Freakonomics Radio - 307. Thinking Is Expensive. Who’s Supposed to Pay for It?

Episode Date: November 2, 2017

Corporations and rich people donate billions to their favorite think tanks and foundations. Should we be grateful for their generosity — or suspicious of their motives?

I'm sure you've been hearing the ever more anguished calls to regulate the huge tech firms known collectively as GAFA, Google, Amazon, Facebook, and Apple. These companies, these super large platform monopolists, they have developed the capacity to manipulate us, to control us, to control the information that is delivered to us, to control the pricing at which products are delivered to us, to control us as producers. The GAFA companies are far bigger, richer, and arguably more dominant than tech companies in the past. Google, for instance, has more than 80% of global search engine market share.

Facebook has nearly 2 billion monthly active users. Amazon has an estimated 90 million prime members in the U.S. That's something like 70% of all American households. It's estimated that 40% of all online spending goes to Amazon. This kind of scale creates a lot of concern. We've examined this concern in previous episodes, like who runs the Internet and is the Internet being ruined? We're seeing the birth of a new center of power, real power. We depend on these technologies that have been in many ways wonderful and fascinating, but they're making significant decisions unilaterally. There's also the question of whether the mission of these firms is as socially beneficial as many people believed they were in the early days of the internet.

There's all these really smart engineers. They're the brightest computer scientists, and all they're thinking about is, how do I keep someone on Facebook for 10 more minutes? What's the exact combination of things that will keep them stay on the site as long as possible so that we can show them as much advertisement as possible? So here's a question. If you were one of those huge, dominant, super wealthy firms, what would you do to ensure that the good times stay good? You'd probably spend a lot of money lobbying politicians, which, yes, they do. There's been a huge ramping up lately in lobbying by tech firms. But you might also do something a bit subtler than that. Yeah, there's been a parallel ramping up of the philanthropy that's associated

with the tech firms. And that philanthropy comes in a variety of different forms. Today on Freakonomics Radio, corporations using philanthropy to shape the public debate and how that can go terribly wrong. So that was on June 27th. And on June 29th, I was told that my entire team had to leave. From WNYC Studios, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner.

Our story today begins with a journalist. I'm Franklin Foer, a writer with The Atlantic. You are one of three brothers who write books. Talk about that for just a minute and the family that produced all of you. Right. So I have two brothers, Jonathan, who's written a number of novels, including Everything is Illuminated. And I got a younger brother named Josh, who is a science writer who wrote a book called Moonwalking with Einstein. And it's actually incredibly uncomfortable for us to talk about growing up in a family of other writers, just because I'm sure in some ways we benefit from the novelty act of being three brotherly

writers. But then we all, of course, want to be known for our own accomplishments. But, you know, our parents didn't do anything. They didn't force us to play violin four hours a day or sit down and study the great chess masters. We watched a lot of He-Man and Adam's Family reruns on television when we were growing up. But one of the things that they did was they gave us a credit card, which they said we weren't allowed to spend essentially on anything except in the event of an incredible emergency. And there was one exception to this, which is that they said that we could basically spend the credit card at will at the bookshop. And so they basically guided us to one thing.

Your first job in journalism was at Slate, one of the very first mainstream online publications, which was started by Microsoft. And so there was this huge enthusiasm, certainly among the chattering classes. There was a certain amount of utopianism that was associated with the emergence of the internet, this idea that we were going to tie the world together. I love search engines. I love the fact that I can access every book in human history in a nanosecond. I love that I can get things delivered to my door incredibly quickly. And these things arguably make life much better and maybe inarguably make life much better. So

these technologies were incredible. Amazon is an incredible company. The Kindle is an incredible invention. The iPad and the iPhone were incredible innovations. And so I think we were right to marvel at them. So after writing for Slate for a while, you moved on to the New Republic, as you call it, the intellectual organ for hard-nosed liberalism. You ultimately became editor there not once, but twice. So the New Republic was this little magazine that always had outsized influence in politics and culture. It was an incredibly elitist organ, and it managed to persist over 100 years while never really turning a profit. And so as we entered the internet age, that became a more and more difficult thing to

continue to do. And so we ended up shifting from one ownership group to the next. And I got so exhausted trying to find an owner and kind of sick of that, I ended up resigning as editor. But then a couple years after I resigned, the magazine got bought by a guy called Chris Hughes, who'd been Mark Zuckerberg's roommate at Harvard and co-founder of Facebook. And he bought the magazine. And to me, this seemed like almost too good to be true, that you had this guy who understood social media, who had incredible number of resources and seemed devoted to this little magazine that I was also devoted to. And so I came back and I edited the magazine and Chris and I tried to remake it. And the relationship in the beginning seemed like it was unbelievably good. Yeah, we became really good friends and it was exhilarating. We felt like we were trying to save something that was imperiled in the world and that maybe we could help provide some sort of dignified solution to the rest of journalism, which was grappling with a lot of the same issues

that we were grappling with. But there was a moment when things just took this turn, which was that Chris decided that he'd always talked about wanting to make a profit with the New Republic. And he suddenly decided that he didn't want to lose, at least not lose a whole lot of money with it. And so we had to turn around our financial position incredibly quickly. And so he insisted that we start chasing clicks. In 2013, the surest way to get clicks was to post a clip from last night's Daily Show with Jon Stewart. And you slap a headline on it, and you maybe write a couple sentences about it, and everybody would click on it. And you got caught up in at least monitoring the numbers, right? Yes, I did. Look, data is crack cocaine. And if you're the guy who had a hard time getting a date

in high school to suddenly find yourself producing things that are extremely popular, you become obsessed with replicating that popularity. You know, in some ways, everybody in the magazine wanted to be successful on Facebook. We wanted to master social media and this new environment, but we didn't want that new environment to dictate how we did our jobs. All right. So we should say that you ended up getting, well, you ended up quitting as you were about to be fired from the New Republic. Yeah. So, you know, I took the brave decision to resign when I learned that there was some guy who already had my job and was offering other people jobs at the New Republic, but it sounds as though you're also perhaps describing your view of what happened at places like Google and Facebook over time, where you may begin with a certain set of motivations, but as those motivations lead you to this overwhelming commercial success, you're so

seduced by the magnitude of that success that you can't help but want to replicate it over and over again. Yeah, that's completely right. I felt like, in retrospect, I realized that I was just living this compressed version of recent history. The recent history of the internet, at least. Over the years, Franklin Ford's view of the internet had shifted. The same guy who used to think this. There was a certain amount of utopianism associated with the emergence of the internet. And this. I love search engines.

And this. These technologies were incredible. Amazon is an incredible company. Has now come to think this. Amazon thinks of itself as the everything store. And it's gotten itself in pretty much every conceivable business. It owns Whole Foods. It powers the cloud. It houses data for the CIA and so on and so on. And there's really nothing that it doesn't try to squeeze into its empire.

He also thinks this. As Facebook shapes the way that we consume news, as Google shapes the way that we interact with information, and as Amazon has shaped the way that we interact with books, the dominance that these companies exert ends up trickling through the cultural intellectual ecosystem. And with Amazon, my concern is that the book business has become utterly dependent on them, that they hold one of the few true monopolies in the world. Actually, that's not quite true. My name is Swati Bhatt. I teach at Princeton. One course she teaches, the economics of the internet.

The existence of a monopoly of a single firm in any product space, unless it's a government-granted monopoly, is rare in the digital economy. So even though Amazon has, for instance, at least 70% of e-book sales, that doesn't make it a monopoly. Technically, no, because that leaves 30% for some other set of firms. When describing firms like Amazon, Google, and Facebook, Bott prefers the term behemoth. Yes, there is a difference. Behemoth suggests that it's simply a large firm, whereas a monopoly suggests that it's the only firm. Okay, economic semantics aside,OT does see strong parallels between these modern behemoths and what we traditionally think of as monopolies.

But a modern tech behemoth has a particularly modern advantage. So ownership of a scarce resource is the definition of a natural monopoly. And what we're seeing with the behemoths today is an ownership of a scarce resource called personal data or data in general. And there's an interesting kind of a self-reinforcing dynamic here where as a firm transacts, buys and sells. It acquires data about its consumers, and that enables it to grow by producing more personalized products, by advertising more effectively. And that brings in more customers, which brings growing chorus of other critics are so concerned about. the dominance of the big tech firms. It's not a particularly empirical book, and it's hard to say how much of Ford's argument was informed by personal experiences like the New Republic disaster. It also turns out that Ford's family, in addition to encouraging his love of books, encouraged his distrust of monopolies.

So my dad was a University of Chicago-trained lawyer who'd worked in the antitrust division of the Carter administration. And so I grew up in this household where antitrust was part of the family religion. My dad would drive around in a car that had a bumper sticker that said, bust the trust on it. It was a real obsession and passion of his. And for a long time, he was this lonely activist who was railing for greater, more aggressive enforcement of these laws prohibiting monopolistic behavior. And I always admired him for this quixotic stand that he took. But I never really fully bought into his arguments until Amazon got in this fight with the book publishers when it started to hit close to home. This was the Hachette deal.

Yes. Yeah, exactly. Let's just say something about book publishing, which is that book publishing is an incredibly oligopical industry. That there are four or five big companies that dominate book publishing. And they're oftentimes jerks. And so it's hard to have a whole lot of sympathy for the book publishers. But suddenly you have these five big companies that were up against one big company, which was Amazon. And Amazon basically controlled their access to the marketplace. And Amazon was renegotiating their e-book contract with the publishers one by

one, trying to strong arm them with their market power into pricing their books lower and lower. And so to me, it was grotesque and ominous that Amazon was just able to use its market power to try to dictate to the publishers in this incredibly aggressive sort of way. So where do you draw the line between winning or competing and being evil? Right. Persuade me that it's not just a case of big companies being really good at what they do and winning and you kind of having

sympathies with the people who are not winning? So my book in some ways is a valentine to competition that I believe that a marketplace is most healthy when you have a number of market players. So I might not love book publishing. It might be too concentrated in some ways for my taste, but at least there are five companies competing against one another for the marketplace. And so if I don't like the way that one company is treating me, I can always go to another company. Or if I don't like the goods that one company is selling, I can go to another company. And the problem with Amazon and the

problem with Google and to an extent with Facebook is that they become the only market player. And so the choice that we have as consumers is limited and competition is limited. So my argument is against the big technology companies, which really are racing to expand into every nook and cranny of our lives. As it happens, this expansion had just raced into Franklin Ford's own life. We spoke to him in early September, just before his book was to be published, and there had been a plot twist.

The New America Foundation supported my book. The New America Foundation is a center-left think tank devoted to, quote, renewing American politics, prosperity, and purpose in the digital age. It's run by the political scientist Anne-Marie Slaughter, who's a former top official in the Obama State Department. Yeah. One of the cool things that New America does is that they give money to journalists who are writing book projects. So, you know, I didn't get a lot of money from them, but I got a small sum. And they were especially generous to me because I'd just been fired from a job at the New Republic. And the partial funding of Ford's book about the dominance of firms like Google suddenly became relevant because...

That's since become relevant just because they fired a vociferous critic of Google from the foundation, which is noteworthy because the foundation has received a fair amount of money from Google chairman Eric Schmidt. Right. So how much fun is it for you to be publishing a new book and already distancing yourself from the foundation that funded the writing of it? It actually doesn't feel good because New America has been supportive of me over time, and I'd rather not seem like a jerk and disavow them when they've been so nice to me. But this does feel like sadly reflective of a much bigger issue. Who was the critic who was fired?

His name is Barry Lynn, and he ran something called the Open Markets Program there. Very active opponent of monopoly and a very vociferous critic of Google. We used to have an affiliation with the New America Foundation, but that ended on August 31st. We were kicked out of New America. And that is Barry Lynn. And I direct the Open Markets Institute. So the name of his project has not been taken away, but his affiliation with the New America Foundation has. We're working out of a WeWorks on the 1400 block of G Street in Washington.

Coming up on Freakonomics Radio, the story is not as neat as the headlines would have it. At no point did Google or any funder tell me to fire Barry Lynn. Also, funding controversies can reach across many decades, like all the way back to the founding of Stanford University. So there is an effort to unearth the sordid history of the university's initial benefactor. Barry Lynn started out as a journalist. I worked in Venezuela and in Peru as a foreign correspondent. And then after that,

I ran a magazine called Global Business Magazine. We should say it was a pro-business magazine. We were a magazine that aimed at the people who ran businesses. So we had a real inside look at how globalization actually works at the institutional level. That inside look led to Lynn crossing over to the other side. He came to believe that corporations are too powerful and that their power is too concentrated. This was a theme he pursued in a couple of books and, since 2002, with the New America Foundation. His project came to be known as Open Markets.

We got the work going going and we did it with increasing effect over the last seven years to the point where in 2016, we had a number of folks on the Hill starting to understand that indeed America has a monopoly problem. And the first person who sort of really reached out and said, I want to actually sort of help shine a light on this problem was Senator Warren. And the result was a speech that she gave on Capitol Hill. Senator Elizabeth Warren's speech was part of a conference organized by the open markets. It was called America's Monopoly Problem. Today in America, competition is dying. This was probably the most

important speech about concentration in the United States, about the monopoly problem, since a series of speeches that FDR gave in the 1930s. Google, Apple, and Amazon provide platforms that lots of companies depend on for survival. But Google, Apple, and Amazon also, in many cases, compete with those small companies. So that platform can become a tool to snuff out competition. And she said, you know, this is, it's not just an issue that affects us as consumers, it also affects our democracy, because it's this concentration of power that leads to concentrations of wealth. And concentrations of wealth lead to concentrations of control over government and other institutions of authority. This line of criticism would seem to be pretty much in sync with the mission of not only open markets, but also its parent organization, the New America Foundation. In my own scholarship, I've written about monopolies and risks of consolidation and

data ownership. That's Anne-Marie Slaughter, the former State Department official and Princeton professor, who's now president and CEO of New America. What convinced me to leave Princeton and become head of New America, which was a big move because I had a wonderful position at Princeton, was this idea that we really could be a place that hosted fundamental debates about our future in the digital age. But as Barry Lynn tells the story, New America didn't share his enthusiasm for the conference he put together where Senator Warren spoke.

Well, a few people in my organization at New America were not happy with the way we were framing the conference and the fact that we were focusing some of our attention on the platform monopolies and especially on Google. What was wrong with especially on Google. What was wrong with focusing on Google in a conference about monopoly? Remember, they do own some 80% of the global search market. Or I guess the question is, why was our work at New America problematic for Google? Google, Eric Schmidt, who is now the chair of the board at Google, was also for a long time on the New America board and then for a period of time served as the chair of our board. Eric Schmidt, who was CEO of Google for 10 years, has also given New America a lot of money, both personally and through his family foundation.

So did Google itself. Between Schmidt and Google, New America had received roughly $20 million since its founding in 1999. So there was a relationship between our two organizations. And this is a relationship that goes back to the very early days at New America and actually had never seemed to result in any kind of problems at New America up to this point. But now it seemed there was a problem. Were Schmidt and or Google leaning on New America as Lynn's critique of the company grew more intense? A year after the New America conference where Senator Warren spoke against Google's domination, European antitrust regulators

hit Google with a huge fine, $2.7 billion for allegedly tilting search results in its own favor. Barry Lynn posted a statement on the New America website. It congratulated European regulators for giving Google such a good spanking and urged American regulators to do the same. Yeah, we released this statement in support of the decision in Europe. And that was on June 27th. And on June 29th, I was told that my entire team had to leave.

And we had two months to leave. One natural conclusion to draw was that Google had stepped in and asked New America to do something about Barry Lynn. Indeed, that's how it was portrayed in The New York Times. Their headline read, Google critic ousted from think tank funded by the tech giant. And at that point, I asked for this decision to be reconsidered. And if it could not be reconsidered, I asked for more time.

And I was told that neither of those was possible. The writer Franklin Foer, who happens to sit on the board of Barry Lynn's Open Markets Institute, told us a similar version of events. He made it clear that Lynn's statement about the European regulators' decision. This was something that was a bit too far for Google. And New America was very generous in supporting me, and they never did anything to interfere with my own work. But I was fairly outraged by their treatment of Barry. And I can't resign from New America because I'm not affiliated with them. I'm not taking any money from them now. But I'm extremely disappointed. But Anne-Marie Slaughter offered a substantially different portrayal. First of all, she says, No funder at New America has ever influenced New America content in any way.

And this, Well, New America has a set of principles on our website that makes very clear that no funding can affect the integrity of our research or shape the research in any way. We do not pay to play. We take funding and we do our work, and those two things are separate. But the timing of Lynn's firing certainly gave the appearance that Google and or Eric Schmidt had asked Slaughter and or the New America Foundation

to get rid of Barry Lynn and his open markets. And Slaughter found herself on the defensive. At no point did Google or any funder tell me to fire Barry Lynn. And at no point did Google or any funder try to influence the work of anybody here. And if any funder ever did tell me that, I'd tell them to take a hike. That's slaughter at a New America event a few weeks ago called Is Big Tech an Existential Threat? The event was actually in support of Franklin Foer's book. I did not part ways with Barry Lin for anything to do with Google. So I decided

that Barry Lin and I had to part ways because he could not work respectfully, honestly, and cooperatively with his colleagues. So Slaughter says she got rid of Lynn not because of a funding conflict of interest, but because he was a difficult employee. That said, she acknowledges a real and longstanding tension between the people who fund research and the people who do research. I don't actually think this is just a think tank issue. I worked at major universities, three universities, and universities have private funders for to navigate, but the management does. I think there is a general tension wherever you need to protect the integrity of research.

And you also need to fund that research. New America says all its major funders are listed on its website. We asked Slaughter for a breakdown. Only 12% comes from corporations. The rest comes from foundations. By far, the largest amount comes from foundations and then from private individuals. Taking corporate money does not mean necessarily that the work of the entire institution is suspect. Barry Lin again.

But it definitely can create a slippery slope that will lead to pressures being brought to bear on those people who are questioning concentrations of power or the use of corporate power in other ways. I think people are right to have a kind of skeptical, maybe cynical orientation to what let's call corporate lobbying or corporate philanthropy. And that's Robert Reich, a political scientist at Stanford. My research interests these days focus a great deal on philanthropy and the role philanthropy plays in democratic societies. And that philanthropy increasingly comes

in the form of foundations. There are lots of foundations. What is the median size of assets? It's really small, right? A million or so dollars? Oh, yeah, it's not much. It may be, yeah, a couple million dollars. But there's an enormous growth in the number of foundations. And that's just a kind of logical consequence of the growing inequality in the United States. Just talk about your thesis, essentially, the role, the influence, and the complications around modern philanthropies. I'd start by saying most people's attitude about philanthropists and about foundations is that we should be grateful that people are trying to do good with their own money. And that's the attitude I want to try to sweep away.

I don't think philanthropists deserve that amount of charity, if you will. Why is that? Because philanthropy, especially large philanthropy in the form of a foundation or especially wealthy person, represents the exercise of power in which they attempt to use their own private wealth to affect public outcomes or to produce public benefits or make social change. And power deserves scrutiny in a democratic society, not gratitude. I'd add on top of that, a foundation in particular, which is a legal form that allows a wealthy person to create a donor-directed, unaccountable, barely transparent, perpetual, and tax-subsidized corporate form in order to use their private assets to affect the public is an especially interesting and potentially

worrisome form of power. Let's talk about think tanks per se. Is there such a thing as a truly nonpartisan think tank, or is it just too hard because of where the money's coming from? Well, I'd say that you're more likely to make the case that there are nonpartisan universities, universities which are funded in not entirely dissimilar ways from think tanks. Well, officially, they have to be nonpartisan. So do think tanks, too. In other words, they can't declare themselves in favor of particular political candidates. But think tanks have become far more popular in the United States as a result of the

polarization and inequality in the United States so that the idea generation that happens in think tanks and the policy frameworks and proposals that get disseminated from think tanks flow from philanthropic interests with particular policy positions in mind. Tell me what you know about Google's history of philanthropic or foundation or think tank giving and especially the timeline, because I understand it's accelerated quite a bit recently. Yeah. So Google, like lots of other tech firms, has gotten much more aggressive in its formal lobbying efforts. And I think it's now the case that the top five Silicon Valley companies are amongst the largest sources of lobbying, greater even than the five top Wall Street firms in New York. And there's

been a parallel ramping up of the philanthropy that's associated with the tech firms. And that philanthropy comes in a variety of different forms. So, Rob, knowing what you know about the situation with the New America Foundation and the Google money and the controversy, what would your advice be for them, for the New America Foundation? The New America Foundation needs to be aware of the soft power, the agenda setting influence that donors can have to the think tank, even in the absence of calling someone up and saying we disagree or we object to the work that someone does. So when Anne-Marie Slaughter, whose job is chiefly to ensure the existence of the New America Foundation into the future, which involves fundraising, does her work, she needs to be cautious that she hasn't internalized the policy preferences of the donors such that she shapes the work of the foundation around the

donor interests. The idea is you're worried about the conversation you'll have with your donor in the future. And so you orient the work that you do to please the donor rather than to displease the donor. And that has functionally the same outcome from the donor's perspective without even having to say anything. Now, your own fine university, Stanford, benefited, was founded from the largesse, private largesse of a man, Leland Stanford, who, you know, most of history paints him as a classic robber baron, a railroad man who did all kinds of stuff that we would frown upon today. Talk to me about that and whether that's a conversation that takes place regularly at Stanford or is it avoided? So I'd say people here are aware of the history of the university and the deep connection between

philanthropy and the well-being of especially wealthy universities. People here, I think, know something about the history of Leland Stanford. And so there is an effort on campus to unearth the sordid history of the university's initial benefactor. Has there been any movement of any kind of magnitude to rename the university? Not that I know of. They're starting with lower hanging fruit, other monuments and places on campus named for people with no obvious connection to the university and whose historical records are not so appealing. So let's say I have some money, Rob, and I want to set up a foundation, okay? And I come to you and I say, you know, I'm a big believer in bringing critics into the inner circle. And I know that you've been critical of how

foundations behave and that it's undemocratic and so on. But, you know, Rob, I'd like to make you the director of my foundation, the executive of my foundation. And let's say I made my money in ammonia fertilizer. How would you go about setting it up in a way that takes advantage of my largesse to try to accomplish something that we could all agree is some kind of public good without falling into all the traps that you've been describing to us? So at first I'd say, despite the fact that laws don't require me to be especially transparent about what the foundation is doing, I pledge to make completely available to the public all of the grant making we do, the evaluations of the grants that we make. I want to invite in outside

experts as well. And I would want to find ways in which to organize a foundation's efforts to seek out the most severe critics of what we were doing in order to try to learn the most in order to give grants away to greater effect. And let's say I also make you chairman of the board. Tell me about that board, how you'd set it up. What would the elections look like? What would the terms be like? Who's on it?

Well, elections already reveal that you don't know much about how foundations are operating. There are no elections on the boards of foundations. The boards are handpicked by the initial donor. And you can create the governing board of the foundation in such a way as you guarantee that only family members and heirs ever serve on the board. So there's no public representation necessary. neighborhood of $40 to $80 billion, and it devoted to philanthropy, has as its governing trustees, Bill and Melinda Gates, Warren Buffett, and I believe Bill Gates Sr. And I'd like to see possibly experimentation with a form of foundation peer review in which, you know, an effort analogous to what happens in academia happens within the foundation world.

It would be surprising if the philanthropic efforts of corporations were purely altruistic. Corporations seek to advance their own interests, especially in their lobbying, quite possibly often in their philanthropy. I'm trying to stimulate people to be morally awake and in the same moment to get people to consider what types of public policies or frameworks ought to govern and structure our collective lives, which is a moral and philosophical question. That was the Stanford political scientist Robert Reich. We also heard today from Anne-Marie Slaughter, Barry Lynn, Swati Bhatt, and Franklin Foer. Coming up next time on Freakonomics Radio, my Freakonomics friend and co-author Steve

Levitt drops by to answer your frequently asked questions. So that is one of the weirdest definitions of social good that I've ever heard in my entire life. So the thing you want to do is, I think, from a public policy perspective, is not put people's identity and their morality in conflict with efficiency. As you take the knife and think about whether you're going to stab the person with it, you're not thinking about what's going to happen 15 years later when I apply for a job and I have to check the box. That's next time on Freakonomics Radio. and Harry Huggins. The music you hear throughout the episode was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts or Stitcher or wherever you get your podcasts. You should also check out our entire archive at Freakonomics.com. You can stream or download

every episode we've ever made. You can also read the transcripts and you can find links to the underlying research. We can also be found on Twitter, on Facebook, or via email at radio at Freakonomics.com. Thank you for listening.