* Q: What Do Cheaters And Monopolists Have In Common?

A: Privilege.

Sled dog team observes Clifford (the big red dog) and Emily Elizabeth nearby.

This is a larger issue than can be fully addressed herein, because it involves complex issues such as privilege, monopolies, and system dynamics (e.g. positive feedback loops). Consider this the start of a conversation, not the end of one, and see below for how to comment.

Cheating Your Way Into College

It irks me, to say the least, that the richest of the rich cheat their kids into college:

* College Admissions Scandal: The Extreme Lengths Parents Go To (2019-03-12)

* Dozens Charged In College Admissions Scandal (2019-03-12)

It more than irks me, it sickens me. How do rich people, who already have the scales of the system tipped far in their favor, justify the need to then put their thumbs on the scale to cheat that same system?

Big Monopolies and Feedback Loops

For governments and companies, there IS such a thing as too big. Not too big to fail, but too big for OUR own good. Small is not necessarily good, and big is not necessarily bad. But, unfortunately, the startup community has been tone deaf on this issue for far too long.

Everyone loves an underdog, like in the first Rocky movie. For example, back in 2002, the underdog New England Patriots defeated the favored St. Louis Rams in Super Bowl 36, and everybody cheered for the underdog. But fast-forward 17 years, and the Patriots have now won six Super Bowls, but are largely despised outside of New England.

But startups can become monopolies.

In the 1990s, Microsoft had a monopoly on computer operating system, with the Windows operating system dominating the personal computer market. (Apple, eventually a worthy competitor, was a bit player and an underdog at that time.) What did Microsoft do with its monopoly? It started injecting other products – many of them inferior to competing products – into its exclusive distribution channel: the Internet Explorer (browser), MS Word (word processing), MS PowerPoint (presentations), MS Excel (spreadsheets), MS Access (databases), MS Outlook (email). Soon Microsoft dominated other markets, such as the browser market, with inferior products.

Over a decade ago, I wrote about how positive feedback loops in business reenforce existing monopolies in an article entitled “The Case For Breaking Up Microsoft’s ‘Monopoly’.” Regarding my prediction about Microsoft’s pivot to a new business model, I’m going to say that I nailed it:

“Here’s a summary of the real problem. Microsoft has a monopoly in operating systems, and it will most likely continue to maintain that monopoly as it invents new operating systems. Included with Microsoft’s operating systems are various demonstration and free applications, including, but not limited too, Web browsers, Web authoring tools, and online access software. (I’m predicting that in the future, Microsoft will distribute ‘demo’ versions of popular applications such as MS Word, MS Excel, and the like. I further predict that these ‘demo’ versions, which will be distributed at no charge, may be activated by purchasing a license from www.microsoft.com, www.msn.com, The Microsoft Network, by phone, or otherwise.) When Microsoft’s Web access software and/or online access software is activated, users are presented with advertisements and offers for MS application products, MS services, and MS free and demo software (including MS Internet Explorer). The applications are designed to run on MS operating systems, which makes people purchase more MS operating systems, furthering this monopoly. From an engineering standpoint, this is a ‘positive feedback loop.’ Part of Microsoft’s success was due to innovation (and luck) of long ago, but most (if not all) is now due to how positive feedback effects Microsoft’s monopoly.”

The bigger the monopoly, the better the feedback loop works, the bigger the monopoly gets. (You can read more about positive feedback loops and negative feedback loops in brief on Wikipedia’s feedback page or in detail in MIT’s 6.003 Signals and Systems class on MIT OpenCourseWare.)

Recently, due to vocal protests from New York City denizens, Amazon canceled its plans to locate a large office (I refuse to say “headquarters” because there can be only one of those) in the city. Presidential candidate and Massachusetts Senator Elizabeth Warren made headlines for proposing that tech giants Apple, Google, and Facebook should be broken up.

Predictably, many in the startup community both want Amazon to come to NYC and don’t want Warren’s monopoly break-up plan to proceed:

* An Open Letter To Jeff Bezos (2019-03-01)
“I believe it was a mistake by Amazon to pull out of NYC and I very much hope they will reconsider.”

* New York Asks Amazon To Reconsider Campus Plan (2018-03-01)
“A group of New York business, political and community leaders have asked Amazon to reconsider its decision to scrap plans for a new campus in the city.”

* The Warren Breakup Plan (2019-03-10)
“I don’t think breaking up companies solves anything. And lots of rules on paper don’t either.”

Why are some in the startup community tone deaf on this issue? How do you know that it’s a real issue? People protesting in the streets. That’s how you know it’s a real issue.

The Privilege Problem

Let’s start with privilege. Privilege blinds those with privilege. Privilege makes people born on third base think that they’ve hit a triple.

In a viral video, Adam Donyes, the founder of Link Year, tells a group of young people that they will race to win $100. But some of them should take two steps forward before the race begins. For example:

  1. “Take two steps forward if both of your parents are still married.”
  2. “Take two steps forward if you grew up with a father figure in the home.”
  3. (“Take two steps forward if you had access to a private education.”)
  4. (“Take two steps forward if you had access to a free tutor growing up.”)
  5. (“Take two steps forward if you never had to worry about your cell phone being shut off.”)
  6. (“Take two steps forward if you never had to help mom or dad with the bills.”)
  7. (“Take two steps forward if it wasn’t because of your athletic ability [that] you don’t have to pay for college.”)
  8. (“Take two steps forward if you never wondered where your next meal was going to come from.”)

Here’s the full video, in which Donyes states: “Every statement I’ve made has nothing to do with anything any of you have done. It has nothing to do with decisions you’ve made…. We don’t want to recognize that we’ve been given a head start…. It’s only because you have this big of a head start that you’re possibly going to win this race called life…. Nothing you’ve done has put you in the lead that you’re in right now.”

* Life Of Privilege Explained In A $100 Race (2017-10-14)

Some took 16 steps forward, some took zero, I took four (but not for the stuff in parentheses).

Did you serve in the military? Why or why not? Did your parents? Grandparents? I admit to not liking it when people say “thank you for your service” to me. It’s a cop-out. It allows the thankers to feel good about themselves while not confronting the reality that it is their own privilege that allowed them NOT to have to serve in the first place. You want to thank me for my service? Serve yourself – or at the very least give back.

I grew up in Maine, a poor kid in a rich town. I had food insecurity: free government cheese and free school lunches (and all the stigma that went with that) were part of my childhood. I knew that busting my butt in school was my ticket to a college education. My only ticket. I was smart, not smart enough for a full academic scholarship, but smart enough for an 80% ROTC scholarship. (Take two steps back.) I took a full course-load at MIT, one of the hardest undergrad schools in the country, but did not get any academic credit for my ROTC classes. (Take two steps back.) I served on active duty to pay for college while my MIT classmates made their first millions. (Take two steps back.)

Sour grapes, no. Perspective, yes. I’m still very much aware that I took four steps forward overall.

A Modest Proposal To Level The Playing Field

If you have never been an underdog in a playing field full of favorites, then you probably think that the field does not need leveling. But it desperately does. Unchecked presidential power is a very bad thing. An unchecked military is a very bad thing. Unchecked capitalism is a very bad thing, it creates extreme wealth and extreme poverty, which is why the American middle class has been shrinking for over a generation. (Unchecked socialism is also a very bad thing, but I’m desperately trying to keep politics out of this.)

Taxes are a check. Zoning laws are a check. Separation of powers is a check. Antitrust laws are a check. Checks exist and are proven to work, but only if we, as a society, have the courage to implement them. Again, this has nothing to do with politics and everything to do with system dynamics.

Here’s one example that impacted me financially. The 1982 breakup of the AT&T telephone monopoly resulted in competition in the long-distance phone market and new features: calling cards, call waiting, call forwarding, last-call return (*69), and others. This breakup laid the groundwork for the Telecommunications Act of 1996, which allowed for new competition in the local phone market in the Internet age, and allowed companies like Verio to compete against incumbents. I owned a slice of Verio, which was sold to NTT for $6 billion in 2000. Without the 1982 AT&T breakup and the 1996 reform, there would be no Verio.

Why do people hate monopolies?

Why did NYC denizens protest against Amazon?

Why does Sen. Warren want to breakup Apple, Google, and Facebook?

In the startup world, everybody wants to get acquired by Amazon, Apple, Google, Facebook, or Microsoft.

In the startup world, everybody is worried about getting big-footed by Amazon, Apple, Google, Facebook, or Microsoft.

Which is why a 2017 article in The New York Times use the phrase “the Frightful Five” to refer to Amazon, Apple, Google, Facebook, and Microsoft.

U.S. antitrust laws are good in theory, but in practice, markets and monopolies of those markets don’t fit well with current antitrust laws. Which is why we need a new solution. Sen. Warren comes close, but the problem is not large TECH companies, the problem is LARGE companies period.

Here’s my proposal. Every 10 years, the government conducts a census, which is a check on government power, since the census determines the makeup of the House of Representatives, among other things. So why not conduct a census of businesses as well? Every 10 years, the top 1% of the companies would get broken up into smaller companies.

Why is the CEO of Amazon more well-known and more powerful than the Prime Minister of Canada? In part because of a lack of courage and conviction to regulate large companies. (You know it’s true because “Jeff Bezos” immediately popped into your head, but you had to struggle to come up with “Justin Trudeau.”) Facebook has suffered from a lot of bad press due to privacy issues in the last year or so. Large companies CAN self-regulate, and sometimes make token efforts to do so, but there is little incentive for them to make meaningful changes, little history of self-regulation success, and I believe that it will take government to act, either to break up or to regulate large companies. I’m not alone:

* Senator Mark Warner Is Coming for Tech’s Too-Powerful (2018-10-11)
“A troublesome realization has dawned on the big technology companies: In the near future, Congress will impose regulation on them.”

And I’m also keenly aware that I am as guilty and privileged as many others writing about this topic. I hate a bad monopoly, yet I love the goodness of next-day delivery of just about anything from Amazon. But I’m not tone deaf about the shrinking middle class and the logical and predictable protests about a company like Amazon moving to NYC, which does little more than make the rich richer and the poor poorer.

Don’t be tone deaf about cheating.

Don’t be tone deaf about monopolies.

And don’t be tone deaf about what they have in common: positive feedback loops born from privilege.

And do vote, it’s the ultimate check.

Erik J. Heels has never belonged to any political party, made his millions in the Internet 1.0 boom, lost said millions to divorce and recessions, says what he’s going to do and does what he says, and gives back.