and more efforts to try and use the platform companies effectively as a means of extending reach into other jurisdictions and imposing universal-type restrictions on what they can or cannot do.

And now:

If I want to think about this as an individual, what I would say is that I’m not at all happy with what the European Union is doing in specific here, but I do think that there needs to be much greater regulation of platform companies. And in the absence of the United States, I think that the European Union is the most plausible actor which has got the regulatory clout and the willingness to do so in a manner which is at least somewhat compatible with broad liberal norms.

So my basic attitude will be to push back against a specific decision but to say that if the choice is between the United States not regulating or perhaps regulating — perhaps that will be different under a possible Warren administration — and authoritarian states, that I would much prefer to have a robust European Union than any of the other actors that I can think of that have the clout and the ability to try and bring the platform companies to heel.

The second shoe drops:

COWEN: The second big story from today is from the world of basketball. As you probably know, Houston Rockets general manager Daryl Morey tweets in favor of the Hong Kong protests. It seems both the Rockets and the NBA forced him to delete the tweet and basically retract the statement. Who is in the wrong here? Daryl Morey, the Rockets, the NBA, China, everyone? What do you think?

FARRELL: Again, looking at this from my political science hat, this kind of stuff has been happening for a long, long time, but not so much to the United States. There’s a book by Blackwill and Harris, which came out with the Council on Foreign Relations a couple of years ago, which looks at how China has been imposing this kind of pressure against a variety of smaller countries, especially with respect to the Dalai Lama. And when China says jump, companies do tend to jump.

And of course, we’ve seen Hollywood for the last number of years has been quite sensitive to the Chinese market, most recently as exemplified by the decision to remove, I think it was the Taiwanese flag from the remake of Top Gun from the back of Tom Cruise’s jacket because this was perceived as being possibly provocative. So this is pretty standard stuff, and this tells us something about the way that businesses operate.

You can see the way that businesses operate globally as having both great benefits and great weaknesses. If one wants to think about the standard story about how interdependence, at least under some circumstances, creates peace because businesses have an incentive to try and create peaceful and happy relations between nations in order to secure their commerce, I think that there’s something to it, although as my work with Abe on weaponized interdependence suggests, there also are some clear limits to that as well.

But the obverse of this is that business is obviously in the business of making profits, and when there are clear political risks associated to business doing certain kinds of things, by and large, businesses are not going to be especially courageous. And this is particularly likely to be true of big firms, which I think are more likely to come under this kind of pressure.

One saw this already with regards to Hong Kong. There have been that airways chief executive who effectively got ousted. I’m trying to remember the company, but I can’t.

I think that this is, in a sense, if you want to outsource a lot of our decision-making about culture, about the ways that things ought to be done to business, this is what you’re going to expect, for better or for worse.

Platform companies as microeconomies:

FARRELL: Oh, we’ve seen multiple instances in the past where Facebook has proposed all of these arrangements by which there would be referendums of their users and so on, and where it effectively began to renege on this once it became clear that this was inconvenient for Facebook’s underlying business models.

I think that this is going to work up to the point where there are serious implications for Facebook’s business model, and past that point Zuckerberg is going to have a very, very strong incentive to renege.

And there’s a more general problem if we think about platform economies, that platform companies have become too powerful to commit to behave in good ways. If you look, for example, at Amazon, if you look at Google, all of these — they’re not only businesses, but they’re also effectively microeconomies in their own right. They’re both market players and they are the marketplace itself for key aspects of the information economy.

That makes it really, really difficult for them to guarantee credibly to other market actors that they are not going to take advantage of the unique power, the unique access to information, access to ability to shape market conditions that they have. And even if they want to, it’s going to be extremely difficult, I would imagine, for somebody like Jeff Bezos, when he’s got all of these hungry young executives who are trying to make money and whose future depends on their ability to make money, to stop them from pushing the envelope in ways. And that may undermine Amazon or Google’s or indeed Facebook’s market position over the longer run.

So I think that this is a much, much more general problem, and we know far less about the internal hierarchies of these companies and the internal political economies of these companies than we ought to. But what we do know, and here Tim O’Reilly’s recent book is quite good on this, gives us some reason to suspect that they may have some real problems.

COWEN: What should we do, then, with speech on Facebook if the Supreme Court idea is so flawed? What’s the better idea, especially for a country that has a First Amendment?

FARRELL: That’s a problem that I’ve —

COWEN: But maybe it’s the best idea that there is. Right?

FARRELL: Okay, okay. But I guess the problem with Facebook is, you look at the business model — there’s just no way, given Facebook’s business model, that it can credibly act. Even if you get away from the questions of political responsibility and who ought Facebook be responsible to, there’s no very good way for it to successfully police speech on its platform, given the tools that it has.

Machine learning can do wonderful things, but machine learning simply is not going to ever be able to keep up with the multifarious ways in which human beings can use language in order to communicate nasty and unpleasant things to each other. So the completely unsatisfactory answer I have to your question is, I just don’t think that one can come up with a satisfactory solution, either in political terms or in terms of effectiveness — given the economy that we have at the moment — to the problem of policing free speech.

First of all, there are no universal standards. Secondly, even if there were universal standards, I don’t think that we have the appropriate technical tools to be able to implement them when we’ve got companies that have billions of users and thousands or tens of thousands of employees.

COWEN: But we can’t regulate 8chan very well either, right? They post the very nastiest stuff you can imagine. They’re presumably a small company. They don’t have any kind of dominant position.

I’ve never even wanted to visit, but I read about what’s on there, and we can’t stop them either, so it doesn’t seem the problem is Facebook or the structure of the economy. Isn’t it just the case we now have technologies where everything that can be said will be said, and we’re not going to stop that?

FARRELL: Well, I guess the question for me is — and again, this is a wide open question because we simply don’t have enough good empirical research — but what is the relationship and the broader ecology between companies like 8chan and companies like Facebook? I suspect that companies like 8chan will be far, far less successful if there weren’t much bigger platforms like Facebook that they could effectively grow upon.

So here are the arguments, something as follows. If you think about 8chan, and if you think about 4chan before it, they were basically meme factories. They were basically these places where these bored individuals hung out. You also created these memes in a kind of process of frenzied Darwinian evolution, where you desperately want to make sure that whatever you had said was on the front page because otherwise it would disappear forever. So you’ve got this survival-of-the-fittest thing, where incredibly valuable or incredibly effective memes go out and begin to populate the entire space.

But you need two things for that to work. First of all, you need a process of generation, and secondly, you need some kind of process of dissemination. You need other platforms which have far greater reach, which can then allow for these memes to propagate through the atmosphere.

I suspect that if we were in a world in which everything was at the scale of 8chan, rather than having a mixture of companies at the scale of 8chan and companies at the scale of Facebook, that the likelihood of this stuff spreading and becoming epidemic across the entire community of internet users would be far, far less. Obviously, we would have other problems then. But I think that the problems that we would face would be a very, very different set of problems from the problems that we face in the current environment.

Labor unions:

COWEN: Who or what will replace labor unions as the offsetting or special-interest group to oppose capitalism or capitalists? Can we really count on the urban professionals? Aren’t they a bunch of spoiled brats?

FARRELL: I think labor unions are going to replace labor unions. Now, that said, this is a long-term bet, which could, of course, turn out to be completely wrong. But I think that it’s more or less impossible to imagine a world in which you have protection for large segments of the population that doesn’t roughly resemble labor unions.

Now this may be very, very different, just as the platform economy involves a greater degree of disaggregation in standard work practices. One could imagine that we’re going to have to see labor unions being very, very different in form, but I think that they’re important.

And it’s also very interesting to see people like Acemoglu and Robinson making a very important political case for labor unions, saying that if you’re an economist, you can’t think about labor unions as being a first-best solution because, clearly, they’re about distribution and distribution of stuff to their members. But if you’re thinking about maintaining the underlying conditions for a democracy, which presumably is a good thing for markets and for capital, then having something like labor unions is necessary.

And I think that the way that Niskanen has moved and, in particular, the way that people like Brink Lindsey, together with Steve Teles, have moved towards endorsement, albeit with a certain amount of grudgery of labor unions, really points to the realization by smart people on the center right and on the libertarian-tinged center right that this is something that maybe libertarians have gotten wrong over the last couple of decades.

Democracy and information:

FARRELL: Second thing that I’m interested in is the informational content of democracy. Here, maybe the intuition is something like the following. We have a standard set of arguments that have been extremely influential among libertarians and, I think, more broadly in the world, which are derived from people like Hayek.

We have this set of arguments which are beautifully expressed and which are very important arguments that Hayek makes about how markets work extraordinarily well to gather all of this diffuse information, this information which is simply unencodable, and to make it into something that can be useful through the price mechanism. The price mechanism takes all of this tacit knowledge and makes it actionable in important ways.

The Hayek and the Mises story is, of course, one where they contrast this with state planning, and they argue very plausibly that if you look at central planning processes, that these central planning processes are never plausibly going to be able to compete with the market, at least for doing that kind of thing. I think that states can do lots of other things. They underestimate that, but that’s a different argument.

What I also think is that democracy also has a set of techniques or tools for capturing information because — and again, this is going back in a certain way to what I was saying about the Gellner or the Popper view of society, which is more or less that we have all of these people with different understandings, different aims, different aspirations within society.

And you want to do two things. First of all, you want to maintain peace among all of these quarreling people with their very different aims and aspirations. You want to try and figure out how you can stop them from going to war with each other. But secondly, there also is going to be a lot of information which is captured precisely in their disagreements, in their differences, in their different perspectives.

So my ideal for democracy is, as a machinery, to try and get as much information out of those differences as possible, to take things like partisanship — which is messy and rancorous and squalid much of the time — but to recognize that the clash of different ideas, the clash of perspectives also has a lot of information value and does things that markets can’t capture.

So, trying to think through much more systematically, what are the modes under which democracy is better or worse at doing this? What are the kinds of institutions that allow democracy to do this better or worse? This is a major set of questions.