The takeaway from all of this is that their control over digital platforms enable Big Tech firms like Google to design markets in ways that best suit them. The lack of transparency in these platforms means that markets can deviate quite significantly from the assumptions of pro-market thinkers and policy-makers who have dominated how we understand economies and societies since the 1970s.
Often defined as ‘neoliberalism’, the underlying assumptions of this worldview can be described as a political-economic and moral project to redesign societies to put markets at the centre of decision-making, whether by governments, organisations, or individuals. Harking back to the work of thinkers like Friedrich Hayek – the famous peripatetic Austrian economist – neoliberalism is premised on the idea that no one agency (e.g. government) can coordinate the economy or society because it lacks the cognitive capacity to process all the information we individually produce and use to make everyday decisions. For Hayek and other neoliberals, markets are the best information processors for efficiently coordinating our societies. As Hayek put it:
‘The reason for this [economic problem] is that the “data” from which the economic calculus starts are never for the whole society “given” to a single mind which could work out the implications and can never be so given’.
Hence, markets are the best way to coordinate society since they can provide us with information to make the right decisions. They do this through the price mechanism, where prices are proxies for information telling us what and when to produce, when to change our preferences, and how best to manage our collective resources. Markets are, in this framing, both a factual and a moral mechanism; they tell us how to decide and what decisions are best to make.
Within this neoliberal narrative, information becomes a critical component in the working of markets. People cannot reveal their preferences or make decisions without information. Since Hayek, the problem of information permeates much orthodox economic thinking. However, it is precisely in neoliberal thinking about information that its assumptions about markets start to come unstuck. This is because, at least in the policy and legal spheres, neoliberal thought gradually shifted from Hayek’s view that societies will gradually evolve towards markets and market thinking to a perspective in which societies are simply assumed to operate like markets with everyone behaving as if they are market actors responding to incentives, defined by prices as proxies for information.
This is wonderfully outlined by S.M. Amadae in her book Prisoners of Reason. Her basic argument is that the goal of neoliberal thought and policy-making is that once you have worked out what markets should do, then you no longer need to let markets emerge spontaneously, in a Hayekian fashion. Rather, you can design markets to achieve what they need to do to achieve your desired policy outcome.
And this is exactly what happened; the various ideas about market or mechanism design – like second-price auctions – became wedded to assumptions about what our individual and collective goals should be so that policy-makers could design markets to that end. So, when governments seek to privatise public assets, or deregulate electricity supply, or auction off radio or cell phone spectrum, they use mechanism design. Results are varied, sometimes generating enormous government revenues (e.g. UK G3 spectrum licensing), but sometimes leading to significant problems (e.g. Californian electricity deregulation).
Such market or mechanism design has a relatively short history, going back to work by economists like Vickery in the 1960s, but it was not until the 1980s when it really took off and became a staple of policy-making. Second- and third-price auctions, explained above, are an example of how to design markets; such auctions are configured by the assumption that we are rational and self-interested beings who seek to maximise our own interests, which in turn will generate collective, social benefits. For example, cell phone spectrum auctions are supposed to generate as much government revenue as possible, while not discouraging innovation.
The key, then, is to create market mechanisms that get us to reveal our preferences through the design of ‘choice architectures’, like auctions, ensuring that we are always truthful about our desires in making our choices. Many contemporary conceptions of markets – and not just the neoliberal version – depend on this idea that markets reveal information upon which we can all act as individuals, without the (assumed) distorting interference from a central planner (e.g. government). Market design, however, actually turns all of this on its head. Market designers can create whatever markets they want to achieve whatever outcomes they want; individual preferences and decisions are sidelined here, since market designers can construct whatever market architecture they need to incentivise us to do what they want (e.g. increase revenues, welfare, or efficiency).