‘Inside every lean entrepreneur is a monopolist struggling to get out.’
‘Inside every lean entrepreneur is a monopolist struggling to get out.’
Part Two of a conversation with Henry Farrell and Abraham Newman, authors of ‘Underground Empire: How America Weaponized the World Economy’
This is the second of a two-part conversation with political scientists Henry Farrell and Abraham Newman, authors of Underground Empire: How America Weaponized the World Economy.1 You can read the first part of our conversation here. The excerpts below have been condensed significantly and edited for clarity.
ADAM: The source of so much of the infrastructure on which this new empire rests is not the government but instead these private companies who were, as you put it early in the book, “pursuing efficiency and profit.” They didn’t set out to build an underground empire, but at the same time they weren’t exactly pursuing the public interest, either. They were trying to, in a lot of cases, build their own choke points.2
You mentioned Walter Wriston, who definitely didn’t seem to want the government to amass this power—but not because he believed in decentralizing power. He just wanted power for himself and for his company. And toward the end of the book you talk about a favorite topic of mine, the Silicon Valley libertarians who, as you put it, “discovered that the best way to turn a profit in a decentralized economy was to figure out ways to centralize parts of it again.”3
HENRY: Companies are still trying to figure out what to do, I think. There clearly is a huge transformation in the ways that they think about political risk. Now they think about geopolitical risk as involving, perhaps, countries seizing choke points. This is a fundamentally different understanding.
[If] you go back to Wriston, you see this ambiguity. On the one hand he says that “centralization…is a fascist state.” He sees centralization as being fundamentally bad. But then you go forward a couple of pages in the book, and we talk about how Wriston describes the situation of Citibank—this massive bank that he is the CEO of—and a number of other banks as being at the center of the global financial system. And he says, Well, it makes us feel a little bit uncomfortable, but clearly he is not going to do anything. He is not going to give up the reins of power because that would mean that he is not able to make the profits that he would like to make.
The way that we like to phrase it is that inside every lean, hungry entrepreneur, there is a bloated monopolist that is struggling to get out. And [to] that bloated monopolist, the best way to seize a monopoly is to seize some central point in the market which allows you to define the marketplace around yourself, so that nobody can do whatever it is they want to do without having access to whatever it is that you provide. Then you can charge them an arm and a leg for doing that.
But in setting yourself up for this, you are also setting yourself up potentially to provide an opening point for government, once government decides to regulate you. And that is the story of Walter Wriston.
It also is the story of a huge variety of libertarian types, crypto people, who tried to set up their own micro-empires. [They] did so because on the one hand they wanted—sincerely, I think, most of them—to be in a world where government didn’t have as much power. On the other hand they also wanted that Lamborghini. And when push comes to shove, the Lamborghini prevails for most of them.
ABRAHAM: Starting in the 80s, the government said, We should just privatize telecommunications. Things that used to be core government functions then became part of the market. And so you see companies like Amazon, or now Starlink—they’re running the basic backend of not just capitalism but also governments.4 That all seemed great when we were in a world where there weren’t any geopolitical or national security risks. But now they sit in the crosshairs of governments [that are] saying, Well, you run this system. Now you need to help us.
We tell the story of Microsoft. It’s a fascinating case where this company at the beginning is like, Well, don’t look at us. We’re just neutral. We don’t want to be part of your fights. Now in the Ukraine conflict they [Microsoft] basically pick sides and are lifting the Ukrainian government servers into the cloud and helping them debug cyber attacks.
Now you flip that over to the recent revelations about [Elon] Musk and Starlink. He’s doing the opposite. He’s either dragging his feet or worried that he’s going to be part of this war. The reality is, he’s part of this war whether he wants to [be] or not because he’s running this critical infrastructure.
Companies [are] being pulled somewhat unwillingly into geopolitics, while at the same time very willingly using their geopolitical influence, particularly with U.S. government, to advantage themselves and try to disadvantage their competitors. You talk about Pat Gelsinger, the CEO of Intel, who aggressively courted U.S. officials for subsidies and restrictions on the Taiwanese semiconductor manufacturer TSMC, while simultaneously trying to invest billions of dollars in [Intel’s own] semiconductor manufacturing in China.
HENRY: We should go back to Adam Smith, who is a sorely under-read writer [and] a much more complicated writer than I think people give him credit for being. I recommend a book by my colleague, Glory Liu, on the weird ways in which he has been misinterpreted over the centuries.5
Fundamentally, [Smith’s] argument is that when it comes to the provision of certain collective goods—he’s writing in the end of the 18th century, so he doesn’t phrase it [in] quite those words—when you think about the provision of certain collective goods, such as national security, you cannot rely on markets and on business.
The reason for that, I think, is reasonably straightforward. If you’re a business figure like Pat Gelsinger, your job is not to secure the United States. That might be a secondary interest of yours, at best. Your job is to maximize the amount of profits that you can make for your shareholders.
And if that involves you behaving in ways that conduct towards the long-term undermining of national security, that’s something which is probably not going to be at the forefront of your mind. Or if it is at the forefront of your mind, you probably, being a human being, are going to find ways that you can reconcile the stuff that you’re doing to make money.
ABRAHAM: There’s also a less, let’s say, cynical version of how companies are undermining national security through just profit seeking, which is the whole lean production, “just in time” manufacturing system. It created a structure of globalization that was so thin, that then you could have these choke points that could really disrupt other actors if governments got involved. Covid made that very apparent.
A really important thing—we don’t really talk about it in the book—[is that] the U.S. could use these powers [in] a lot of different areas to think about collective goods of the world. But often it’s about preferences. Is the U.S. willing to do this? And in many cases, firms don’t want the U.S. to do [something], so it’s unlikely that they will.
[Take] offshore financial centers. It’s not very hard. Everyone’s like, Oh, firms will go abroad [if the United States were to crack down on offshore tax evasion]. No, if the U.S. wanted to shut down offshore financial centers, they could use these tools [of the underground empire] to do that. But there are powerful, rich people. They don’t want to shut down those offshore financial centers, and the politicians don’t want to get into that fight.
We should think less about the structural kind of [questions]—is the U.S. not able to do it?—but also, whose interests underpin those decisions?
At one point, the U.S. government took an article that you wrote about “weaponized interdependence” and used it not as the warning that it was intended as, but as what one author called a “playbook” for how to undermine U.S. adversaries.6 Can you tell that story?
HENRY: I think of it a little bit like we are the “Torment Nexus” people. There is a famous meme which has this science fiction writer saying, “I invented the Torment Nexus in my novel to warn the world against the dangers of the Torment Nexus.”7 And then a Silicon Valley company saying, “We have invented the Torment Nexus, as described by famous science fiction novel, Don’t Invent the Torment Nexus.” We kind of feel like we are the science fiction writer in that story.
We wrote this article, which was very much intended as a suggestion that these kinds of powers could be self-undermining and had potentially these very troubling consequences. And then some senior person in the [Trump] administration took our article and decided this provided some kind of a playbook that the administration could use to go after this Chinese company, Huawei.
As political scientists, we’re supposed to want to have policy influence. [But] you don’t necessarily want to have certain kinds of policy influence. The ways in which the article argued are certainly not the ways that the Trump administration identified it. So I think we have very, very ambiguous feelings about that.
ABRAHAM: These tools and these powers were happening long before anybody read our article. They [the U.S. government] didn’t need our article to figure out how to use the fiber-optic cables to surveil other people, and they didn’t need them in order to go after North Korea or Iran.
It’s a fun anecdote because it is true that this article has resonated in policymakers’ minds. But in my mind what the article does is, it creates a language to talk about this new world of economic coercion, so that we can have a debate, and we can bring it into the light, and we can say, How can we use these tools in a responsible way?
Hidden in the book—I don’t know, maybe it’s not that hidden—[is] a superhero metaphor. The United States sleepwalks into this transformation. It gets these new superpowers. And like every good superhero story, there’s this risk that that gets out of control, that the powers become consuming.
What we really want to do is say, Look, you can’t put the genie back in the bottle. We need a set of guardrails, new language, a conversation to then use it responsibly.
Toward the end of the book, you write that “a new spiral of economic confrontation is slowly gathering strength” that “might tear the global economy apart or even pull the world into actual war.” And yet, as you write elsewhere, “no one seems to know what to do about it.” What have [you] observed since you finished [writing] the book?
ABRAHAM: There’s a glass half full and a glass half empty. I’m a positive person, so I’ll start with the half empty, and I’ll end with the half full.
We sent [the book] to the publisher basically just as the [U.S.] export controls were being put in place around semiconductors against China. That’s a very massive escalation in these kinds of confrontations because it’s not just putting export controls on Huawei, one company, but [on] a whole country.
You see in response Chinese efforts to restrict certain elements that would go into semiconductors. You see this ratcheting up of positions on both sides. In that way, I think that there is a real risk, and I think that both of us are very concerned, that this will lead to that kind of spiraling.
On the glass half full side, I think actors in China and the U.S. are now taking this not as just a crisis response. They’re really thinking, How do we create structures and systems to prevent that kind of spiral? The best example of this might be [that] the U.S. administration has been working with Japan and South Korea to coordinate what they’re doing in this domain of economic security. There was a G7 meeting where economic security was one of the main topics that was being talked about.
You’re seeing increasingly that this isn’t just the U.S. government doing these things, but they’re working with allies in coordination. In the Russia conflict, the U.S., multiple times, deferred to European counterparts and said, Okay, you’re going to take the lead on these sanctions, or, What’s going on? We’ll back you up, and we’re going to support you.
HENRY: One of the people who we are engaged in friendly debate with throughout the book is Kim Stanley Robinson, the writer of The Ministry for the Future.8 In this book, he says that we need to figure out some means of knocking heads together in order to get the world to coordinate and move to a better, post-carbon future. He identifies central banks as being one of the key players in his story.
We, for various reasons, think that is probably not as likely to happen, [but] we do wonder whether you could see a world in which some of these powers of [underground] empire could be used to try and help to push through a climate transition.
The problem with that is, of course, that all of the bad side of [the] empire still doesn’t fully go away, even if you’re trying to do this for the general good. There’s still going to be a lot of power politics, there’s going to be messy self-interest—all of these questions. But we do wonder whether that could be part of a more positive story that you could have coming out of this.
You [mention the novelist] Colson Whitehead in [the book] as well. Quite a few fiction references dropped in here and there.
HENRY: As we were writing, I was reading and rereading a lot of science fiction in a different way. If you really want to convey these really complex arguments about these big things, these big systems, science fiction writers have developed an array of useful narrative techniques for saying just as much as you need to say about a particular technology, or a particular this or a particular that, and no more, so that you can have this as part of a story that brings the reader along.
We have borrowed a lot from the writing of good science fiction writers.
ABRAHAM: We were trying to make a book that would be fun to read. We’ve written a bunch of academic books that we’re proud of, but one of the things we were trying to do in this book was get something that would be a little gripping, that would make people interested. The references to fiction [were] one way to get people to feel connected.
https://us.macmillan.com/books/9781250840554/undergroundempire
https://www.theatlantic.com/books/archive/2022/12/books-music-amazon-spotify-chokepoint-capitalism-review/672372
https://www.theatlantic.com/books/archive/2023/05/crack-up-capitalism-quinn-slobodian-book-review/674064
https://www.newyorker.com/magazine/2023/08/28/elon-musks-shadow-rule
https://press.princeton.edu/books/hardcover/9780691203812/adam-smiths-america
https://direct.mit.edu/isec/article/44/1/42/12237/Weaponized-Interdependence-How-Global-Economic
https://knowyourmeme.com/memes/torment-nexus
https://longnow.org/ideas/memento-mori-books-civilization