Popping the Bubble

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An Economics of Polarization

This post is a response to yesterday’s discussion in Davidson Now’s pop-up MOOC,  “Engagement in a Time of Polarization”.   The key provocation for the discussion was Chris Gilliard’s great essay Power, Polarization, and TechThe video of the hangout discussion is embedded at the end of this post for you.

In his discussion of social media rules and platforms, Chris poses an interesting hypothetical:

If we had social media and rules for operating on platforms made by black women instead of bros, what might these platforms look like? What would the rules be for free speech and who gets protected? How would we experience online “community” differently than we do now? Would polarization be a bug instead of a feature? The historical disenfranchisement of black and brown women and men is compounded by these same folks still being walled off and locked out of tech institutions through hiring policy, toxic masculinity at the companies, and lack of access to venture capital. “Black women are the most educated and entrepreneurial group in the U.S., yet they receive less than 1% of VC (Venture Capital) funding.”

I’m going to argue that if Facebook or Twitter or one of the other monster social media platforms had been staffed and created by black women (or just about any other historically disenfranchised group) the results would likely have been the same.  I’m not arguing an “all people are corrupt” position. Rather, I want to highlight the institutional conditions and economics by which these firms come about.  The institutional framework in the US, combined with some straight forward economics pretty much sets the path. Any group of entrepreneurs would likely end up in the same place, behaving the same way, and producing the same polarizing products/services.

I say this not as a voice of gloom, but rather to highlight that if we want to avoid or dismantle the damaging polarization and surveillance capabilities of these social media mega-platforms, we need to make institutional and legal changes.  And those legal and institutional changes may be in areas you don’t suspect such as antitrust law. First, I want to bring to light two different aspects of the institutional economics of these firms. The first is price discrimination and the second is corporate capital funding structures, especially for start-ups.

The bros that started, coded, and grew these social media platforms such as FB, Twitter, Google, and even Amazon, didn’t set out to polarize the population. Each had an interesting concept to provide people such as search (Google), interpersonal social connection (FB), or quick broadcast chat (Twitter).  But those services required large user bases and people were unlikely to pay for the privilege. So a monetization model was needed. Advertising and/or data sold to advertisers. Most folks know that these platforms with their data enable advertisers to “target” specific higher-probability buyers for their products.  But just increasing the likelihood that a specific ad will result in a sale isn’t the gold.

The gold is in price discrimination. Always has been.  I don’t have time now to fully explain price discrimination, but there’s a Wikipedia entry on it and an Economics Help site entry for it. An individual’s real demand curve for a product is very difficult to ascertain. It’s a hypothetical. It’s how many would you buy at all the possible prices? Looked at from a seller’s viewpoint, it’s what’s the maximum price I can charge and still sell as many as I want?  If the seller knows, he/she can charge prices that capture all the consumer surplus value for themselves instead of sharing the joint benefits of the transaction. 

If an advertiser/seller can gain enough information about a potential buyer’s real demand curve, it’s the route to profit nirvana. But historically it’s been difficult to do price discrimination. For products, there’s that pesky Robinson-Patman antitrust law. Often it’s been done via proxy indicators of group preferences – think Ladies’ Night at the bar or higher prices for business travellers on airlines. Getting the knowledge has been tough.  Big data from social media solves that problem.  That’s why social media data is so valuable and profitable and why FB/Google/Amazon/Twitter chose that route to monetization instead of subscriptions or memberships.

This price discrimination behavior is nothing new and neither are the abuses. It’s what made John D. Rockefeller’s Standard Oil so profitable and so socially destructive 120 years ago.  The urge to find ways to price discriminate is inherent in corporate market behavior.  The only limits legal.  We used to pass and enforce antitrust laws against such behavior, but that’s been considered bad form ever since the Reagan administration listened to the Chicago boys back in the early ’80’s.

To enable price discrimination practices, the social media monsters had to find more and more data about each and every user.  There’s a direct line between individualized data and monetization.  Now the marketers don’t call it discrimination. They call it differentiation.  They want to know exactly how every person is different from everybody else and find little homogenous groups to put them in.

The purpose was economic & marketing discrimination/differentiation. But once the differences are revealed. Polarization, a side effect, is all about finding differences, not commonalities. Finding commonalities doesn’t make money for marketers.

I don’t think any of the bros that did this at these platforms intended or planned to polarize the nation. It was just an unintended, unconsidered consequence.  Don’t get me wrong. I’m not absolving them of responsibility.  Sometimes unintended consequences could and should have been foreseen. It’s kind of like drunk driving. Very few, if any, people set out to drink and the drive with intent of killing somebody.  It happens because they didn’t think and didn’t foresee the consequences of their actions.

Given the incentives and demands of capital structure, I think any group would likely have gone for the price discrimination-data collection jackpot, especially since there are no legal guard rails against it and they likely would have to as a startup.

Now that gets us to another question. Why did FB/Twitter/Google, et al, find the need to maximize the monetization?  Well, here we can fault them. The reason was greed but again it was unintended, unforeseen consequences.  Their choice of capital structure forced it. They went for too much cash at the IPO’s.

Chris is right. Black women as a group are highly entrepreneurial. But there are maybe 4 motivations for entrepreneurship. Some do small businesses because there’s no other option – that’s a lot of present black women entrepreneurship. Some start businesses just to be left alone (like me 20 yrs ago). Some just want to get stinking rich and leave (Peter Theil, Paul Allen). And some want to get stinking rich, build a huge legacy corporation, and rule the world (Zuckerberg, Bezos).  FB/Google/Twitter et al chose to go the IPO route to become stinking rich.  Google, IIRC, did it twice.  The cash they gathered from those IPO’s did more than fund operations and some growth. It was in excess of their real cash needs. The consequence was they needed continuous high growth rate in both users and profits.  That’s what Wall Street style financial capitalism both rewards and requires. With the high, continuous growth, there’s no stock premium No stock premium = low stock price = founder isn’t really that rich.

My argument is that some other group, black women or POC or whoever, might have done things differently, but only if they had set different goals of not getting rich. Unfortunately, the US corporate funding and legal systems don’t really allow for enterprises that in-between. It’s either struggle for funds as a non-profit or go for continuous profit maximizing high growth.

There’s not really an institutional option for funding “just adequate to provide a utility-like service”.  To get the funding to start, any group effectively commits to the profit max, high growth route.  And that commitment drives the monetization strategy of data collection to seize the gold of price discrimination.

Is it all gloom and doom? No. I don’t think so.  But arguments that simply ask for firms and developers to be more “ethical” or even just more diverse aren’t likely to work in my opinion.  We need to change a lot of the rules of the game.

I do have suggestions for those changes, but this more than enough for tonight.


Is Polarization Really a Recent, Digital Phenomenon?

The post is my initial contribution to the discussion in “Engagement in a Time of Polarization” pop-up MOOC.  Admittedly, I’m a little late to the party, but we’re starting Topic 2 on Understanding Polarization.  The key provocations to start discussions are Chris Gilliard’s excellent (as always) post on Power, Polarization, and Tech.  The other thought starter is  Dr. Natalie Delia Deckard’s  video intro to topic 2.  This is a quick post, so it’s likely not as well-thought out as I’d like. I’m mostly going on initial gut reactions.

I’ll admit. I had a very negative reaction to Natalie’s intro. She seemingly takes as accepted that polarization is much, much worse today than in her rose-colored memories of some period perhaps 20 years ago. She asserts that “back then” there was a massive common middle ground, a wide-spread shared perspective on just “what happened” and what “the” news was.  It was a time when she could go to the library to find out what the “scholarly consensus” was on any particular topic, a time when the few major news sources agreed on what the news was and what happened.

I’m old enough to remember those times well. I also remember the eighties, and seventies, and sixties, and the first hand accounts of those from the fifties.  There was no agreement, no unified mass central consensus in those days. There was the appearance of such because those with power, privilege, and authority could much better control the message, control the “news” as reported.  This is a point I think Chris and Tressie MacMillan Cottom make:

Tressie McMillan Cottom’s essay, “Finding Hope in a Loveless Place,” writes out loud the thing that we aren’t supposed to say about the election of Trump: “This was America and I knew it was because for me it always has been.”

For many, particularly black and brown women and men, and LGBTQ folks, polarization isn’t new: we’ve been here all along. The “digital” in polarization has made more visible what for so long was only able to be seen and understood if you believed the stories people have been telling since this country’s beginnings.

Polarization existed then too. It is not a product of the digital age.  The difference is that back then the different voices and perspectives had no voice, no platforms. Now in the digital age they do.  We now hear them.  Trust me. The extremes existed back then too, it’s that fewer could hear them.

As an economist with some particular focus on history of economic thought and institutional economics, I can assure you that the ability to get the expert in the library (a privilege that really was limited to a few) to tell you the “scholarly  consensus” has not been an unalloyed good thing.  Orthodox economic thought (we even called it the “Washington consensus”) came to dominate teaching, policy, and research, squelching the voices of those economists with a different perspective.  The real world consequences have not been pretty, except for the wealthy and powerful.

Ah, the wealthy and powerful! That brings me to Chris’s provocation.  I love his statement:

Polarization is by design, for profit. 

True.  I don’t disagree.  I would only add two nuances or twists.  First, we should be wary of attaching more intelligence, planning, or conspiratorial skills to the wealthy, powerful, and privileged than they have.  Often, the “design” is not conscious or based on advanced blueprint.  The “design” may only be apparent in the rearview mirror.  They may be making this up as they go.  The catch is, they are persistent and insistent. They, the rich, powerful, and privileged,  do a fantastic job of keeping their eyes on (their) prize.  The rich and powerful have a class consciousness that would make Marx drool.

Second, I would suggest that deliberate signal boosting of extreme views that effectively polarizes people is not the only mechanism.  Another tactic is that of pushing faux consensus while demonizing dissenting views as “polarizing”.  I see this in the way the “adult voices” in both major parties agree that “social security is headed for bankruptcy and we must trim benefits”.  No it isn’t. That is false. It is a deliberate attempt to foster a “consensus middle” that disempowers the truth.   A third tactic is for the rich, powerful, and privileged to foster a false polarization so that we avoid the real differences.  This is the dynamic where race, a false difference between people for the most part, is promoted as the key of polarization when in fact the real differences are class, wealth, and income.

I hate writing posts where I feel like all I’ve done is whine or criticize.  I much prefer to suggest, solve, and build.  But all I’ve got today is this.  Let’s use this digital world to include all voices and perspectives, because as His Holiness the Dalai Lama repeatedly observes: there are over 7 billion of us on the planet. We have to get there. All of us. Everyone.  Only compassion and communication will overcome the destructive aspects of polarization.   Let us remember that disagreement and division is not the same as polarization.


Engage With Open Learning Assignments

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A Personal Note on Ostrom, Open Learning, and Me

As usual, I have way too many balls in the air and way too many ideas happening at once.  It’s exciting but every silver lining has a touch of grey. (hat tip , Robert Hunter).

I continue wearing my multiple hats as part of the school’s Open Learn Lab. I still have no title, although ITS calls me the Project Champion (thank you).  I actually prefer “Chief Instigator”.  Anyway, it continues to be me as server sys admin, dev  ops, open pedagogy evangelist, WP developer, inventor, faculty professional developer, and chief pixel washer.   We are digital, so there’s no bottles to wash anymore. Just pixels.  This year I do have two fantastic  enthusiastic student interns that are convinced we’re going to revolutionize higher ed. On top of all that, there’s still the half-load of teaching and course development.  And in a community college, once you’ve done the governance & faculty leadership gig, it kind of sticks to you – especially if you’re trying to get the Lab “institutionalized” (translation: into the org chart & budget permanently).

So I’ve been spending most of the past year trying to figure out for folks where or how “open learning” fits into the college – ours or any community college.  I think I’ve been making progress on that front with the Commons of Our Own idea.  But then David Bollier at OpenEd17 steps into my world with his talk of the commons.  BAM.  The grey cells start firing at accelerated pace.  The economist part of me starts kicking in and I’m off to the races.

Bollier gets me to start researching and reading and listening to Elinor Ostrom.  Now I’m embarrassed to say that while I had a most passing familiarity with her work, I hadn’t until now taken a deep dive.  My loss. That’s both the silver lining and the touch of grey.  Her and Vince Ostrom’s ideas on governance of commons, polycentric complex economic systems, and the differentiation between commons as behaviors vs common pool resources has the little grey cells firing like a fourth of July fireworks finale. Silver. Lots of silver.  It’s all coming together.  My multi-disciplinary career and background, the Open Learning Lab, the tech, higher ed governance and policy, pedagogy, and what we need to do for people.  BAM. Silver linings.

Unfortunately, I’m not a young man. Touch of grey around the temples.  Ok, ok, ok, lots of grey throughout.  I get a feeling that I missed my calling and a chance to really do some interesting stuff in this commons area.  I could have done so, so much but my education didn’t really expose me to the Ostroms or the Commons (except for the myth of the “tragedy” thereof).

So I’m kind of overwhelmed now.  Today, while out on my walk, I listened to Elinor’s lecture at Indiana U just after her wining the Nobel Memorial Prize.  I found myself alternating between shouts of “yes!” as I connected her ideas to our present situation in open learning and higher ed, and  then followed by waves of sadness and perhaps tears (“no, you have something in your eye!”) as I realize what could have been personally.  As I said, I’m not a young guy.  I’m gonna have to make the most of these years left.  There’s a lot to do and lots of connections to make.  Collaborations about innovation aren’t the easiest thing to put together at a community college.

I promise I’ll blog and tie all this stuff together.  I have to.  I promised to talk about it at OER18 and OEGlobal 18 in April.

Here’s the lecture:

And, hat tip to Robert Hunter and Jerry Garcia.   

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