We now know the markets don’t always get it right. For one thing, madness of crowds can infect markets; that is why we get economic bubbles, and that is why we got mortgage securitisation and the credit crunch.
We should know that markets can send us down a blind alley. For years the UK economy grew on the back of cheap credit, boosting spending.
But very little of this cheap credit found its way into business investment. The markets erroneously chose property over investment. The result was an economy that grew on hot air, which is why we now have such deep problems.
And just as markets can get it wrong, the markets don’t necessarily ensure that business serves the interests of its customers. For that reason, the auto industry was slow to adopt safety belts in cars when they were first invented, because they feared that by doing that they were somehow suggesting driving was dangerous.
It seems likely that some companies deliberately make products so that they will go wrong after a couple of years, so we are forced to replace them.
Contrary to economic theory, the interests of consumers and business do not always coincide.
But now, we are seeing this clash manifest itself in a way that few have noticed. The superficial victim is Google, but the long-run victim will be us. At least it will be us if Google loses the battle.
Google is fighting a legal battle on all fronts. On one side of the battle are the interests of us, the consumers, and on the other side are the interests of certain businesses, but whose interests are quite different.
The last few days have seen the battle gain new momentum.
Google is a threat to traditional business. It is a threat to companies that make money by charging for software. It is a threat to newspapers and magazines which charge for content. It is a threat to traditional players in the music industry. But it is far from clear it is a threat to us. Despite warnings from the music industry, we have more musical choice than ever before. Despite warnings from traditional media, we have more good content to choose from than ever before.
Google, and other products of its ilk, have cut out the middleman, and provided direct contact between the end user and the producer. This is creating more variety than ever before. The consumer is the winner, but some traditional businesses don’t like it.
An outrageous decision by an Italian court illustrates the story.
Italy, the land where the top politician made his wealth from a media that was more gutter-like than the UK’s gutter press, has made criminals of three Google executives for a crime they had nothing to do with. An extremely unpleasant video of an Italian boy being bullied was uploaded via the Google network in 2006. The view was horrible, and when Google were made aware of its presence it was removed within hours. Now, three Google executives have been given six-month suspended prison sentences. Matt Sucherman, who is the vice-president of Google and its deputy general counsel for Europe, the Middle East and Africa, said of the three executives: “They did not appear in it, film it, upload it or review it. None of them know the people involved or were even aware of the video’s existence until after it was removed.” He added: “If social networks and community bulletin boards were held responsible for vetting every single piece of content that is uploaded to them – every piece of text, every photo, every file, every video – then the web as we know it will cease to exist and many of the economic, social, political and technological benefits it brings could disappear.”
Meanwhile, the European Commission is looking into complaints from three of Google’s competitors that Google is deliberately making them appear lower down in search engine results.
European politicians are gunning for Google. They hate the way Google is attempting to produce an online library – which is potentially, by the way, one of the greatest tools for disseminating information ever invented. Now they are looking for an excuse to get back at the company. Above all, they hate the way Google and its like run roughshod over their protectionist principles.
Google says “Don’t do evil”. Anyone who works in an Internet-related field knows that the Google algorithms are some of the great unfathomables. But Google has earned its position in the market by being objective. By making its search engine as fair as possible. It can be a frustrating company to deal with, but it does try to be fair.
Google is not a saint. It doesn’t always get things right. The fact that terrorists can follow the movements of the US fleet via Google mapping products is a tad worrying.
But be in no doubt; Google represents a threat to companies whose business models are not in the consumer’s interest.
Take as another example, Linux. This is not a Google product of course, although the Californian company has warmly embraced it. But the ethos of Linux is closer in spirit to the Google ethos than its traditional rivals.
Linux is a throwback to a different age. An age when people did things because they wanted to, rather than because they were paid to. An age when footballers earned a wage that was barely above the average, but despite this the men blessed with footballing talent still chose professional football as their career. Today, clubs such as Portsmouth go bankrupt because they can’t afford their players’ wages. But is football any more entertaining today than it used to be?
Football has seen an arms race, but it is doubtful the consumer has benefited. It seems the only people to benefit from this arms race are Chelsea fans.
Linux sits at the opposite end of this spectrum. It also sits at the opposite end of the spectrum from bankers and their bonuses.
The Internet can restore the balance. But not everyone wants that.
© Investment & Business News 2013