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29 July 2019

Platforms and politics 

Capitalism is seen as a form of financial Darwinism, a system where strong business models grow and prosper over time, weeding out the weak to the benefit of consumers, shareholders and long-term global economic growth.

Rather like humans in evolution, the internet and technology generally appear to be delivering an extreme form of capitalism where global platforms/leaders have established such strong competitive advantages on multiple levels that it is almost impossible to displace them.  As these companies grow, they get increasingly stronger and are now often disrupting entire industries by themselves.

With technology developing at ever accelerating rates, we are now seeing more and more examples of this across the global economy, which are affecting both the financial and the social worlds.

This is resulting in ever greater levels of wealth inequality, with the rich getting richer. This can be clearly seen in equity indices with companies like Amazon, Google, Facebook, Tencent and Alibaba becoming the most valuable companies on earth while their competitors have shrunk or disappeared.

These new companies appear to have more flexible business models than traditional players, meaning that they are more imaginative in opening up new revenue streams and moving into new end markets. A great example of this is Amazon with its Prime model, moving into media and also internally developing Amazon Webservices (AWS) and even Amazon Foods. Facebook has recently announced plans to launch a digital currency, Libra, which has huge potential if adopted. It also puts into question the traditional, central bank-led monetary world.

The dominance of these new platforms has now got to the stage where consumers and politicians are starting to question the benefits of these firms’ success. In the last few weeks Facebook, Google, Apple and Amazon have all had to testify to Congress in antitrust inquiries. Currently it seems unlikely that policy makers will do anything dramatic, just like with the Microsoft antitrust investigations in the late 90s. However, they are probably the highest source of risk for these platforms in the long run.