332 AAssignmentsReaction Paper 1

DIGITAL DISCONNECT

HOW CAPITALISM IS TURNING THE

INTERNET AGAINST DEMOCRACY

Robert W. McChesney

THE NEW PRESS

NEW YORK LONDON

© 2013 by Robert W. McChesney All rights reserved.

No part of this hook may be reproduced, in any for!ll, without written permission from the publisher.

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Published in the United States by The New Press, New York, 2013 Distributed by Perseus Distribution

LIBRARY OF CONGRESS CATALOGJNG-JN-Pl/RLICATION DATA McChesney, Robert Waterman, 1952-

Digital disconnect : how capitalism is turning the Internet against democracy I Robert W. McChesney.

p. cm. Includes bibliographical references and index.

ISBN 978-1-59558-867-8 (hardcover) ISBN 978-1-59558-891-3 (e-book)

I. Internet-Political aspects. 2. Capitalism. 3. Democracy. I. Title. HMS 51.M 393 2013

302.23' l-dc23 2012035748

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5

The Internet and Capitalism II: Empire of the Senseless?

In this chapter I complete the analysis of the marriage of the Internet to re­

ally existing capitalism. I look at the new digital giants that have emerged

and are increasingly the masters of the Internet-and masters of much of our

social life. I then assess the extraordinary conversion of the Internet into an

advertising-based medium, and how the new digital advertising industry is a

radical departure from advertising as we have known it. Finally, I bring the

government and the national security and military agencies into the picture,

discussing their use of the Internet and how their operations mesh with those

of the dominant commercial players. In all three sections, questions emerge

about the compatibility of the capitalist-driven Internet with the require­

ments of effective self-government.

The New Digital Giants-Who and Why?

It is supremely ironic that the Internet, the much-ballyhooed champion of

increased consumer power and cutthroat competition, has become one of

the greatest generators of monopoly in economic history. Digital market con­

centration has proceeded far more furiously than in the traditional pattern

found in other areas, described in chapter 2. As "killer applications" have

emerged, new digital industries have gone from competitive to oligopolistic

to monopolistic at breakneck speeds. To be clear, the Internet is still crystal­

lizing as an area of capitalist development, and it appears to be dynamic,

so not all of its characteristics are discernible. Nevertheless, the monopoly

tendencies are powerful, and the existing giants appear poised for a long

130

THE INTERNET AND CAPITALISM II: EMPIRE OF THE SENSELESS? 131

reign atop the U.S. and global political economy. At this point, one can only

speculate as to whether any new digital monopoly giants will join them or

the system is approaching consolidation.

In most Internet areas where profits can be generated, private interests

have been able to convert beachheads into monopoly fortresses and generate

endless profit. Google, for example, holds nearly 70 percent of the search­

engine market. It may soon challenge the market share that John D. Rock­

efeller's Standard Oil had it its peak. Google already has 97 percent of the

booming mobile search market. 1 Despite attacks by Apple and the growth

of open-source Linux, Microsoft's Windows operating system continues to

be used on more than 90 percent of all computers.2 Apple, via iTunes, con­

trols an estimated 87 percent market share in digital music downloads and

70 percent of the media-player market. 1 The iPad dominates the burgeoning

tablet computer market.4 "Ninety percent of the profits in the smartphone

space are going to Apple and Samsung," a former Microsoft executive said

in 2012. "There's no real sign that's changing anytime soon." 5 Amazon sells

between 70 and 80 percent of both physical books and e-books online,6 and

eBay and Face book, along with a handful of other giants, enjoy considerable

monopolistic power as well. A recent analysis of economic inequality in the

United States concluded that "the stupendous gains made possible by the

technological advances of the information age have been almost entirely

captured by a tiny elite." 7

The monopolistic firms that have capitalized on the digital revolution

have grown to world-historical proportions. In 2012, four of the ten largest

U.S. corporations in terms of market valuation, including number one and

number three, were Internet giants Apple, Microsoft, Google, and AT&T.

Add IBM and that is five of the top ten. If one goes down through the top

thirty, the list then includes Verizon, Amazon, Comcast, and Disney, as

well as the Internet giants that depend less directly on the consumer mar­

ket: Intel, Cisco, Qualcomm, and Oracle. That is thirteen of the top thirty

firms. In comparison, the top thirty firms include only two of the "too big to

fail" banks that have earned so much notoriety for their dominance of the

political economy. 8 In short, the Internet monopolists sit at the commanding

heights of U.S. and world capitalism. When Fortune magazine compiled its

list of the top twelve entrepreneurs of the past generation, the founders of

Internet giants Apple, Microsoft, Amazon, and Google occupied four of the

top five slots.9

132 DIGITAL DISCONNECT

Why is monopoly so much more pronounced and so much more impervi­

ous to direct competitive challenge on the Internet than in the balance of

the economy? The paradox is striking, because scarcity on the Internet has

to be created and hence is artificial. As Wired editor Chris Anderson puts it,

"Artificial scarcity is the natural goal of the profit-seeking." w

There are a few closely related explanations. First and most important,

the Internet exhibits what economists term network effects, meaning that

just about everyone gains by sharing use of a single service or resource. In­

formation networks, in particular, generate demand-side economies of scale,

related to the capture of customers, as opposed to supply-side economies of

scale (prevalent in traditional oligopolistic industry) related to reduction in

costs as scale goes up. 11 The largest firm in an industry increases its attrac­

tiveness to consumers by an order of magnitude as it gets a greater market

share, and makes it almost impossible for competitors with declining shares

to remain attractive or competitive. Wired's Anderson puts the matter suc­

cinctly: "Monopolies are actually even more likely in highly networked mar­

kets like the online world. The dark side of network effects is that rich nodes

get richer. Metcalfe's law, which states that the value of a network increases

in proportion to the square of connections, creates winner-take-all markets,

where the gap between the number one and number two players is typically

large and growing." 12

Bob Metcalfe, inventor of the Ethernet protocol that wires computers

together, regarded the network effect as so prevalent that he formulated the

law that goes by his name: the usefulness of a network increases at an accel­

erating rate as you acid each new person to it. 1 i Google search is an example;

the quality of its algorithm improves with more users, leaving other search

engines with a less effective and attractive product. Consider Facebook,

which during 2012 exceeded one billion users worlclwicle. "Those who sign

up (and it's free) have access to a wider circle. Those who don't can feel ex­

cluded," The Economist observed. "This powerful feedback loop has already

made Facebook the biggest social-networking site in many countries. It ac­

counts for one in seven minutes spent online worldwide." 14 Metcalfe's law

was responsible for Rupert Murdoch being hoisted by his own petard. Mur­

doch's News Corporation spent $580 million for MySpace in 2005; at that

moment MySpace had what looked to be a decent shot at grabbing a com­

manding lead in the nascent social-media market and getting a Google-type

THE INTERNET AND CAPITALISM II: EMPIRE OF THE SENSELESS? 13 3

monopoly. It soon found itself in Facebook's rearview mirror and fading fast;

Murdoch unloaded MySpace in 2011 for $35 million. 11

There is also a flip side to Metcalfe's Law: those excluded from a network

face an accelerating cost of exclusion. Depending on the importance of the

network, the severity of the exclusion can be tantamount to nonpersonhood.

This is a good way to understand the importance of battles for Net neutrality

and universal affordable broadband. 11'

A second factor that encourages monopoly is the importance of technical

standards, which become imperative if different firms and consumers are

going to be able to use the Internet effectively. Once they are set, the firm

that holds the patent or even a head start is off to the races. It is in the public

interest that these standards not privilege a single firm, but that is not always

possible. Smart firms do what they can to make their technical system the

industry standard, hence giving them the pole position and a two-lap lead

in a three-lap race. "I suppose I shouldn't say this," Bill Gates acknowledged

back in 1996 when discussing the importance of setting industry standards

favorable to Microsoft, "but in some ways it leads, in a product category, to a

natural monopoly." 17 Microsoft has been able to exploit the dependence of

a wide range of software applications on its underlying operating system in

order to lock in its system seemingly permanently, allowing it to enjoy long­

term monopoly-pricing power. Any competitor seeking to introduce a new,

rival operating system, faces an enormous "applications barrier to entry." 18

Some of this goes on beneath the surface. Consider the H.264 codec,

owned by the MPEG LA group, with licenses held by Microsoft, Apple,

and others. It is quickly becoming the standard for online video, currently

getting 66 percent of the market. With a bottleneck on Internet traffic like

this, the owners of H.264 can create many "billable moments." Economists

often term shakedowns like this "economic rents," referring to the unde­

served income economic actors receive by virtue of their ownership of a

scarce resource, independent of the cost of production or reproduction. 19 Or

consider wireless powerhouse Qualcomm. It controls 69 percent of the code

division multiple access (CDMA) chipset market and 77 percent of the wire­

less chipsets in Android devices. Along with Broadcom, Qualcomm controls

half of the key wi-fi chipset markets. 211

A related factor that encourages monopoly is the widespread use of pat­

ents, to such an extent that Tim Berners-Lee would probably now regard the

134 DIGITAL DISCONNECT

late 1990s, which he once deplored, as a golden age of openness. The U.S.

Patent Office awarded 248,000 patents in 2011, 3 5 percent more than a de­

cade earlier.2 1 Patents are similar to copyright: by offering government pro­

tection for a temporary monopoly license, they have the necessary function

of rewarding and therefore encouraging innovation; like copyright, patents

have exploded in prominence in the digital era. 22 Bloomberg Businessweek

terms the escalation in patents-Microsoft, for example, took out over 2,500

in 2010, compared to just a few hundred in 2002-as a "high-tech arms

race." Two or three decades ago a machine might have five or ten patents, a

patent expert noted. "Today, the phone in your pocket has about 5,000." Bat­

tles over patents among the digital giants are now routine. "We can sit by and

watch competitors steal our patented inventions," Steve Jobs said in 2010,

"or we can do something about it." He launched what was termed Apple's

Jihad over patent rights in the courts. 21 When Google paid an "astonishing"

$12. 5 billion to purchase Motorola Mobility in 2011, it did so significantly

for Motorola's 17,000 patents. These were a "trove of mobile patents" that

would make Google's Android stand up to legal challenge and diminish the

threat of any new market entrants. 24 "As tech companies snap up patents,"

Politico observed, "they are battling each other in courts around the world."

One antitrust attorney called it mutually assured destruction. The certain

loser: the smaller firms that "can't buy up 20,000 patents" or pay legal fees

for endless court cases.25

In the same manner that copyright law has become a deterrent to creativ­

ity as much as a foundation for it, so it is with patents.26 "The belief that

stronger intellectual property protection inevitably leads to more innova­

tions appears broadly wrong," the Times writes, because "innovation is often

a cumulative process, with each step piggybacking on the ideas before it."

Patents halt the process, but they are fantastic for protecting entrenched mo­

nopoly power, litigation costs notwithstanding. "Who has the patents?" Stan­

ford economist Tim Bresnahan asks. "It's the guys who have been around

awhile, not the guys who have done a lot of innovation lately." Bloomberg

Businessweek notes that "startups no longer race headlong to develop proto­

types as fast as possible. Instead, they must first protect them with bulletproof

intellectual property portfolios that can take years to build." Patents, the

Times concludes, allow "dominant businesses to stop future inventions that

would disrupt their business model." T he piece posits the radical idea that

"perhaps software should not be patentable at all." 27 Berners-Lee, who will

THE INTERNET AND CAPITALISM II: EMPIRE OF THE SENSELESS? 135

meet his maker as the genius scientist who gave us the World Wide Web but

not as a billionaire, would likely agree.

All these factors explain how the profitability of the digital giants is cen­

tered on establishing proprietary systems for which they control access and

the terms of the relationship, not the idea of an Internet as open as possible.

Back in 2006, Jonathan Zittrain predicted that in the coming decade the

personal computer would be replaced by a new generation of (proprietary)

"information appliances." Tim Wu says he was "exactly right." 28 Apple was

committed to this approach from the very beginning, and "Jobs's vision of

a closed computer did not waver." 29 Wu notes that Apple's various devices

were "Hollywood-friendly," and designed to work with a single ISP. 111 Tech­

nology writer Steven Johnson praised Apple for providing one of "the most

carefully policed software platforms in history." The genius of the iPhone,

for example, is that it is a "tethered" device, for which all the control is with

Apple. As John Naughton put it, the Internet-connected mobile phone "is

functional, enjoyable and perhaps even beautiful- but it is largely under

someone else's control." 11 By 2008 Bill Gates conceded that Apple's closed

system had proven to be the best approach. 12 The investment community

agreed; by 2012 Apple was the most valuable company in the United States,

worth over $5 50 billion. But Apple is hardly the only digital firm that can be

so described. Facebook's genius is building a realm that is proprietary and a

new essential layer for engaging with other websites.

Google, ironically, has voiced loud protests over the emergence of these

"walled gardens" as the basis for the Internet. "The old internet is shrinking

and being replaced by walled gardens over which Google's crawlers can't

climb," John Battelle of the online advertising network Federated Media ex­

plained in 2012. "To many, the space outside Face book will look more and

more like an untamed space where scams, malware, and piracy thrive." 13

Google's Brin has been blistering in his criticism of Apple and Facebook

for their "proprietary platforms" that arc "stifling innovation and balkanis­

ing the web." He stated that he and co-founder Larry Page "would not have

been able to create Google if the Internet was dominated by Facebook." 14

Nevertheless, Google has launched its own proprietary service, Google+,

and Microsoft also has moved in a proprietary direction. Moreover both of

them depended upon proprietary software, which may have been among the

first apples eaten in the digital Garden of Eden. Google has been described

as "the antithesis of the open-source movement." 15 And when matters turn to

136 DIGITAL DISCONNECT

the preeminent issue of privacy, Google locks arms with Face book, abandon­

ing any claim to the moral high ground.

A key development that accompanies and enables proprietary systems is

cloud computing, wherein each of the giants stores vast amounts of material

on their battalions of servers. Users do not need to have massive computer

memories to store their own material; they can-indeed, must-access ev­

erything they have from a small device just by gaining access to the cloud.

There are still "little guys" who offer hosting services, and that is a construc­

tive activity. At the other end of the spectrum, though, the digital monopo­

lists, including Google, Facebook, Amazon, Apple, and Microsoft, have all

invested to build enormous private clouds. Cloud computing is a brilliant

way to make the Internet more efficient and less expensive to users and soci­

ety, but whether having the preponderance of cloud capacity in the hands of

a few giant firms is a wise policy is another matter altogether. The clouds can

be a treasure chest full of valuable data for the giants to exploit. 1<'

Cloud computing requires serious capital outlays-old-fashioned barriers

to entry-which lock in oligopoly or monopoly. Consider Google, which

spends many billions annually on computers so it can provide nearly instan­

taneous response to queries. i7 Any Google search query "fires up between

700 and 1,000 separate computers in several huge data centers around the

United States." 18 Like the other giants, Google has enormous "server farms"

all over the world to keep all this information in its cloud. The companies are

secretive about their location and size, but evidence suggests a server farm

is an enormous industrial undertaking that would have more than held its

own in Akron, Ohio, or Gary, Indiana, in 1963 or in China today. Naughton

describes one data center as being comprised of ten vast "rooms" with thirty

thousand computers and a sizable industrial cooling system in each of them.

In 200 8 Google had nineteen such data centers in the United States and al­

most as many elsewhere. 19 Google was thought to be purchasing 15 percent

of the servers being sold in the United States at the timc. 411

In combination, these factors demonstrate how absurd arc the claims by

giants like Microsoft and Google that "competition is a click away" and that

they are in mortal fear for their very survival if someone were to develop a

better algorithm in her garage.41 Amazon, too, is more than an algorithm

and a stack of patents. It has sixty-nine data and fulfillment centers in the

United States, seventeen of which were built since 2011, with plans for more

to come. It has a nonunion workforce; the working conditions in one of its

THE INTERNET AND CAPITALISM II: EMPIRE OF THE SENSELESS? 137

main fulfillment warehouses in Allentown, Pennsylvania, were character­

ized by an investigative report as resembling "the onerous conditions so in­

delibly satirized by Charlie Chaplin in Modern Times." 42

Today, the Internet as a social medium and information system is the

domain of a handful of colossal firms. Each of these firms is centered on hav­

ing a monopoly base camp that generates piles of cash. By some accounts,

Apple had $1 lO billion in cash on hand in 2012, while Google had $50 bil­

lion, Microsoft had $ 5 1 billion, and Amazon had $10 billion. 41 Face book

pocketed $ 16 billion in cash from its IPO in May 20 12, but even before

that, it managed to make nearly two dozen acquisitions since 2010, topped

by a $1 billion deal for lnstagram. 44 The giants, the New York Times noted,

comprise an "industry that seems to be more awash in money by the day." 41

Protecting and preserving the monopoly base camp is job one, and ev­

erything follows from it. The best way to imagine the Internet is as a planet

where Google, Facebook, Apple, Amazon, Microsoft, and the ISP cartel

members each occupy a continent that represents their monopoly base

camp. A mini-empire with a monopoly base camp like eBay is the equivalent

of Japan. The traditional media giants have less leverage, so they are located

on the equivalent of Hawaii, New Zealand, and Madagascar. (The pattern of

merging with a larger digital giant, as NBC Universal did with Comcast, is a

plausible outcome.) Those faltering digital contenders, like Netscape, AOL,

and now Yahoo!, all failed to lock in monopoly power and found themselves

in the middle of the ocean looking for an uninhabited island.46 Twitter has

been discussing some sort of formal alliance with Apple-up to a formal

acquisition -"amid intensifying competition from the likes of Google and

Facebook." 47 The goal of each empire is to conquer the world and prevent

getting conquered by someone else. It is understood that no firm is an island,

so to speak, and it cannot rest content with its monopoly base camp and let

the world sail on by. The firms sometimes compete aggressively, while they

simultaneously are each other's customers and find value in alliances with

some empires against the others.48 As one industry observer put it in 2012,

these "companies can cooperate with each other and gouge each other's eye

out and experience no dissonance." 49 This is where game theory probably

best explains their behavior. 511

With their mountains of cash and stock that is attractive in deals, and

with the benefits of their existing monopoly base camp, the empires all try

to move into adjacent areas and launch new monopoly services, in the hope

138 DIGITAL DISCONNECT

that they will eventually pan out. Apple has been tremendous at this, creat­

ing new monopolistic industries out of whole cloth. Google has moved out

from search to countless other areas over the past eight years; Gmail and

YouTube are just the tip of the iceberg. 5 1 "When Facebook's photo service

was introduced," Steven Johnson writes in Wired, "it almost instantly be­

came the largest digital photo repository in the world, despite a feature set

that was obviously inferior to those of competitors like F lickr and Photo­

bucket." 52 Amazon hopes to use its e-commerce expertise from selling books

to dominate nearly all e-commerce markets. Overall retail sales are pretty

flat, so Amazon's growth, and that of other online retailers, will come at

the expense of the "physical shops," as The Economist calls them. 5 1 As U.S.

e-commerce is expected to climb from $ 176 billion in 20 1 0 to $ 279 billion

in 20 1 5 , Amazon's future looks bright. And the other empires are salivating

to get a piece of the action. 54

Amazon and its CEO, Jeff Bezos, understand the prerogatives of monop­

oly power as well as Jay Gould or John D. Rockefeller ever did; it uses its

monopoly pricing power and market muscle to drive prospective competi­

tors out of existence or into submission. 55 Then, like Rockefeller, it can set

prices at the level that generates maximum profit. 51' "Amazon is a bully. Jeff

Bezos is a bully," the CEO of one of the largest American book publishing

houses said in a 20 1 2 interview. "Anybody who gets that powerful can push

people around, and Amazon pushes people around." 17 This is nothing new;

Joseph Stiglitz describes how Microsoft used its "monopoly power" to crush

Netscape in the l 990s. 58 Bill Keller writes about how Facebook disabled

the game Critter Island in its system in 20 10, and Critter Island went from

14 million users to zero in 48 hours. 59 What's the point of being a monopolist

if you don't let everyone know who's boss?

The empires each spend many billions to purchase digital upstarts and

midsize firms. Many familiar brand names on the Internet - from PayPal

and YouTube to Skype and Hotmail-are owned by a giant. In 20 1 1 alone,

Google, for example, spent $ 14 billion to make eighty acquisitions_r,o Some­

times the firms are willing to overpay to lock in the potential of a new in­

dustry or to prevent another empire from getting the jump on them. As The

Economist acknowledges, one of the benefits of being a cash-flush giant is

that you are "rich enough to buy up potential rivals." <il The fortunes being

generated online go not only to the owners of the empires, but also to the

owners of the upstarts that are sold to the empires. Mark Cuban, anyone? In

THE I NTERNET AND CAPITALISM II: EMPIRE OF THE SENSELESS? 1 39

fact, that is what many savvy entrepreneurs are aiming for, to get bought out

by a giant.62 For another independent giant empire-e.g., another Google

or Facebook-to emerge would require the creation of a new digital in­

dustry that can avoid the thicket of patents and that can quickly be mo­

nopolized. Its owners must also avoid the great temptation to sell out at

what would seem like an incredible price. The existing giants have it in

their interests to minimize the possibility of another digital colossus emerg­

ing; though in a technologically fluid moment, the empires are not all­

powerful.

Remember the classic Havana patio scene from The Godfather II, which

I mentioned in chapter 3. The empires all agree it is their world and no one

else's, and then they fight each other to control it. To the extent that there

is competition in existing markets, it is because the giants decide to make a

foray into enemy base-camp territory. No one else has a prayer. Fifteen per­

cent of an existing market as number two can still be quite lucrative. So in

one week in June 20 1 2, Apple announced a series of new features to directly

attack Google's monopoly markets, Google did the same to Microsoft, and

Microsoft was reported to be about to launch a tablet computer to go after

Apple.<,l When promising new areas emerge and it is unclear which empire

will have the upper hand, the battle can be intense until the issue gets set­

tled, which usually takes no more than a few years. So it is that most or all of

the major empires are making (or preparing to make) plays in smartphones,

search engines, tablet computers, Internet television, social media, e-books,

games, e-commerce, and anything else that one of the other giants is cur­

rently prospering at doing and that has a growth horizon. Smartphones have

opened up a new frontier of "over the top" services-including what are

more commonly called apps-and the cartel and Internet giants are battling

for dominance in new realms as these services emerge, as well as gobbling

up new firms that show promise.64

Perhaps the most aggressive move by a giant in 20 1 2 was Google launch­

ing its Google Fiber network in Kansas City. The Google system offered

much higher speeds-as much as a hundred times faster than what is avail­

able in American "broadband" and similar to speeds increasingly found in

other advanced nations. It was also an attack on the cable TV and satellite

industry because it offered full-channel television access. It is unclear where

this will go and how serious Google is about giving the cartel a run for its

money. One activist in Washington said, "From what we've heard there are

140 DIGITAL DISCONNECT

no plans for Google to build out in other cities or more broadly across the

nation." Why? The "costs are tremendously high" -good old-fashioned bar­

riers to entry-not to mention squaring off with the reigning heavyweight

champion of lobbying forces.r,s

What is clear is that only an Internet giant like Google is in any position

even to consider this sort of attack. At worst, it might provide all sorts of good

publicity and increase Google's negotiating leverage with politicians and the

cartel by acting as a shot across the bow at the cartel and even pushing it to

get off its duff and join the twenty-first century, at least in wealthy communi­

ties. At best-and it is a long shot-Google might grab a nice profitable mar­

ket share of the wireline ISP/pay television market. That would give Google

more control over its own fate than any of the other giants.1'1' In short, a smart,

low-risk investment for a company with money to burn and the potential for

a massive payoff.

Why the obsession with global domination or, as Peter Burrows put it, "to

be everything to everyone"? 67 In the proprietary world, each empire wants to

be as self-contained as possible and draw consumers into its world, where it

will offer them an array of services and products and gather extensive data in

its cloud to be mined for prospective advertisers. "The biggest tech compa­

nies are no longer content simply to enhance part of your clay," the New York

Times reported. "They want to erase the boundaries, do what the other big

tech companies are doing and own every waking moment. The new strategy

is to build a device, sell it to consumers and then sell them content to play

on it. And maybe some ads too." 68

The boundary between hardware and software has been obliterated by

the likes of Apple, and Amazon and the others are racing to follow. "You

need to control the hardware to control the overall experience," as one ana­

lyst puts it.69 "It is about the ecosystem," another analyst stated. "The idea

is to get consumers tied into that ecosystem as tightly as possible so they

and their content are locked into one system." 70 The name of the game in

these walled gardens is to exploit what economists now sometimes call an

"enhanced surplus extraction effect" -that is, the increased ability to fleece

those walled within. 7 1 Once an empire has you inside its confines, it is much

easier for them to push the whole line of products on you. In effect, the gi­

ants are vying to be digital company stores in a national or global company

town. Will it work? No one knows. "Who knows how the model is going to

play out," one analyst observes. "Google doesn't know yet. But if you aren't

TII F I N T E R N ET A N D C A P IT A L I S M I I : E M P I R E OF T H E S E N S E L E S S ? 14 1

building it today then you aren't winning in five years." 72 The present logic

points toward possibly even fewer megagiants once everything shakes out.

In Praise of Monopoly?

According to conventional economic theory, concentration in markets is bad

for the efficient allocation of resources in an economy. Monopoly is the

enemy of competition, and competition is what keeps the system honest. It

is monopoly power, for example, that makes it possible for Facebook to dis­

regard its users' concerns about privacy; in a competitive market consumers

would be able to switch to a more privacy-friendly social medium. 71 Without

effective competition, capitalism loses much or all of its justification to exist,

its claims to be a rational and fair system compatible with political democ­

racy. Some economists acknowledge that such monopolies have emerged

but claim they will be only temporary due to the technological dynamism

of the digital world. The assumption is that new technology will beat down

the walls erected around any monopolistic market in a Schumpeterian wave

of creative destruction.�+ But there is little evidence to support this claim.

Given these giant firms' enormous size and financial and political power,

there may be some rcshufAing of the deck, but, barring political interven­

tion, some version of these giant monopolies is likely here for the duration.

For Wired's Chris Anderson, the new world order of monopoly iiber alles

is simply the way of the world: "A technology is invented, it spreads, a thou­

sand flowers bloom, and then some one finds a way to own it, locking others

out. It happens every time . . . . Indeed, there has hardly ever been a fortune

created without a monopoly of some sort, or at least an oligopoly. This is

the natural path of [ capitalist] industrialization: invention, propagation,

adoption, control. . . . Openness is a wonderful thing in the nonmonetary

economy . . . . But eventually om tolerance for the delirious chaos of infinite

competition finds its limits." 7 1 As PayPal founder and billionaire Peter Thiel

now tells students attending his lectures at Stanford, the moral of the story is

that it is time to grow up and accept the new monopoly system. Competition

is overrated, even destructive, and capitalism works better with a handful of

monopolists "doing something so creative that you establish a distinct mar­

ket, niche and identity. You've established a creative monopoly and every­

body has to come to you if they want that service." In this view, it is these

142 DIGITAL DIS C O N N ECT

entrepreneurs behind the handful of monopolies who arc the progressive

force in society. 76

In fact, as this chapter has demonstrated, none of this was natural, nor

does it reflect "our" preferences; "we" have had little say in the matter. The

ISP cartel and the digita l empires can appear far less benevolent if one is

not looking through the rose-tinted glasses of Thiel's asset portfolio. None of

these monopolies would have been possible without supportive and enabling

government policies on a range of issues, as well as considerable previous

investments by the government, a point l ost in Thiel's self-congratulatory

paean. If actions speak l ouder than words, the giants know full well that their

existence depends upon favorable regulation and taxation policies. Their ex­

istence is predicated upon a government that not only accepts but expedites

and facilitates their economic power. Facebook, as Lori Andrews observes,

could not exist unless there were laws preventing it from being "sued for

invasion of privacy, defamation, or criminal acts based on people's postings."

As she observes, "all the rights nm in one direction. Facebook holds the

cards, and its citizens have l ittle recourse-other than to leave the service

entirely." But don't hold your breath waiting for Thiel or the giants to ac­

knowledge the great debt they owe the government and to society. As two

scholars observed wryly, "People care more about what unjustly harms them

than about what unjustly benefits them." n

Nearly everything about the way the digital giants conduct their opera­

tions smacks of antitrust violations, or at least violations of the spirit in which

the relevant statutes were passed a century ago. ' l o put it politely, antitrust

law enforcement has been malleable. Enforcement has declined over the

past three decades, and-notwithstanding the integrity and commitment

of many public servants-is seemingly more often deployed when business

competitors complain about the dominant firm in a market than as the result

of popular concerns or empirical reality. Such was the case with Microsoft in

the l 990s.79 By 201 2 the monopolistic propensities of the giants again were

drawing attention from the Federal Trade Commission ( FTC), the Justice

Department, and Congress. Several of the giants, like Apple, Amazon, and

Facebook, were embroiled in a variety of cases and negotiations. Google, in

particular, was being pressed by the FTC over whether "Google has abused

its dominance by manipulating its search results, making it less l ikely that

competing companies or products will appear at the top of a results page." '1 1

In much economic theory, such monopolies should either be publicly

T H E I NT E R N E T A N D C A P IT A L I S M J I : E M P IR E OF THE S E NSELESS? ] 4 3

owned or, at the very least, heavily regulated to prevent abuses, especially

as they often tend to monopolize crucial public functions. 8 1 If they can be

effectively reformed into competitive industries, that route should be con­

sidered too, though - for the reasons mentioned above, and as Wired's Chris

Anderson and monopoly enthusiast Peter Thiel would agree-the monopo­

listic pressures in this sector makes that mostly unrealistic. The free-market

option docs not compute. Andre Schiffrin, founder of The New Press, sug­

gests that the option of public ownership is a debate we should be having

about Google. 82 The World Wide Web has thrived in the public domain;

why not Internet search?

Yet corporate political power has basically eliminated the threat of public

ownership, as well as credible regulation in the public interest. "All too often

policymakers thinking to regulate Google have preferred to treat it as an

equal of Human Rights Watch rather than of Halliburton," Evgeny Morozov

writes, adding that "if we are serious about making the Internet deliver on its

democratic potential, we will need to reconsider this attitude." 81 The regula­

tion that remains, antitrust or otherwise, is clone as much to guarantee the

existence of profitable firms and industries as it is to protect public interest

values threatened by commercial monopolies. The range of legitimate po­

litical debate cannot question the propriety of these giant firms; it can only

nibble around the edges.

None of the government's current activities toward the new giants is re­

motely close to life-threatening. Even at their most rigorous, contemporary

U.S. or European antitrust regulators have no apparent problem with mar­

kets as long as there arc two or three players with double-digit market shares.

The regulators seem to be waving a white flag before the market reality of

contemporary capitalism, except for the most egregious monopolies.84 The

single greatest antitrust threat to Google and the other giants comes from

the European Union, which does not necessarily regard the American-based

giants as the home team. By 2012 the r'.U was in intense negotiations with

Google over its monopolistic practices; Google has 85 percent of the Eu­

ropean search market, some 15 percent more than its U.S. position.85 The

F TC was in regular communication and collaboration with the EU officials.

A concern from Google's perspective was that a formal European antitrust

case against Google might embolden American regulators and give them

powerful amnmnition. 8r'

All of this points in one direction: the Internet giants need to follow the

144 D I G ITAL D I SCONNECT

path of the cartel and the copyright lobby and acid nuclear weaponry to their

lobbying army. With "big policy issues looming," one tech insider said, the

giants "need to engage today to protect their long-term interests in Washing­

ton." 87 They are doing just that.88 Google spent $5 million on Washington

lobbying during the first three months of 20 12, an amount nearly equal to

its entire 20 1 1 spending on lobbying, which itself had doubled Google's

20 10 spencling.89 Facebook, too, fattened its D.C. l obbying team, part of its

work being to help members of Congress integrate Facebook into their elec­

tion campaigns as well as constituent relations.'JII The spending of individual

firms is just a small part of the lobbying effort; there arc several trade associa­

tions representing the Internet giants, each with budgets in the tens of mil­

lions of clollars.9 1 The digital empires have a long way to go to catch up with

the ISPs or the media giants on the lobbying front, but they are starting to

close the gap. Given their extraordinary size and wealth and the corruption

of the political system, they should have commensurate political power in

Washington in short order.

Some sense of the rapidly growing power of the digital giants comes when

one looks at international politics, where the giants play a foundational role.

Facebook's Mark Zuckerberg was invited to the 20 1 1 G8 meetings, where

he sat at the table and discussed world politics.92 MacKinnon characterizes

" Facebookistan" and "Googledom" as virtual nation-states obsessed with lim­

iting the ability of governments anywhere to interfere with their profitabil­

ity and growth, which is their driving concern. The U. S. government-the

same one that is theoretically working to regulate the giants domestically ­

generally acts as their powerful advocate globally. "Right now our social con­

tract with the digital sovereigns is at a primitive, Hobbesian, royalist level,"

Mackinnon writes. "If we are lucky we get a good sovereign, and we pray

that his son or chosen successor is not evil. There is a reason most people no

longer accept that sort of sovereignty." 9 1

One test for how effective the U.S. government can be in regulating the

digital giants will be the matter of taxation.94 Because of the fluid nature of

the digital economy, Internet firms have been able to take advantage of the

federal income tax code, devised for brick-and-mortar businesses, to move

a disproportionate amount of their profits earned in the United States to

accounts in foreign low-tax nations and dramatically reduce what they pay

in taxes overall, in particular to the U. S. government. Nicholas Shaxson de­

scribes aspects of the process in his 20 1 1 book, Treasure Islands:

T H E INTERNET AND CAPITALISM II: EMPIRE OF THE SENSELESS? 1 4 5

I n October 20 1 0 a Bloomberg reporter explained how Google Inc. cut

its taxes by $ 3.1 billion in the previous three years through transfer pric­

ing games known by names such as the "Double Irish" and the "Dutch

Sandwich," ending up with an overseas tax rate of 2.4 percent. The

problem is getting worse. Microsoft's tax bill has been falling sharply,

for similar reasons. Cisco is at it. They are all at it. Transfer pricing

alone costs the United States an estimated $60 billion a year - and that

is just one form of the offshore tax game.91

Apple, for example, has pioneered sophisticated accounting techniques

that - although probably technically legal-are extraordinarily damaging to

U.S. tax revenues. It paid less than 1 0 percent in taxes on its $ 34. 2 billion in

20 1 J profits; Wal mart, for the sake of comparison, paid taxes at a 24 percent

rate on $ 24.4 billion in 20 1 1 profits, the average rate for nontech companies.

High-tech firms effectively pay a third less in taxes on the same amount of

profits as the balance of the U.S. corporate community.w,

It will be a test of the political system to see if it can get the high-tech sec­

tor to pay what other firms do, and help address the nation's deficit problems

that are the purportedly the overriding concern of so many politicians. A

problem for Apple and its fellow Internet giants is that the profits they al­

locate to foreign locales cannot be repatriated to the United States without

paying U.S. taxes. 'lo get around this, the digital giants are launching a lob­

bying campaign to establish a "repatriation holiday." The last such corporate

tax repatriation was in 2004. This would allow for a brief amnesty period

during which American businesses could return these foreign profits to the

United States without owing any taxes on them. 97 Then the whole process

would begin again.

As the authors of a 20 1 1 report by the New America Foundation put it, on

its present course, "the Internet will devolve into a feudalized space-one

that limits democratic freedoms while enriching an oligopoly of powerful

gatekeepers." 9K It is a world that would have been considered impossible not

too long ago, but it is the destination where one inevitably arrives when re­

ally existing capitalism is behind the wheel.

146 DIGITAL DISCONNECT

Our Master's Voice - Loud and Clear?

In 1 9 34 journalist and ex-adman James Rorty's seminal work, Our Master's

Voice: Advertising, was published. This was a historical moment when ad­

vertising was relatively unpopular and more than a little controversial. Re­

formers were marshaling widespread antipathy to broadcast advertising in

their campaign to establish a large nonprofit and noncommercial sector in

American radio. Radio inventor Lee DeForest so detested broadcast advertis­

ing and its "moronic fare" that in the early 1 9 3 0s he attempted to invent a

device that would automatically mute radio advertisements and then return

the volume to audible levels when the programming resumecl. 99 The con­

sumer movement, as Inger L. Stole has chronicled, organized campaigns

for federal laws that would provide rigorous regulation of advertising so that

it would provide accurate and useful information to consumers, not pro­

paganda to confuse them. 1 1111 Rorty's jeremiad against his former profession

ultimately came down to one crucial point: advertising was the voice of cor­

porations and the wealthy who owned them; its ultimate effect was to spawn

a culture that cemented their power. In particular, its role as paying the piper

gave the masters control over the very media system a free people required to

address corporate power. 111 1

This radical critique of advertising and the attendant political movements

receded from public view in the postwar decades, but advertising remained

largely suspect, fodder for comedy clue to its insincerity, absurdity, and asi­

ninity, as piles of Mad magazines or parodies on Saturday Night Live attest.

Meanwhile, considerable scholarship examined the dubious contribution

of advertising to the content of American entertainment and journalism.

When the Internet emerged, the notion that it would be a distinctly non­

commercial space was uncontroversial and widely embraced. I was there

and I can tell you that in the early 1 990s no one was bellyaching about a

lack of advertising on the Internet, or a shortage of advertising anywhere else

for that matter.

But the notion of a commercial-free Internet was quickly challenged in

the 1 990s on two fronts. First, major advertising corporations, Rorty's "mas­

ters," were alarmed by the idea that they could not effectively market their

products to prospective consumers online. Procter & Camble CEO Edwin

Artzt had the "chilling thought," as Joseph Turow chronicles in his superb

THE I NTERNET AND CAPITALISM I I : E MPIRE OF THE SENSELESS? 147

book The Daily You, "that emerging technologies were giving people the

opportunity to escape from advertising's grasp altogether." By the mid- l 990s,

Artzt had made this a central concern, and he implored major advertisers to

respond to the threat of the Internet in the same way advertising had con­

quered previous media: "Let's grab all this new technology in our teeth once

again and turn it into a bonanza for advertising." 1 112

One way to make the Internet more ad-friendly would be to support the

creation of technical standards for cookies, small files secretly downloaded

to users' computers that would make it possible to track Internet users sur­

reptitiously and create profiles of their activities so as to segment them for

marketing. Websites could then "quietly determine the number of separate

individuals entering various parts of their domains and clicking on their

ads. 1 11i The counterculture types at the Internet Society's Internet Engineer­

ing "J ask Force had an adverse reaction, offering a proposal that cookies

"should be shut off unless someone decides they're willing to accept them."

This standards battle became the first policy fight over advertising. As one ad

industry executive said, "What concerns us is the tone of the proposal, which

is that advertising is not good for us, so we want to avoid it." Netscape and

Microsoft bowed to the commercial pressures in designing their Web brows­

ers. 1 114 Though scholars, activists, and Internet purists expressed alarm about

invasions of privacy, in one fell swoop, the nature and logic of the Internet

had been turned on its head-th ough it would not be fully apparent for at

least a decade. 1 111

But this still did not solve the problem. Most of the corporate advertising

done online in the late 1 990s was ineffectual. One expert termed the click­

through rates on Internet ads as "miserable," less than one half of one per­

cent. 1 11<· Maybe the idealists were right and the Internet simply was not going

to be a sales medium because users could not be held hostage.

The second factor behind the drive to make advertising effective online

was the need to have a source of revenue for online content and services.

The idea of converting the computers into vending machines and having a

pay-per-view system was unrealistic for the foreseeable future. On the one

hand, th e Internet founders would never approve such a radical change in

the system, nor would the public, as it had already tasted the openness of

the Web. On the other hand, if websites tried to sell access to their content,

usage tracking quickly established that most Internet users would ignore

those sites and move on to the infinite world of free content. A handful of

148 D I GITAL D I S C ONN E C T

prominent brands like the Wall Street Journal or FSPN might make a go of

it, but for everyone else, fuhgetaboutit. As all the other alternatives stepped

backward, advertising was left as the only answer to the question of how

the commercial Internet could be funded. The emergence of widespread

broadband early in the 2000s helped the cause a lot; now advertising could

use compelling audiovisual messages as on television. ' I ciols for surreptitious

monitoring, like cookies, were augmented and dramatically improved. But

the problem remained: how to get people to pay attention to and respond

to the commercials; all hands were summoned to the task. "The best minds

of my generation," an early Facebook employee told The Atlantic's Alexis

Madrigal, "are thinking about how to make people click ads." 1 11�

The great development in recent years has been the emergence of ad­

vertising that targets people based upon detailed information gleaned sur­

reptitiously from their Internet activities. "What was once an anonymous

medium where anyone could be anyone," Eli Pariser wrote in 2011, "is now

a tool for soliciting and analyzing our personal data." 1 11" U. S. Internet ad­

vertising totaled $40 billion in 2012-topping the total amount going to all

print media for the first time-and was expected to increase to as much as

$60 billion in 2014 and then $ 80 billion annually by 2016. 1w; Borrell Associ­

ates estimates that ads placed on mobile apps will increase from $1. 2 5 bil­

lion in 2011 to $ 21. 2 billion in 2016. 1 1 11 (The United States accounts for just

under one half of global Internet advertising. 1 1 1 ) Internet advertising is on an

explosive trajectory to gobble up an ever increasing portion of all advertis­

ing expenditures for the foreseeable future, and television advertising, to the

extent it remains distinct, is becoming much more like Internet advertising.

Nothing exemplifies this emergence of advertising on the Internet more

than the meteoric rise of Google. Google search advertising accounts for

one half of all U. S. Internet advertising revenues - the other type of online

advertising is called display advertising-and Google generated $ �6 bil­

lion in global ad revenue in 2011. 1 1 2 It has taken the logic of commercial

broadcasting - "If you're not paying for something, you're not the customer;

you're the product being sold" - and elevated it to unimagined heights. 1 1 1

Or, as Bruce Schneier puts it, "Google has great customer service. Problem

is, you're not the customer." 1 14 With scores of distinct Internet services col­

lecting data on people online, Google can target advertising as no other firm

has ever been able to do.

Except for Facebook. Beyond the hubbub surrounding its dramatic 2012

TH E I NTERNET AND CAP I T A i . iSM I I : EMPIRE OF THE SF.NSF. L E SS? 149

IPO, with its equally dramatic ascension and decline, something extraor­

dinary is occurring with social media. Facebook is "more than the world's

largest social network, it is a fas t - churning data machine that captures and

processes every click and interaction on its platform." 1 1 5 By 2011 Facebook

became th e first website with a trillion page views in a month. More than

half of its more than one billion users check it every day; in America half of

eighteen- to thirty-four-year-olds check it within minutes of waking up, and

28 percent do so before getting out of bed. Americans spend, on average,

20 percent of their online time exclusively on Facebook. In a single day,

3 00 million photographs are uploaded; on the weekend, the figure jumps

to 75 0 million. 1 1 r, " Facebook will have more traffic than anyone else, and

they'll have more data than anyone else," one investment analyst observed

in 2012. " So, unless they are impervious to learning how to monetize that

data, they should be th e most valuable property on the Internet, eventu­

ally." 1 1 � Corporate America is excited to burrow its way into this mother Ioele

of data. "We're going to get a ton of new ideas," Frito-Lay's North American

chief marketing officer stated. 1 1 8 "E1cebook is unilaterally redefining the so­

cial contract," Lori Andrews writes, "making the private now public and the

public now private." 1 1 9

The digital advertising industry goes far beyond Google and Facebook.

Turow documents how Madison Avenue ad agencies have been reconfig­

mcd so that media buying, once the somewhat perfunctory function of lo­

cating media to place ads, has become arguably the most important part of

the operation. Moreover, Google, Microsoft, Yahoo!, and AOL have each

established advertising networks to place advertising on websites. This Big

Four accounted for 28 percent of online display ad revenue in 2008. 1211

Gath ering as much information as possible on Internet users and know­

ing where to reach them online is the key to securing ad dollars. Turow

calls it "one of history's most massive efforts in stealth marketing." 1 2 1 Our

era h as come to be "epitomized by Big Data," a report in The Guardian

statcs. 122 " Personal data is the oil of the information age," writes a New York

Times reporter. 1 2 1 " Every day most if not all Americans who use the Internet,"

Turow notes, "arc being quietly pecked at, poked, analyzed, and tagged as

they move through the on line world." 124 The onlinc advertising industry,

says Jeff Chester, has turned the Internet into "a digital data vacuum cleaner

on steroids."

And it's not just Google or Faccbook or the ISP cartel tracking people. 1 2 5

1 5 0 D I G l 'J'AL D I SCO N N ECT

"Your smooth new iPhone knows exactly where you go, whom you call, what

you read," Pariser writes. "With its buil t- in microphone, gyroscope, and C P S ,

i t can tell whether you're walking o r i n a car o r at a party." 1 2<• Two investiga­

tive reporters for ProPublica concluded their examination of smartphones by

writing, "Let's stop calling them phones. They are trackers." 1 ' � A 2010 Wall

Street Joumal investigation of 101 smartphone apps for Apple iPhone and

Android found that 5 6 of these apps "transmitted the phone's unique device

ID to other companies without users' awareness; 4 7 transmitted the phone's

location in some way," and 5 sent "age, gender and other personal details

to outsiders." 128 On the Internet, the Wall Street Joumal conclucled, busi­

nesses know immense amounts about individuals, who remain "anonymous

in name only." 1 2'!

In fact, it is more accurate to say that the Internet is swarming with mostly

anonymous and unaccountable companies tracking anything that moves.

The Wall Street Joumal examination determined that the top fifty websites in

the United States installed, on average, sixty-four pieces of tracking technol­

ogy on the computers of visitors. 1 111 In 2012 The Atlantic's Madrigal investi­

gated who exactly was monitoring his onl ine activities over a th irty-six-hour

period. He discovered there were 10 5 companies that were tracking him and

collecting data. Many of the companies were coll ecting the data to sell to

other companies. "Right now," he concluded, "a huge chunk of what you've

ever looked at on the Internet is sitting in databases all across the world."

What individual anonymity that remains is little consol ation to Madrigal.

"The results of this process are ineluctable. Left to their own devices, ad

tracking firms will eventually be able to connect your various data selves.

And then they will break clown the name wall, if they are allowed to." 1 ' 1 A

month after Microsoft purchased Skype in 2011, Microsoft patentee! a "legal

intercept" technology that could "silently copy" every communication done

on VOiP services l ike Skype. Microsoft refuses to say whether the technol­

ogy is i ntegrated into Skype's architecture. 1 12

Viktor Mayer-Schonberger regards this as nothing less than a "redistri­

bution of information power from the powerl ess to the powerful ." 1 " 'I he

greatest fear of Schneier's - arguably the leading global expert on computer

security- is not cyberterrorism, cybercrime, identity theft, W ikiLeaks, or i l­

legal downloads of music and Hollywood films. According to the New York

Times, it is "ubiquitous smveillance" conducted by "private companies and

government agencies advancing their own interests, whether for surveill ance

T H I< I N T E R N E T AN D C A P IT A L I S M 1 1 : E M P I R E OF T H E S E N S E L E S S ? 1 5 ]

or commerce ." 1 14 "You need to know one simple truth," investigative jour­

nalist David Rosen wrote after a detailed examination of the subject: "You

have no privacy with regard to your electronic communications. Nothing

you do onlinc, via a wirelinc tel ephone or over a wireless device is outside

the reach of government security agencies and private corporations." i i 5

"Given enough data, intelligence and power," one technology journalist

said, "corporations and govern ments can connect dots in ways that only pre­

viomly existed in science fiction." rn, N eed it be added that this was invari­

ably dystopian science fiction?

This may be the great Achilles' heel of the Internet under capitalism:

the money comes from surreptitiously violating any known understanding

of privacy. ' [ 'he business model for Google and Facebook, and to a certain

extent for all I nternet firms, as Jaron Lanier put it, requires "a magic formula

to appear in which some method of violating privacy and dignity becomes

acceptable." 1 1 7 As the New York Times's Keller puts it, the challenge these

firms face is "how to sell us on without creeping us out." 1 i 8 This is not an

issue the I nternet giants arc keen to open up for public discussion or de­

bate, and for good reason. When Senator Claire McCaskill (D-MO) held a

privacy hearing in 2010, she was astounded to learn how the Internet actu­

ally functioned. "I understand that advertising supports the Internet, but I

am a little spooked out," she said. "This is creepy." An industry consultant

acknowledged that as marketers pushed ever further into the data, there was

an "ick factor." 1 1'1

Polling data confirms widespread antipathy to online attacks on privacy.

A 2008 survey by Consumer Reports found that "93 percent thought Inter­

net companies should al ways ask for permission before using personal in­

formation, and 72 percent wanted the right to opt out of online tracking." A

2009 study by Princeton Survey Research Associates found that 69 percent

thought the United States should adopt a law "giving people the right to learn

everything a website knows about them." 1411 A 2012 survey of U.S. smart­

phone users found 94 percent consider online privacy an important issue

and 5 5 percent say it is something they think of often. Sixty-two percent of

respondents were aware they were being tracked by advertisers - though not

necessarily aware of the extent of the tracking-but only 1 percent "liked"

being surreptitiously pursued. 1 4 1 Turow has conducted a series of surveys

over the past seven years and generated similar results. He found that "unlike

what many have suggested, attitudes toward privacy expressed by American

1 5 2 DIGITA i . DI S C O N N E C T

young adults (age eighteen t o twenty-four) arc not nearly s o different from

older adults." In short, young people immersed in smartphoncs and social

media want their privacy too. If the will of people were honored, Internet ad­

vertising as it has evolved might be effectively enclecl. 1 42 The Internet giants

"sell this extremely creepy intrusion as a great boon to your l ifc because thev

can tailor services to your needs," a legal expert in privacy and computer

crime told the New York Times in 2012. "But do most peopl e want to give

that much away? No." 141

The system appears safe from political challenge, however, and the poll­

ing data offers a good part of the answer there too. 1 44 Surveys reveal spec­

tacular ignorance by most Americans about what is actually occurring to

them and their data online. Turow calls the ignorance level "distressing"

and notes that it is worse among younger people and that it has not improved

with increased exposure to the lntemet. 1 4 1 Only a small num bcr of people

are aware, for example, that over half of the roughly 84 data categories Face­

book collects about its users are not available for them to see. 1 41' One source

estimates that only 29 percent of the information Face book possesses on any

given user is available through the site's tools. Nor is there any right under

U.S. law to ask a company to hand over the information it holds on you. 1 r

When a person follows the online protocol t o opt out and thinks she has

stopped data tracking, she has stopped getting targeted ads from only the

one specific company. Data tracking continues unabated and there is no way

to stop being tracked online. 1 4' In part, these misconceptions are clue to the

lack of media coverage or political interest in the matter. In part they arc due

to the official "privacy statements" of firms like Google and Face book, which

are worthless. A 2008 study by Carnegie-Mellon researchers concluclccl that

these privacy statements are "hard to read, read infrequently, and do not

support rational decision making." 1 4') "Legal and technology researchers,"

the New York Times reported in 20 12, "estimate that it would t ake about a

month for Internet users to read the privacy policies of all th e Web sites they

visit in a year." 1 111

By 2 0 10-12 , online privacy had become a political issue throughout

Europe, and the FTC had gotten into the gamc. 1 ' 1 It has probably clone

the best it can in unsupportive political terrain, issuing critical reports on

online privacy in December 2010 and March 2 0 12, 1 12 and reaching a set­

tlement with Face book in November 201 1, after accusing the company of

making claims about how it used its data that were "unfair and deceptive,

THE I N T E RN E T A N D C A P I TALI SM I I : E M P I R E OF THE S E N S EL E S S ? 1 5 3

and violated federal law." 1 1 1 In August 2012 the FTC fined Google $22 mil­

lion in a privacy case, but there was no i ndication this would lead to any

substantive change in Googl e's operations. 1 1{ As a writer for Slate put it,

the fine amounted to "approximately O percent of revenues." As part of the

settl ement, Google did not have to admit to any wrongdoing. 1 51 There is

little evidence at this writing that the FTC or Congress will get much more

aggressive, in large part because of the political power of the Internet giants,

which desperately need to expand their data collection to make profits. Even

under the glare of attention i n Europe in 20 1 2, and knowing it would gener­

ate criticism, Google instituted a new privacy policy by which it consolidates

all the data from sixty different Google activities into a single database. 156

Twitter acknowledged in 20 1 2 that its future was dependent upon addressing

the concerns of advertisers and that this was not an optional course. 1 '7

The Internet giants apparently reckon that their political muscle, com­

bined with the importance of the Internet to the economy, makes their data­

tracking systems untouchable. One investors' report states that "government

regulations and consumer pushback" over privacy are a, perhaps the, core

threat to Internet advertising. 1 58 As The Economist put it, at this point any­

thing that handcuffed Internet advertising "would severely disrupt the in­

ternet economy." 1 59 In February 2012, the Obama administration said that

pri vacy standards were important, but they had to allow "electronic com­

merce to grow." 1 61 1

In Washi ngton, industry self-regulation is the preferred foundation for

any solution to the privacy issue, and the FTC acknowledges the centrality

of "strong and e nforceable self-regulatory i n itiatives." 1 6 1 Smarter figures i n

the Internet community know this is a problem that needs t o b e addressed

to assuage growing public concerns. "Privacy is a source of tremendous ten­

sion and anxiety in big data," a Microsoft executive acknowledged. "Tech­

nologists need to re-engage with regulators." 1 62 Microsoft went so far as to

make the FTC's favored "Do Not Track" the default option in its Internet

Explorer IO in 2 0 ] 2 _ 1 r,i This works like the Do N o t Call registry. This will

not stop tracking, but it might limit some targeted advertising, although the

system seems to be largely voluntary and difficult to enforce. It is a public

relations victory, though, almost certainly sufficient for politicians to go back

to sleep on the matter. The Atlantic's Madrigal, after going through a maze

of these c orporate self-regulatory privacy schemes, came to regard them as

self-serving time wasters. 1 1,; If Congress does eventually adopt formal online

154 DIGIT A L DISCONNECT

privacy protections, it will do so only in a manner that will get a sign-off from

Google, Microsoft, Apple, and the other giants, according to the New York

Times. 165

We should also expect world-class public relations campaigns extolling

all the rights consumers have online, how strong the privacy standards are,

and how wonderful the I nternet is, thanks to advertising. It is not going to be

an easy campaign. As The Economist puts it: "Everyone hates digital ads." J r,r,

A report on digital commerce by Forrester Research led to this conclusion:

"Consumers aren't saying, 'Oh, I really want to be able to connect with com­

panies and brands.' " 167 Some liberals and progressives will trumpet corpo­

rate self-regulation as well, for a variety of reasons. 168 Jeff Jarvis, for example,

argues that we should not "become too obsessed with privacy." A key reason

is that Jarvis admits he is an "apologist of advertising" -even though "most

advertising sucks" -because "advertising is the most visible means of sup­

port for journalism and media" online. 1 69 But this attitude raises a question :

is advertising generating sufficiently useful online content to justify the price

people are paying?

The commercial media system online is nascent in some respects and

will not crystallize for many years, so there are unforeseeable twists and turns

ahead. But the preliminary indications are that the relationship of advertis­

ing to content production is going to be rather different online than it was for

twentieth-century media, and that Jarvis's defense is unlikely to apply. Recall

from chapter 3 that during most of the twentieth century, the relationship

of advertising to media was ambiguous. On the one hand, it did provide

the funds that subsidized much of the media on recognized terms. "The

social contract between advertisers and publishers used to be that publica­

tions gathered particular types of people i nto something called an audience,"

Madrigal writes, "then advertisers purchased ads in that pub] ication to reach

that audience." 1 711 The same was true for broadcasters. Advertisers were, in

effect, forced to bankroll media content if they wanted to reach their target

audience. Because the media firms had leverage in the oligopolistic market­

place, they "often saw value in maintaining credibility with audiences, advo­

cacy groups, and government regulators by adopting policies and principles

that sometimes conflicted with the advertisers' direct interest in getting the

most for their money." 1 7 1

However, one should not exaggerate how much integrity and commit­

ment to public service these media firms had in their relationships with

T H F I N TER N E T AND CAPIT A LI S M II: EMPIRE OF THE SENSE LESS? 1 5 5

advertisers. It is probably more accurate to say that they had enough leverage

to pursue sufficiently credible editorial policies that protected their long­

term profi tability by not succumbing to short-term commercial pressures or

opportunit ies . Moreover, as has been amply demonstrated in the literature,

advertising had a powerful direct and indirect effect on the nature of media

content in the prcdigital era, often for the worse. It was hardly a form of sup­

port that came without strings attached. 1 72

The balance of power began shifting with the emergence of cable and

then satellite tel evision systems, with their plethora of channels. Although

most of the channels were owned by the same handful of conglomerates,

each of the channels still was competing for advertising dollars, so there was

a lot more "supply," and advertisers now had more options. When digital

video recorders came along, advertisers became concerned that their ads

were going to be skipped over by empowered viewers. Marketers began to

demand and get "product placement" in programs. The media conglomer­

ates were cager to make money, so there was no apparen t period of moral

angst as they weighed their options. "Branded" entertainment became more

common . This meant "embedding products in the plots of television shows

and movies, making it difficult to ignore them." 1 71

The Internet supercharges this tendency, as there are countless websites

chasi ng after a finite pool of ad dollars. "If publishers of all sorts-print, elec­

troni c , digital - want to survive on advertising," ad agency executive Rishad

Tobaccowala explained to Turow, "they will have to adapt to their advertising

masters' new demands." 174 Media firms are aggressively pursuing advertisers

to get programming along these lines, and it is now so common online that

it is barely noticed any longer. " Rather than doing advertising and P.R. only,"

a corporate brand manager working on Web entertainment stated in 20 I 2,

"we are part of the cultural conversation. When you encounter the brand

through entertainment content, the conversation at the water cooler is very

different." The chief creative officer at B BDO North America said, " Hol­

lywood and advertising agencies have tried to work together before, but this

time has been a positive transmogrification to something really different, and

the walls came clown, and now there's this." 17 1

In short, the balance of power has shifted, givin g advertisers much greater

explici t influence over media content. 171' "The new system is forcing many

media fi rms to sell their soul for ad money," Turow states.177 This on its own

is an astonishing development that, according to most scholarship, portends

156 DIGITAL DISC O N N ECT

grave consequences for the quality and nature of journalism and entertain­

ment media.

But that is hardly the worst of it. The Internet has not simply made media

outlets more desperate to please advertisers; it has made them increasingly

irrelevant. "Marketers haven't ever wanted to underwrite the content indus­

try," Tobaccowala told Turow. "They've been forced." 178 Those clays are over.

"Advertisers are increasingly indifferent to the context in which messages

appear" online, "at least compared with other media," the Pivotal Research

Group reported in 2012. 1 79 Online media - or "publishers" in the emerging

vernacular-no longer sell many of the ads appearing on their websitcs. 1 '1 1

"Up to 80% of interactive ads are sold and resold through third parties," one

industry source reports, "and advertisers don't always know where their ads

have run." 1 8 1 Turow notes that the evidence suggests that in an environment

where advertisers purchase ads in real time ( meaning they appear almost im­

mediately), reaching untold numbers of target demographic members, they

are mostly indifferent to the quality of the surrounding content on any of

the thousands of places their ads might instantly appear. The system allows

advertisers to "buy" desired individuals "automatically, and in real time, on

whatever page they've landed." 1 82 As Madrigal puts it, "Now you can buy

the audience without the publication." 1 8 ' Media in the traditional sense arc

almost unnecessary.

In 200 3 digital publishers "received most of every dollar advertisers spent

on their sites," Pariser reports. In "20 10, they only received $. 20." i x, The

missing 80 percent was going to ad networks and people who handle data.

For publishers who want to attract ads, it is becoming more important to

have quality detailed data on their Web clientele that can be packaged and

sold by third-party wholesalers than it is to have quality content, or any con­

tent at all. Smart or targeted advertising is the term for what is emerging, and

it is quickly becoming the basis for much of Internet advertising. For that

reason, retail websites like Target.com are now becoming major advertising

sites because they have so much traffic and collect such extensive data. 1 0 '

"Content is no longer king," The Economist proclaims. "Information about

users is what really matters." 1 86 Turow concludes, "The emerging trajectory

suggests that apart from a relatively few elite-oriented publishers (New York

Times, Atlantic, and the like), the pressure to bring personalization synced

to marketing goals will be difficult for companies to avoid if they want to

survive." 1 87 This should not really be a surprise; advertisers always supported

THI<: I N TERNET AND C AP I T A L I S M I I : E MP I R E OF THE SENSE LESS? 15 7

media for opportunistic reasons, because they had no better options. Now

they have better options, and consequently much of the media can get

thrmvn overboard.

The profit motive pushes this process into new and dangerous frontiers

quickly. Increasingly, research - "persuasion profiling" - determines what

types of sales pitches are most effective with each individual, and ads arc

tailored accordingly. Moreover, researchers are now working on "sentiment

analysis," to see what mood a person is in at a particular moment and what

products and sales pitches would be most cffectivc. 1 88 Advertisers arc at work

developing emotional analysis software so webcams can monitor how one's

face responds to what is on the screen. "One way to persuade internet users

to grant access to their images," The Economist notes, "would be to offer

them discounts or subscriptions to websites." I WJ Pariser chronicles a range of

developments on the horizon, including making machines more "human."

Such machines-cum-humans can then establish "relationships" with actual

people and get even more information from them. 1 911

N iclsen research reveals that people put far more stock in peer recommen­

dations and crowd-powered ratings than they do in traditional advertising, so

considerable effort is going into making covert sales pitches. 1 9 1 Commercial­

izing friendship is a killer app. 1 ')2 Facebook is ideal for this. "On Facebook,

you take friends into account," an ad executive explained to Turow. "So-and­

so liked this; you will too. People find that creepy in the beginning, but . . .

they slowly get used to it." 1 9' A 2011 Duke U niversity survey of corporate

marketing officers found that they expected to allocate no less than 18 per­

cent of their advertising budgets to social media within five ycars. 1 94

' I 'he problems faced by traditional media do not mean that advertisers

and the emerging system are entirely agnostic about content. Preliminary

research suggests that the content of a website does influence the success

of an ad. The issue is whether the effect is enough to justify any subsidy of

the media content by the advertiser. 1 9 ; Sometimes advertisers simply "cut

out the middleman" and produce the content themselves in a manner that

has the sole objective of selling the product. The logic of the system is that

it personalizes content for individuals, and the content is selected based on

what is considered most likely to assist the sale. Pariser's Filter Bubble docu­

mented how the Internet is quickly becoming a personalized experience

wherein people get different results on Google searches for identical queries,

based on their history. They arc soon to get different websites on the screen

158 D I G ITAL D I SCONN E C T

than other people who enter the same U RL. These developments are driven

in toto by advertising and commercialism. 1 % Indeed, with the appearance of

"content farms," an industry has emerged that produces content on demand

to provide access to desired consumers for advertisers. Google's former C E O

Eric Schmidt notes that individual targeting "will h e so good i t will b e very

hard for people to watch or consume something that has not in some sense

been tailored for them." 197

All of this has a long way to go, but some things are already crystal clear:

the notion in the 1990s that the Internet would empower individuals and

make them masters of their digital fate has been turned on its head. The

idea that people would join together in a shared global commonwealth is a

distant memory. "The way the Internet has gone sour," Lanier laments, "is

truly perverse." I 9K While "in many cases this provides for happier, healthier

lives," Pariser concludes, "it also provides for the commercialization of every­

thing- even of our sensory apparatus itself." 1 99 And much as Rorty framed

the matter in 1934, Turow concludes that the evidence points in one direc­

tion : "The centrality of corporate power is a direct reality at the very heart of

the digital age." 200 In 193 5 , New Republic editor Bruce B l iven characterized

himself as among those "who find advertising so obnoxious that they wish

the radio had never been i n vented." 2 1 1 1 One wonders if the Internet will pro­

duce its modern Blivenites-or if, as with broadcasting, people will come to

accept its degradation as the natural way of the world and barely recognize,

let alone question, what is taking place.

A Military-Digital Complex?

In his farewell address in 1961, President Dwight D. Eisen hower ominously

warned about the military-industrial complex that had emerged as a cor­

nerstone of the American political economy in the postwar years, with pow­

ers previously unknown in American history. The former Supreme Allied

Commander in Europe during World War II decried the shared interests of

warmakers, large corporations, and politicians that would render the public

largely powerless to provide any opposition . In grave terms he charted hO\v

this could lead to the end of any humane or democratic society in the war­

fearing spirit of James Madison and Thomas Jefferson. It was one of the most

extraordinary speeches by a president or any political leader in American

T H E I N T Tr n N E T A N D C A P T TA I . T S M I I : E M P I R E O F T H E S E N S E L E S S ? 1 5 9

history. 21 12 Il is warnings had no effect precisely for the reason he expressed

concern: there were many powerful elements of society that benefited from

a permanent wartime economy, and no powerful elements that were signifi­

cantly harmed by a permanent wartime economy.

Ei senhmvcr's \vorcls were accurate at the time, and his analysis has proven

depressingly prescient. Except for a brief hiccup in the 1970s in the after­

math of the Vietnam War, the system has been unchallenged. Military and

national security spending has continued to grow and has remained a l arge

and constant part of the economy. By 20 1 2 the United States spent roughly

$ 1 trillion on the m i litary annually, when all the wars, nuclear weapons, se­

cret budgets, and interest payments on debt are taken into consideration.211 1

America has around 5 percent of the world's population but 50 percent of

global military spendi ng. "We don't have any enemies in C ongress," a senior

defense official told Rachel Maddow in 2 0 1 1 . "We have to fight C ongress

to cut programs, not keep them." 2 1 H When Americans are directly i nformed

of how much the government actually spends on the mil itary compared to

other programs, a significant percentage, arguably a strong majority, believe

the military is a logical place for sharp cuts in government spending.211 5

Mili tary spending plays a central role in the economy. It provides de­

mand for goods and services without putting any products on the market that

compete with those produced in the private sector, so it is a definite stimu­

lus to production and an antidote to stagnation. Military spending is also a

windfall for the firms that are the recipients of military contracts, especially

as an increasing portion of the budget is outsourced. Military spending has

been the basis for much of the research and development spending in high

technology in the United States. As I discussed in chapter 4, its role has been

and remains crucial to the development of the commercial Internet. Many

economists rightly point out that there are far more effective ways for the gov­

ernment to spend money to stimulate economic growth or spur research, but

those options either have no political support from powerful lobbies or face

ferocious opposition from them. The late C halmers Johnson wistfully hoped

the United States could elimi nate its empire and return to being a republic,

in a soft landing. The evidence suggests that the national secmity state is as

much a part of really existing American capitalism as the large corporation,

Wall Street, or advertising. A campaign to encl it is, in effect, a campaign to

radically reform or replace capitalism as we know it.

The transition from the Cold War, in which America's antagonists were

160 D I G ITAL D I SCO N N E C T

known and the conflicts could (and did) eventually encl, to the so-called

War on Terror, in which the enemies are largely unseen and their activities

unknown, has been a boon for the national sccmity state. The War on ' lerror

will last as long as our leaders tell us it must last; in other words, it is penna­

nent. Americans now live in an Orwellian world where leaders periodically

warn them about some evil "Eurasia" to get the blood boiling, but there is no

need to provide evidence or context. The leaders are to be trusted, their bud­

gets approved; to challenge them is to be unpatriotic, if not treasonous. 211('

Dissidents are parked on some university campus or at a com munity radio

station. Nothing much changes, regardless of which party is in power, and

what little political debate exists is fatuous. "Our national security isn't much

related to its stated justifications anymore," Maddow notes.

To whatever extent we do argue and debate what defense and intel­

ligence policy ought to be, that debate-om political process-doesn't

actually determine what we ought to do. We're not directing that policy

anymore; it just follows its own course. Which means we've effectively

lost control of a big part of who we are as a country. And we've broken

faith with some of the best advice the founders ever gave us. 2117

In the last decade, federal spending on intelligence has ballooned some

250 percent to around $ 1 00 billion annually, though most of the intel­

ligence budgets are secret, so the best one can do is guess. 'I 'he national

security state has gone places Stanley Kubrick and Terry Southern could

have barely imagined when they wrote the screenplay for Dr. Strange/ave. In

1 995 the government classified 5 .6 million documents; in 20 1 1 it classified

92 million documents. Or consider this: in 1996 the government declassified

(i. e., made public) 1 96 million pages of documents; in 20 1 1 it declassified

just under 27 million pages. The U. S. government spends, hy conservative

estimate, $ 1 3 billion annually to make and keep secret government informa­

tion. 211;, As Fareed Zakaria puts it:

Since September 1 1 , 200 1 , the U. S. government has created or recon­

figured at least 26 3 organizations to tackle some aspect of the war on

terror. Thirty-three new building complexes have been built for the

intelligence bureaucracies alone, occupying 1 7 million square feet ­

the equivalent o f 22 U.S. Capitols o r three Pentagons. The largest

T H E I N T E RNET AND C AP I T AL I SM I I : E M P I RE OF THE SENSELESS? 1 6 1

bureaucracy after the Pentagon and the Department of Veterans Affairs

is now the Department of Homeland Security, which has a workforce

of 2 3 0,000 people. Zll'J

The resulting national security complex is almost unimaginable, like try­

ing to compute the distance from earth to a far-off galaxy in millimeters.

Over 8 5 0,000 people have top-secret clearances. Some 1,300 government

agencies and 2,000 private companies are collecting intelligence and have

top-secret clearance. It is a massive self-interested bureaucracy with no pub­

lic accountability ancl barely a trace of congressional oversight. 2 1 0 "The com­

plexi ty of this system defies description," a retired U . S. Army intelligence

specialist told the Washington Post. "We can't effectively assess whether it's

making us more safe." 2 1 1

The Internet has been embraced by the military and national security

agencies, which are determined to make it their own. It "is a surveillance

tool made in heaven,'' John Naughton writes, "because much of the surveil­

lance can be done, not by expensive and fallible human beings, but by com­

putcrs." 2 1 2 In 2012 the U . S. military formally stated that it "intended to treat

cyberspace as a military battleground," and the most important battleground

at that. 2 1 ' The National Security Agency is completing a $2 billion com­

plex in Utah that will be the cumulonimbus of Internet clouds. Its "near­

bottomless databases" will include "the complete contents of private e-mails,

cell phone calls, and Google searches, as well as all sorts of personal data

trails." The NSA then has enormous capacity to slice and dice the contents.

As James Bamford observes, for the first time since Watergate, "the NSA has

turned its surveillance apparatus on the US and its citizens." 2 1 4

This is j ust part o f the intrusion, as incredible a s that may seem. 2 1 1 "The

U . S. government," former Sun Microsystems senior engineer and cyberse­

curity expert Susan Landau writes, "has embarked on an unprecedented ef­

fort to build s urveillance capabilities into communication infrastructure." 2 1 6

And N aughton writes, "Most Internet users would be shocked if they realized

the extent to which their online activities are already under s urveillance" by

the government. "I suspect many are unaware of the laws that permit such

surveillan ce." 2 1 7 Zakaria reports:

The rise of this national security state has entailed a vast expansion in

the government's powers that now touch every aspect of American life,

162 DIGITAL DISCONN ECT

even when seemingly unrelated to terrorism. Some 3 0,000 people, for

example, are now employed exclusively to listen in on phone conversa­

tions and other communications within the United States.2 1 H

What is the relationship of the government, especially the national secu­

rity state, to the ISP cartel and the digital giants? The evidence suggests it is

complementary and collegial, even intimate. For national security agencies,

the advantages are clear. As UCLA law professor Jon Michaels noted in a

2008 study, "Participating corporations have been instrumental in enabling

U.S. intelligence officials to conduct domestic surveillance and intelligence

activities outside of the congressionally imposed framework of court orders

and subpoenas, and also outside of the ambit of inter-branch oversight." 2 1 '1

In addition, the Internet giants can provide extraordinary access to informa­

tion that would be much more difficult for the government to get on its own.

For the Internet giants, the reasons for collaboration are many.

• There is a great deal of money to he made providing data services for

the government. As Heather Brooke puts it, "Dozens of commercial

data brokers compete to sell data to the government." 2211

• The military generates many of the new technologies that Internet

giants can exploit commercially.

• The giants have a great deal at stake in government subsidies, regula­

tions, taxation, and antitrust oversight. They have no interest in an­

tagonizing the government by not playing ball with the military and

intelligence agencies.

• Outside the United States, the U.S. government is an aggressive advo­

cate for the Internet giants, and they therefore want to reciprocate and

have the government in their debt.

• Much of the military's cyberwarfare planning addresses protecting U. S.

intellectual property, patents, and copyright. The government is like

a private police force for the Internet giants, corporate media, and all

businesses that rely on patents and copyright. 22 1

In short, the rational course for these firms - even the ones not presently

working closely with the military and security agencies - is to cooperate with

the national security state. Any other course of action would threaten their

profitability. It's a no-brainer.

T H E I N T E RNET AND C A P I TAi.iSM I I : E MP I RE OF THE SENSELESS? 1 6 3

O f course, there is almost certainly patriotic sentiment among some ex­

ecutives at the giants, which reinforces or guides the choices they make.

But the I nternet firms are not people; they are bloodless institutions legally

chartered to maximize profits by any (legal) means necessary. Many of the

same patriotic firms have had few qualms about "selling surveillance and

censorship technology to the most heinous regimes in the world," as Mo­

rozov puts it. 222 The Tunisian government that was overthrown in 2011, for

example, \!Seel "deep-packet inspection" technology it purchased from the

American firm Nams, a subsidiary of Boeing, to monitor the online activities

of dissidents and eliminate them. Pakistan and Saudi Arabia are two more

of Narus's authoritarian clients. China expert Rebecca MacKinnon argues

that U.S. i n vestors and firms play a central role in the Chinese government's

ability to convert the Internet into a relatively harmless medium. It is "more

than likely," she observes, that "the Intern et's pervasive use in China will

actually help prolong the Communist Party's rule of China rather than has­

ten its demise." 22 1 For a firm like Google, there is an immense amount of

money to be made providing security tools to governments and corporations

and not as much of a market for supporting dissidents, especially those who

have the misfortune of living in countries with governments that have close

relations with the U.S. government.224 The evidence is clear: the Internet

corporations place a lower priority on human rights and the rule of law than

they do on profits.

We must assume that the vast majority of collaborations between the na­

tional security state and the Internet giants are not known- both sides have

every incentive to keep them secret- but enough has slipped through the

cracks to give us pause. In 2001 the N SA started an illegal warrantless wire­

tapping program on U . S. citizens, monitoring telephone calls with deep­

packet inspection technology. It received the unconditional cooperation of

AT&T, Verizon, and all the other telecom companies except Qwest. The

Bush administration threatened Qwest that it would lose future lucrative gov­

ernment contracts if it did not cooperate. The other firms received hundreds

of millions of dollars for their participation. In a subsequent shareholder

lawsuit over the sale of Qwest, documents were released that "revealed an

extraordinary degree of cooperation between the various military and intel­

ligence branches of the governmen t - particularly the Pentagon and the

N SA- and the private telecommunication corporations." The documents

demonstrated, as Glenn Greenwald put it, "that the telecom corporations

164 D I G ITAL D I SCON N E CT

and the military and intelligence agencies of the federal government were so

close as to be virtually i ndistinguishable." 22 1

The telecom giants understood that their actions were in clear violation

of the Foreign Intelligence Surveillance Act ( FI SA), a law for which their

own l awyers in the 1 970s had written the precise clauses so there could be

no confusion or ambiguity.226 The operation was seen as so "shocki ngly law­

less that even Bush's own top DOJ I Department of Justice [ officials had re­

volted when they learned of it." 227 These corporations had committed the

sorts of felonies that lead to severe jail time for those unconn ected to power.

When the operation became publ ic - thanks to a whistlehlowc r - n o pros­

ecutions were made, no heads rolled. Instead, Congress passed a full retroac­

tive immunity for the telecorn fi rms in 2008, with bipartisan support. This

effectively made the program lega l . The Obama administration tightened

regulations to make it more difficult for whistlehlowers to avoid prosecution.

And the domestic spying program proceeded full steam ahead . By 20 1 0, t h e

Washington Post reported, "Every day, collection systems at t h e National Se­

curity Agency i ntercept and store 1 . 7 bill ion e-mails, phone calls and other

types of communications." 228

The domination of the Internet by a hand ful of monopolists, as well as

the emerging cloud structure of the Internet, is perfect for the government.

It need deal with only a handful of giants to effectively control the Inter­

net. The consequences of this became striking in th e wake of th e brouhaha

surrounding WikiLeaks after it released government documents in 20 1 0 .

The "U. S . government response to WikiLeaks," MacKinnon writes, " h igh­

l ights a troubl ing murkiness, opacity, and l ack of public accoun tabi l i ty in

the power relationships between government and Internet-related compa­

nies." Amazon hooted WikiLeaks off its servers, and the site i m m ediately

collapsed, as there was nowhere else to go. 22'1 Apple pulled a WikiLeaks app

from its store. 2 10 Monopolist PayPal - as well as M asterCard, Visa, and Bank

of America - also severed ties to WikiLeaks. There is no evidence that the

executive branch made any expl icit demand of the fi rms to do what they

did; it appears they acted proactively, possibly egged on by all th e saber rat­

tling and macho talk coming from Capitol H i l l . 2 1 1 The firms responded to

vague clai ms of i l l egal ity on the part of WikiLeaks, hut no charges had been

filed, nor had anyone been convicted. "We have a problem," MacKinnon

concludes.

T I I E I N TE R N ET A N D C A P ITAL I S M 1 1: E MP IRE OF THF S E N SELESS? 1 6 5

The poli t i cal di scourse in the U n i ted States and i n many other de­

mocracies now depends increasingly on privately owned and operated

digital intermediaries. Whether unpopular, controversial, and con­

tested speech can exist on these platforms is a decision left to unelected

corporate executives who are under no legal obligation to justify their

actions. The response to W ikiLcaks's release of classified cables is a

troubli ng example of private companies' unaccountable power over

citizens' political speech, and cif how government can manipulate that

power in i nformal and thus unaccountable ways. 2 1 2

Th e list of such malfeasances continues. In April 2012 the American Civil

I ,iherties Union ( ACLU) released 5 ,500 pages of documents demonstrating

that most police departments in the country tracked suspects and others by

using their cell phones without warrants, hence illegally. The ISP cartel not

only cooperated, hut was sometimes paid, the price ranging from a few hun­

dred dollars for providing a suspcct's physical location up to $2,200 "for a

full-scale wi retap." 2 1 1 In 2012 it came out that t h e Department o f Homeland

Security ,vas routinely scouring social media like Facebook and Twitter with a

list of several hundred keywords. Its purpose was, among other things, to assess

"publi c reaction to major governmental proposals with homeland security

i m plications." 2 1 4 If it needs help, LexisN cxis has developed a product "to give

government agents information about what people do on social networks." 2 1 1

The capper came in July 2012 when it was revealed, i n response to a con­

gressional inqui ry, that cell phone companies had responded surreptitiously

to fully 1. "3 million demands for subscriber information from law enforce­

ment agencies. "I never expected it to be this massive," said Representative

Edward Markey, the Massachusetts Democrat, who l aunched the i n quiry.

AT&T handles seven hundred requests per clay, and, like the other cell com­

panies, is compensated for i ts assistancc. 21r, AT&T now has one hundred

full-ti me e m ployees whose job is to review and respond to law enforcement

requests; Veri zon h as seventy. 2 17 W ith this explosion in easy access to mobile

phones, traditional wi retapping- with its more "stringent legal standards,"

which might actually protect a citizen's constitutional rights- has sharply

declined. 'I 'here were only 2, 7 "3 2 nationwide in 2011, a 14 percent drop from

2010 . The New York Times, to its credit, editorialized against the cell phone

spyi ng, \Hmdcring if privacy even continues to exist. 218

166 DI GITAL D I S CONNE C T

Since September 11, 200 1 , when it comes to spying 011 American s, the

Federal Bureau of Investigation has i ncreasingly turned to the N ational Se­

curity Letter (NSL) , an administrative demand letter or subpoena requiring

neither probable cause nor judicial oversight. As David Rosen puts it:

In effect, an NSL overrides 4th Amendment guarantees safeguarding

an American's right I to be free I from unreasonable search and sei­

zure. Between 2000 and 2 0 10 (excluding 2001 and 2 00 2 , for which

no records are available), the F BI was issued 2 7 3 , 122 N SLs; in 20 1 0,

24,287 letters were issued pertaining to 1 4,000 U . S. residents. Even

more alarming, i f a company, journalist, person or attorney receives

an NSL, they are barred from informing anyone , including the press,

about the order. And the NSL is but one of an expanding number of

means employed by the surveillance state to spy on an cvcrgrowing, in

effect unknowable, number of Americans.2 l'J

Google co-founder Sergey Brin told The Guardian in 2012 that "the com­

pany was periodically forced to hand over data and sometimes prevented by

l egal restrictions from even notifying users that it had clone so." 2"' 1 Accord­

ing to The Economist, Google received at least ten thousand requests for

information from law enforcement and national security agencies in 2 0 1 1 -

not necessarily all NSLs- and Google acknowledged that it complied with

93 percent of government requests.24 1 The only tcl ecom company that has

stood up to the government and gone to court to challenge the constitution­

ality of NS Ls is Worki ng Assets. It operates Credo Mobile, a relatively minus­

cule firm with explicitly liberal politics that directs a portion of its revenues

to progressive causes. (That is generally why its preponderantly left-l eaning

customers sign up for its service.) The case is windi ng its way through the

court system at this writing. 242

Policing the Internet with minimal public interference is a front-burner

issue in Washington. In April 2012 the U.S. House of Representatives passed

the Cyber Intelligence Sharing and Protection Act (CI SPA ) , which would

allow for the sharing of Internet traffic in formation between the U.S. govern­

ment and certain technology and manufacturing companies. The stated aim

of the bill is to help the government investigate cyber threats and ensure the

security of networks against cyber attack. It has been unanimously criticized

by organized advocates of Internet privacy and civil liberties, such as the

T H E I N T E R N E T A N D C A P I TA L I S M I I : E M P I R E OF T H E S E N S E L E S S ? 1 67

Electronic F reedom Foundation, the ACLU, Reporters Without Borders,

and Mozilla, which regard it as the most sweeping anti-civil liberties leg­

islation yet proposed. As Free Press put it, CISPA would allow companies

and the government to legally bypass privacy protections and spy on e-mail

traffic, comb through text messages, filter online content, and block access

to websites. It would permit companies to give the government its users'

Facebook data, Twitter history, and cell phone contacts. It would also allow

the government to search e-mail using the vaguest of justifications without

any real legal oversight. CISPA also contains sweeping language that could

be used as a blunt weapon to silence whistleblower websites like WikiLeaks

and the news organizations that publish their revelations. 241 'Tm not con­

vinced that Congress even comprehends the insanity of the laws they're pass­

ing right now," one of the leading experts on Internet policy told me in May

2012. 2+1

The Internet giants all supported the legislation, either aggressively or

tacitly, for four reasons. First, it gave them legal cover for what they were

already doing surreptitiously with the government, much of it in the gray

area of questionable legality. Second, it also opened new vistas for work with

the government, which would offer remuneration as well as immunity from

prosecution. Indeed, some of this work could develop useful commercial

applications, particularly for the online advertising industry. Third, it would

keep the giants on good terms with the government, which is very much in

their interests. Fourth, CISPA was voluntary, and corporations could decline

to parti cipate, which they may want to do if the costs of the government

request arc damaging. (The fact that none ever challenged NSLs suggests

refusal on grounds of principle wasn't on the grid of responses. )

Senate Democrats refused to support CISPA, to some extent clue to op­

position on civil liberties grounds, so the Senate produced its own "cyberse­

curity bill" with the strong support of President Obama, Democrats, and the

military. 2 1 1 The Senate version of the bill was filibustered by the Republicans

and failed to earn the necessary filibuster-defeating majority in August 2012,

"losing" 5 2-46. A major change, and a stated reason most Republican Sena­

tors voted against the bill, was that it required corporations to do some of

what had been voluntary in the House's CISPA. The Senate bill was seen as

possibly forcing "privately owned companies to spend what's neeclecl to pro­

tect our critical infrastructure, even if that spending drives clown profits for a

time," Jeffrey Carr, founder of boutique cybersecurity firm Taia Global, told

168 D I G ITAL D I SC O N N E CT

Talking Points Memo's C arl Franzen. Many sccmity experts disputed the

bill's ability to actually better protect the United States from cybcrattacks. 241'

In terms of civil liberties and privacy, and general public interest policy mak­

ing, Meinrath says both the House and Senate hills were "atrocious." 24-

W i th SOPA in 2011 and CISPA and "cybersccmity" in 20 1 2 , all signs

point to the legislative thrnst bei ng i n one direction : shrinking the rights of

citizens and expanding the unaccountable prerogatives of the national secu­

rity state and the Internet giants. Depending upon the makeup of Congress,

the logic suggests the Internet giants will h ave to be given better terms and a

few crumbs will have to be thrown to civil libertarians to get the bi lls passed,

and those are not i nsurmountable obstacles in contemporary Am erican pol i­

tics. "In a war of attrition where one side has infinite money and resomces

and the other only has volunteers," one activist said, "that's a bleak futme ." 2 1'

The difficulty of stopping this trend is elevated by a thoroughgoing lack of

news media coverage, so the vast majority of Am ericans arc understandably

clueless. As one reporter noted,

Even after passing the House, the W h i te House press pool has never

asked a single question about CISPA at the daily press briefing, let

alone in discussion with the president or senior officials. Out of all

public transcripts and statements, there is only a single C I SPA refer­

ence on the W h i te House websi te, from the administration's proac­

tive policy announcement. (There are over seventy references to "long

form birth certificate," to compare another topic. ) 2-+'1

A Free Press organizer summed up the situation: "Unless we get mass or­

ganized behind a universal set of Internet freedom principles, we'll be play­

ing defense on bad legislation until we lose." 2'11 'l 'he good nc,vs is the energy

created by the campaigns against SOPA and C I SPA and mounting concerns

about privacy, monopoly, and digital censors h i p helped Free Press generate

a broad coalition of some two thousand groups to organize popular su pport

for protecting and expanding what it terms "Internet Freedom." Its "Declara­

tion of Internet Freedom" exploded into global prominence in the summer

of 2012 and was translated into seventy languages in its first month . ' ' 1 This is

one of the central political fights of the ti m es.

There are legitimate security concerns for any government, and in

times of war the stick can be bent tem porarily toward greater security at th e

T I i l<'. I N TI.; R N ET AND C AP I T A L I SM I I : EMPIRE OF THE S E N SE LESS? 169

expense of freedom. There arc also certainly legitimate security concerns

surrounding the Internet and the threat of cyberwarfare. But we are entering

dangerous new terrain. "When privacy is balanced against security, the scale

is rigged so security will win out nearly every time," privacy expert Daniel

Solove wrote. 2 1 2 "In the past, the U.S. government has built up for wars, as­

sumed c lll c rgcncy authority and sometimes abused that power, yet always

clclll obilizccl after the war," Zakaria observed in 2012. "But this is, of course,

a war without encl." 2 " The system that has emerged is an open invitation

to abuse , which should remind us all of James Madison's warning cited in

chapter 2: " No nation can preserve its freedom in the midst of continual

vvarfarc." 2 s4

"Every incentive in a state bureaucracy," Siva Vaiclhyanathan writes,

"encourages Illassive surveillance." Nothing pushes hard in the opposite

clirection. 2 1 1 C ybersecurity expert Landau notes that "when surveillance

mechanisms are easy to turn on, the chance of misuse is high." 256 Moreover,

there is now an industry poised to make terrific profit through participating

in and extending the national security apparatus. No one, except a hand­

ful of civil liberties lawyers, is making a clime slowing down surveillance.

Without accountability, this is a recipe for disaster. For any national secu­

rity agency, there is no credible penalty for overreach, but careers can end

for unclerrcach. The Electronic Freedom Foundation published a report in

2011 based on a comprehensive review of F BI documents and concluded

that "intelligence investigations have compromised the civil liberties of

American citizens far Illore frequently, and to a greater extent, than was pre­

viously assulllccl." 2 1 �

What little examination has been made, for example, of the government's

process for classifying material as top secret indicates that it is often more

about keeping the truth about government malfeasance and incompetence

from the public than it is about safeguarding necessary secrets. Award-winning

journalist Sanford J. Ungar noted in the Columbia Journalism Review that

\Viki Leaks should have drawn attention to "an obvious underlying problem:

that the obsessive over-classification of US official information has reached

a point where it is impossible to know with confidence what truly deserves

to be kept secret and how that can be clone effectively." Ungar quotes Erwin

Griswold, the U.S. solicitor general in charge of prosecuting the Pentagon

Papers case for the N ixon administration, who later renounced his position;

Griswold noted in 1 989 that "the principal concern of the classifiers is not

170 D I G ITAL D I S C O NN E C T

with national security, but rather with government embarrassment of one

sort or another." Griswold added that "apart from details of weapons systems,

there is very rarely any real risk to national security from the publication of

facts related to transcriptions in the past, even the fairly recent past." 2 's

Griswold's era looks benign compared to the contemporary United States.

In 201 1 , Michael Hastings, one of the few reporters who is on this beat,

wrote, "Over the past ten years the government has acquired a security fe­

tish, classifying over 2.6 million new secrets." He notes, like Griswold, that

analysts have "pointed out that one of the main reasons the government tried

to hold on so tightly to its documents wasn't that their release would hurt na­

tional security, the catchall justification to classify, but that the government

wanted to prevent embarrassment." 259 "The world of secret knowledge is far

larger than the world of public knowledge," Stanford's Robert Proctor told

Chris Hayes. "In the U.S. there are four thousand censors who just work on

censoring nuclear secrets. We live in this world where the public knowledge

is just a tiny fraction of secret military knowledge." 2611

It is not just incompetence or banality that should concern us. Govern­

ments, even democratic ones, are capable of acting unconscionably and

undermining the very freedoms that are necessary for self-government to

be effective. When they grow secretive, the likelihood that they are repre­

senting powerful interests grows. Everyone understands that governments

often identify their enemies as terrorists to justify persecuting them; it is par

for the course in authoritarian nations. But Americans need to look in the

mirror. When the U.S. government turns to domestic spying and illegal ha­

rassment of citizens, it rarely if ever has been known to go after billionaires,

corporate CEOs, or their advocates; it has a track record of using its spying

powers domestically on, among others, law-abiding and nonviolent dissident

groups that challenge entrenched wealth and privilege. When one sees how

peaceful Occupy protesters have been made the target of Homeland Se­

curity covert scrutiny here in the United States- while the bankers whose

dubious shenanigans helped drive the economy off a cliff waltz free-the

dimensions of the problem grow starkY' 1 lt invokes the darkest and most

dangerous moments in American history, from the Alien & Sedition Acts,

the Fugitive Slave Act, and Jim Crow to the Palmer Raids, McCarthyism,

and COINTELPRO. But now the state has technological powers previously

unimaginable.

The great defense of capitalism as the economic system best suited for

T I i i<: I N T E RN E T AND C A P I TALI S M I I : E MP I RE OF THE SENSEL E S S ? 17 1

democratic governance and political freedom -made by Milton Friedman

and others- is that the private sector is competitive and independent of the

go\'ernment, thereby providing an autonomous and occasionally adversar­

ial source of power. As this chapter demonstrates, that notion of capitalism

and democracy has blown up like a trick cigar on April Fool's Day. W ithout

meaning to he pejorative or alarmist, it is difficult to avoid noting that what

is emerging veers toward a classic definition of fascism: the state and large

corporations working hand in hand to promote corporate interests, and a

state preoccupied with militarism, secrecy, propaganda, and surveillance.262

People who are uppity and nonviolently resist the system are the enemy. In

such an environment, political liberty is at risk.

The founders of the American republic, to their immense credit, under­

stood this dilemma. For that reason , they regarded the press system as the key

institution that would keep people informed of what was taking place and

give citizens the capacity to resist tyranny and protect their freedoms. It is the

news media that must expose the duplicity and crimes of those in power. So

how arc these crucial institutions faring in the age of the Internet? A great

deal rides on the answer. That is the question for the next chapter.