Curious Capitalist

Tech Titans Are Living in a Naïve, Dangerously Insular Bubble

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Kim Kyung-Hoon / REUTERS

I attended two very different and interesting events in Davos on Thursday. A “fireside chat” with Google Executive Chairman Eric Schmidt, and financier George Soros’ annual media dinner. While both touched on issues of foreign affairs, inequality, and conflict, they couldn’t have been more different in tone and style.

I’ll start with Schmidt’s event, which references (I have to assume intentionally) the talks that President Franklin Delano Roosevelt famously gave the American people in the hard years following the Great Depression from 1933 to 1944. FDR used his radio broadcasts to reassure the nation and explain how the new and expanded social compact of the New Deal would bolster jobs and create a safety net through the tough times.

Schmidt’s address, moderated by the Economist editor John Micklethwait, was given to a room of about 50 “thought leaders,” CEOs (Marissa Mayer was two seats down from me), and seriously rich people. The message was that tech related job destruction was just beginning, inequality was going to get worse, and the solution was for the population to educate themselves into being entrepreneurs so they could survive this new era. Not to mention leverage the software and gadgets created by people like him to better prosper. Technology will, according to Schmidt, vastly improve education, along with nearly every other public service, like healthcare. Although as one non-profit worker pointed out at a previous session, it won’t make it covered by insurance.

While I think Schmidt cares about these issues, and is trying to help, the whole event made me think what a naïve and even dangerously insular bubble tech titans live in. Let’s put aside the tone deafness of throwing an FDR reference into a talk to the 0.01 % at the Intercontinental Hotel in Davos. Behavioral economics tells us we all have our biases. And the idea that the majority of the population can become entrepreneurs or even just juggle entrepreneur type “portfolio” careers in lieu of a decently paying job is a Silicon Valley bias if I ever heard one. As anyone who’s worked in micro-finance will tell you, only a limited number of people are cut out to handle that level of risk.

What about giving folks a bit more of a hand, a la FDR? When Schmidt was asked by a New York Times reporter about wealth redistribution and whether companies like Google (which pays a tax rate of 19 %) should put more in IRS coffers since they are taking a historically unprecedented piece of the wealth pie, his answer was essentially that higher taxes on capital would squelch innovation. This is flat-out wrong. As Warren Buffett is fond of pointing out, the overall level of R & D spending and innovation in this country was much higher in the US in the 1950s, when the tax rate was far higher. Not to mention the fact that Google has more money to spend on R & D than it knows what to do with (perhaps that’s why so much of its cash is sitting dormant in bank accounts around the world).

The hubris of the tech titans is such that they talk about how their products can save education and healthcare, while waving away questions about whether we need a new social compact that would require them to actually put their money where their mouth is. I’ve said it many times before, and I’ll say it again: I truly believe that if the tech industry isn’t careful, they are going to take the place of finance as the fulcrum for public rage in an increasingly unequal economic era, one in which, according to McKinsey, 230 million jobs and $9 trillion in income are going to be at risk of being done by computers over the next few years.

Indeed, Schmidt could have taken lessons from a financier, George Soros, on how to generate good PR and real collaboration around a big issue. The financier usually devotes his annual dinner to talking about some market idea—Eurobonds, how animal spirits influence traders. This year, he gave the whole thing over to garnering multilateral support for humanitarian aid in Syria, inviting a group of the world’s best informed aid workers, internationalists (Kofi Annan, Mark Malloch Brown), government officials and Syrians themselves (from businessmen to refugees) to talk about what’s really happening on the ground in a crisis that is on track to be the worst (in human loss and suffering terms) of the last decade. Soros is no saint, but it was clear that he still believed in the power of government and civil society – aided (but not replaced by) business – to do something. I found that one of the most hopeful things I’d seen in Davos this year.