The Great Betrayal: why the Internet became an autocracy and how it may yet free itself

This post includes excerpts from Vili Lehdonvirta’s book Cloud Empires: How Digital Platforms Are Overtaking the State and How We Can Regain Control (MIT Press).

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The Internet was supposed to change the structure of society. It was supposed to empower individuals and communities, create a “level playing field”, and “give everyone access to the same information”, according to eBay founder Pierre Omidyar. It was supposed to render obsolete centralized authorities that set up artificial boundaries and compile dossiers on us and be governed by “ethics” instead of “systems erected to impose order,” according to cyberspace visionary John Barlow. It was supposed to get rid of gatekeepers and middlemen. It was supposed to topple autocrats and promote individual liberty over top-down control. This is what technologists and visionaries promised us. But they delivered something very different. They created some of the most powerful gatekeepers in history. They carved up the Internet into walled domains and registered us into their databases. Instead of making state authority obsolete, they rivaled it. Why did they do this? What does it mean for our societies and economies? And what is to be done about it? 

The most straightforward explanation for how we ended up in our current situation is that all that talk about technology as a means to universal liberation was always just a ruse. “Jeff [Bezos] is good at making it sound as if he’s baring his soul, that he’s telling you what’s really going on. . . but this is still all part of the big plan,” said Amazon’s second employee in the late 1990s, quoted in Robert Spector’s book Amazon.com: Get Big Fast. Tim May, founder of the crypto-anarchist movement that birthed Bitcoin, wrote to his followers in 1994: “Crypto anarchy means prosperity for those who can grab it. . . . The clueless 95% will suffer, but that is only just.” “Competition is for losers,” confessed PayPal founder and Facebook investor Peter Thiel in the Wall Street Journal in 2014. According to this explanation, the real aims of the digital revolution were always just domination and disenfranchisement.

Compelling as it may seem, this “evil man” theory of the betrayal of the Internet’s early promises is too simplistic to be the whole story. Were it true, all that would be needed for us to reach paradise would be more ethical technologists who keep the faith and resist the temptation to sell us out. But many early cyberlibertarians, like John Barlow and Pierre Omidyar, did think about ethics a lot. They appeared quite sincere in their desire to improve the human condition. That none of their plans ever quite succeeded in the form that they originally envisioned was not necessarily due to any bad faith on their part. Instead, it was because even on the Internet, technologists are not omnipotent. There are social and economic forces beyond their control that influence what kinds of institutions are viable. In my book Cloud Empires, I argue that four forces in particular explain why the Internet economy ended up organized as it did. They are (1) the challenge of maintaining social order; (2) the problem of scale; (3) the economies of scope; (4) and the alluring power of central planning. In this essay I will focus on the first two.

The challenge of social order

Cyberlibertarians like Barlow did not fully appreciate the difficulty of the problems that an Internet economy would face. Offline or online, traders must overcome the problem of exchange—that is, how to avoid getting cheated. Managers need to overcome the principal-agent problem—that is, how to be sure that workers really do what they are being paid to do—while workers need to be assured that they will actually get paid. And both types of exchanges happen only if they are not made uneconomical by search costs—the costs and effort required to find a suitable match. 

Nothing about the Internet makes these fundamental problems disappear. No amount of bandwidth can guarantee that the person at the other end is being earnest. One way or the other, these problems of social order must be solved before exchange is possible. The same challenge that faced would-be market creators in earlier eras now confronted technologists and Internet visionaries, even if they failed to realize it at first. 

The problem of order at scale

Visionaries like Barlow and Omidyar thought that digital technologies could be used to solve problems of social order in some novel way—some innovative new method that relies on self-enforcement by individuals and communities. But rules enforced by the participants themselves—also known as informal institutions—are in reality a very old idea, as old as humanity itself. And as in the past, they could only maintain order up to a certain scale. When 1990s online communities grew into 2000s digital boom towns, people no longer knew each other and informal order unraveled. No matter how much technologies had changed, people were still the same. 

In the end, all the visionaries who succeeded in fostering virtual megalopolises with thriving economies did so only by instituting official rules and enforcing them coercively when necessary. In other words, they created formal institutions—rules enforced by an authority—and assumed for themselves the role of the central authority that they had been trying to abolish. Even Ross Ulbricht, libertarian founder of the narcotics marketplace Silk Road, ultimately found that he could not sustain a sizeable market without resorting to coercion.

Some pioneers refused to change their approach, and small pockets of informal cooperation still persist on the fringes of today’s digital economy. But the gains obtainable from insular exchange within a small group are limited compared to the possibilities offered by a market of millions of people. Thus, the vast majority of exchange on the Internet as elsewhere is now underpinned by formal institutions, despite visions to the contrary. 

“More like a government than a traditional company”

The institutions of modernity, their terrible flaws notwithstanding, are the product of several millennia of institutional innovation, experimentation, and contestation. The task that Internet visionaries and technologists set for themselves—fostering large-scale market exchange—was the same task that modern state administration has, in many ways, evolved to do. Almost inevitably, then, the technologists converged on analogous solutions: centrally administered bundles of complementary formal institutions that function as infrastructures but also seek efficiencies from central planning. The same forces that once favored the rise of the state now led to the rise of platforms. Barlowian ideas of informal, decentralized, non-coercive social order at scale succumbed to the rigors of human nature, though not for want of trying. The visions were betrayed not so much by evil men as by their own innocence.

A lot of what so-called technology companies now do is thus in a certain sense just traditional statecraft. Silicon Valley technologists reinvented the economy only in the sense that through trial and error they rediscovered much of what states already knew. Instead of revolutionizing our social order, they reimplemented it with computer code and customer service agents. Big data is statistics. Blockchain is sortition. Algorithmic decision making is just another word for bureaucracy. After a decade and a half of “moving fast and breaking things,” Mark Zuckerberg realized that Facebook had ended up “more like a government than a traditional company,” as he said in a 2018 Vox interview.

The reverse is also true: what states traditionally do is in a certain sense just technology. The world’s first databases were ancient Mesopotamian empires’ tax and administrative records. Ancient empires also developed packet switched postal networks, mathematical algorithms, mechanical calculators, and cryptography to govern their holdings. More recently, states powered the development of the computer, the Internet, and the Global Positioning System. Most statecraft is just different forms of information processing and communication, so information and communication technologies have always been foundational to it.

But if tech companies simply rediscovered what the state was doing all along, then why do they appear to be overtaking the state in some areas? Why do e-commerce platforms resolve more disputes than the world’s court systems? Why is the global online labor market regulated from Silicon Valley? Why are social media platforms the world’s leading regulators of speech? 

States without estates

Despite digital platforms’ and states’ institutional similarities, the two nevertheless differ in one crucial aspect—the shapes of their jurisdictions. State jurisdiction is primarily territorial: a state’s rules apply to all activities within a specific area of the earth’s surface that the state controls and up to about 100 kilometers above it, depending on which state you ask. Control over territory is part of how a state is defined in international law. In contrast, a platform’s jurisdiction is personal: its rules apply to any and all who have signed up and subjected themselves to its authority—wherever in the world they may be. So, while platforms’ techniques resemble statecraft, they do statecraft in a way that’s not tied to territory. They are states without estates, empires in the cloud.

A momentous practical implication of this is that exchanges on a platform don’t have to follow territorial boundaries. Over 90 percent of sellers on eBay export to other countries, according to data published by the company. Over 90 percent of contracts on Upwork are between employers and workers who are located in different countries, according to my research group’s findings. Amazon Marketplace, Apple App Store, Google Play Store, Mechanical Turk, and numerous other platforms are likewise intensely transnational. These platforms are not merely competing with states for control over territorial markets: they are constructing entirely new markets not delimited by territory.

A global order based on carving up the surface of the earth into mutually exclusive jurisdictions fosters local national economies, but in long-distance trade it is a hindrance. Institutional differences between countries generate non-tariff barriers that often only the largest companies are equipped to overcome. Technology companies are now using the Internet to establish transnational institutional environments—cloud empires—in which people and small businesses from different countries can transact almost as if no national boundaries separated them, whilst still enjoying the benefits of a formal institutional framework that provides social order. Millions of merchants, app developers, freelancers, streamers, influencers, and other small businesses, from Los Angeles to Lagos and Helsinki to Ho Chi Minh City, prosper in this deterritorial economy established on the Internet.

The ancient problem arises

However, this is eminently not the cyberlibertarian economy that Omidyar and Barlow dreamed of. It is underpinned by giant technology companies that function as its de-facto government. And as autocrats throughout history are wont to do, their princes eventually started directing a growing part of the economy’s wealth into their own ends. As soon as Jeff Bezos’s Amazon had established its dominance, it began preying on the publishers and merchants who gathered at its marketplace. It extracted increasing levies, bent the rules to favor insiders, and even took over successful listings from third-party sellers for its own first-party e-commerce business. It went from being “very democratic and egalitarian in the best sense” to “really predatory toward successful third-party sellers,” according to the assessment of two of its “partners” quoted in Cloud Empires. And Amazon wasn’t the only platform to behave in this way: it is more or less how all large platforms now behave, from Apple’s App Store to Twitter. The same ancient problem arises online as once did with states: authorities protect us, but who will protect us from the authorities?

The platform economy may equal modern national economies in terms of its economic institutions, but when it comes to political rights, it remains in the dark ages. Perhaps a somewhat accurate analogy would be Stuart England: there are formal rules in place that govern the economy, and courts of a sort to solve disputes, but the sovereign may at any time use their royal prerogative to override laws, extract levies, and expropriate successful businesses.

Many people argue that actual states need to intervene and make cloud empires accountable to the people they govern, whether by breaking them up or enforcing regulations on them. I am not arguing against such intervention, but I argue in that it is unlikely to achieve all that is desired of it, for a number of reasons. Here I will highlight just one. And that is: no territorial government can legitimately represent the interests of the users of a deterritorial digital platform.

Only some of the users of a platform belong to the constituency of any particular government. Many if not most users will belong to the constituency of a completely different government. Many of the governments most keen to bring cloud empires under their control are not even democratic. And of those that are democratic, many appear too small to impose their will on the tech giants. The most democratic and powerful governmental regulator of the digital economy today is the European Union, and thanks to the ”Brussels effect,” its edicts end up shaping digital commerce world over. But the notion of having Europeans once again set the rules for the world—the rules under which people from Sub-Saharan Africa to Southeast Asia participate in the Internet economy—should give us some pause.

From company town to digital commonwealth

Instead of relying on governments to solve the platform economy’s ancient problem, what if users took matters into their own hands? What if the public that had a legitimate interest in controlling essential platform infrastructures was not the public of any particular nation state, but the public that used that infrastructure—the actual users of the platform? In Cloud Empires I tell stories of how merchants and artisans of the platform economy—much like burghers of old—have begun to organize and push back against the platform princes’ excesses. Via strikes, pressure campaigns, and outright hostilities, these citizens of cloud empires have begun to demand political rights for themselves—and in some cases even win them. In Europe this process culminated in the middle class eventually wresting political control from feudal lords altogether.

If the idea of a joint-stock company eventually transforming into a public body with a democratic government seems outlandish to you, consider the following piece of history. The state of Virginia was literally a venture-funded start-up company at first, called the Virginia Company of London. It was founded in London in 1606 by a serial entrepreneur with seed funding from four high-net-worth individuals. The founder raised additional funding through a public share offering, in which hundreds of individual and institutional investors across England bought stakes in the venture. The business plan was similar to Amazon: construct a town in North America, attract artisans and tradesmen from Europe to do business there, and tax them. The town was governed from London by the company’s board of directors, and like any joint-stock company, it was expected to turn a profit for its owners. But these governance arrangements did not last; the artisans and tradesmen began to demand a say for themselves in how the place was being run. Long story short, today Virginia is a democratic commonwealth and one of the constituent states of the United States of America. 

Admittedly this transformation from company to commonwealth took a couple of hundred years to unfold in Virginia. But the Internet so far has zoomed through history at an amazing speed. And already we can see rebellions brewing in the digital colonies.

Vili Lehdonvirta

Professor of Economic Sociology and Digital Social Research at Oxford Internet Institute, University of Oxford | Website

Vili Lehdonvirta is Professor of Economic Sociology and Digital Social Research at the Oxford Internet Institute, University of Oxford. He is a Senior Research Fellow of Jesus College, Oxford, and a former Fellow of the Alan Turing Institute in London. He has served on the European Commission’s Expert Group on the Online Platform Economy and the High-Level Expert Group on Digital Transformation and EU Labour Markets.

For the past seven years Lehdonvirta has led a research group in Oxford examining how digital technologies reshape economies and with what implications to workers, entrepreneurs, and policy makers. Lehdonvirta’s research has been supported by the European Research Council, the UK Economic and Social Research Council, and other science funding agencies.

Lehdonvirta’s latest book Cloud Empires: How Digital Platforms Are Overtaking the State and How We Can Regain Control is published by MIT Press. His previous book Virtual Economies: Design and Analysis was published by MIT Press in 2014 and translated to Chinese and Japanese. Before Oxford Lehdonvirta worked at the Helsinki Institute for Information Technology, the University of Tokyo, and the London School of Economics and Political Science.