In the wake of Monday’s market falls, Kevin Crane analyses the long-brewing crisis in the overvalued technology sector, which is increasingly unfit for purpose

Even if you’d been paying reasonably close attention to the big economic picture this year and were anticipating trouble for a lot of the USA’s biggest corporations, 5 August 2024 was still a huge event. After months of increasingly nervous and sceptical news stories, and major job cuts, all seven of the biggest tech companies suddenly posted massive losses of share value, amounting to the sudden disappearance of over $600 billion from the economy. Amazon, Google, Facebook, Microsoft, Tesla, and Apple all had up to 5% losses in value – which would be a shock anyway – but they are dwarfed by the over 12% drop in the value of Nvidia, the veteran computer hardware company that was only recently enjoying absurd value growth due to its processors being in extreme high demand for the development of AI. The panic, which had already triggered historic panic selling in Japan, arrived in Europe not long after, and is already getting labelled ‘Black Monday’.

It is now widely believed worldwide that Big Tech is in the early stage of a massive collapse, and that this will drag the entire American economy into recession, with obvious implications for almost every other country in the world. Like any bursting economic bubble, there is something darkly comical about the fact that anyone gets to act surprised: all capitalist economies do this, everyone knows they do it, but capitalism demands they perpetuate the dance of death anyway. The tech wreck of 2024 isn’t even the first internet-based economic crisis: that was the Dot Com Bubble nearly a quarter century ago. What makes this way bigger than that is not just the quantity of money, however; this has the look of a reckoning not just about internet businesses, but the entire internet and much of the modern economy by extension.

It was a simpler time; it just didn’t feel like it

The original Dot Com crash was a strange event to live through, because for a lot of people it just felt a bit surreal, almost like something that wasn’t happening in their world. It was 2001, and mass internet connectivity was still such a new thing that we’d only been keeping statistics on it for four years. The novelty of trading online meant that businesses were generating a massive amount of commercial, media and political excitement. There was widespread naivety about what could or couldn’t be done on the internet. This was coupled with a need by finance capitalists to find new things in which to invest in the Global North, since globalisation was taking manufacturing steadily away from that space. Money flowed into the first generation of tech start-ups, and they became hilariously over-valued. The resulting crash, once the bluff of company stock prices was called, made big news for months, but it was mostly containable damage. For a lot of ordinary people, it was all just a confusing curiosity, since these were often companies offering products and services they didn’t use and of which they hadn’t heard.

Business got a bloody nose, though, and treated tech with suspicion for much of the rest of the decade. That came to an end with a much bigger economic crisis: the 2008 financial crash. This time, the investment bubble had been housing – something everyone has an opinion on – and it was anything but contained. The shenanigans involved in this crisis are beyond the scope of this article, but the short version is that absolutely core institutions of global capitalism, the big banks, had broken themselves selling unpayable mortgages on vastly over-priced property, and then traded these debts as if they were guaranteed money-making assets. This time, when the bad poker hand got called, it caused international-level crisis.

To save banks that were ‘too big to fail’, governments unleashed a flurry of emergency financial measures. One of those that’s still with us here in Britain is austerity, but another was ultra-low interest rates. This worked, proximately, at allowing the banking sector to get back to lending money (at a significant cost to the living standards of millions of ordinary people), but also had a big impact on the behaviour of investors and the businesspeople trying to get them to invest.

The rise of big tech

Near-zero interest rates meant that companies could borrow at huge scales, limited almost only by their ability to convince the people with the purse strings – major capitalists and the national investment funds of oil-exporting countries – that they had something exciting in which to invest. The obvious choice was a rapidly evolving tech sector.

The Web 2.0 transformation was already in progress at this point. Google made the internet vastly more searchable, Amazon made it the world’s marketplace, and social-media sites like Myspace, Twitter and Facebook were replacing not just physical post and printed publication, but also phone calls and TV. Mass infrastructure has probably never changed as rapidly in human history as it did during the Barack Obama administration. The tech sector boomed and, flushed with success and apparently endless cash from investors, grew into the dominant industry on the planet. The internet had essentially become the primary connection between most of humanity, even reaching into parts of the Global South where the telephone hadn’t been accessible until very shortly prior.

The progress of tech seemed superficially unstoppable for most of the 2010s, but tensions were visible below the surface toward the end of the decade. For starters: growth was slowing down, because virtually everyone who could be connected to the internet now was, and the only way to access untapped populations would be to invest heavily in electrical infrastructure to penetrate even deeper into poorer Global South countries. Beyond that, though, public opinion was starting to sour on some of the biggest brands: the demise of highstreets and of print media was starting to worry people. More than this, though, was the sheer power that big tech companies had now acquired. A narrow generation of computer programmers had, more through luck than judgement, ended up as the private owners of what was essentially public infrastructure. By the decades’ close, the conversation about the internet bringing the world together and helping people get the best possible information had changed to one about sinister, inscrutable ‘algorithms’ disseminating divisive propaganda and imposing control on people. And just as this was reaching a crescendo, Covid-19 hit the world.

Gone Viral

The Global Pandemic had divergent short-term and long-term impacts on the tech sector, but both played a role in the current disaster. The short-term impact was that, with millions of people being told to stay home by their governments, the opportunities for them to make money out of a literally captive audience were suddenly an order of magnitude greater than ever. This caused the big companies to engage in even more concentrated programmes of expansion in both size and operations. The long-term impact, however, has been the end of the ultra-low interest rate regime, which made that response a massive mistake.

The mainstream story about tech since 2020 has been a series of increasingly over-the-top hype cycles, in which a series of shiny new things came and went with dizzying speed. First it was cryptocurrency and non-fungible tokens (NFTs), forms of virtual property that you could spend money on, despite their very limited use cases. Then it was virtual reality, but not like 1990s virtual reality because now we were calling it ‘the metaverse’, for some reason. Then, last and absolutely not least, it was AI, which is still with us … just.

Each of these fads has been, essentially, an investment bubble within an investment bubble. The tech companies have been running off a decade-long model of bouncing from venture capital hit to venture capital hit, and they can’t even imagine trying to stop. Each iteration sees millions of dollars of said investment money poured into expensive, elaborate technological work with dubious use cases and very limited public uptake. In so far as they keep the finances flowing, they succeed, but it’s become increasingly clear that they haven’t achieved at much else.

The sheen has severely come off AI recently. Public perception of it is absolutely abysmal and it is seen variously as pointless or menacing by ordinary people. Last week it got worse, though: the banking behemoth Goldman Sachs headlined a report into the topic with the simple, but devastating, ‘Gen AI: too much spend, too little benefit?’

Behind all that, though, there’s a deeper malaise, and it’s something people experience more than they talk about. The internet is, by all measures and in all senses, ceasing to work properly. The burning disaster of Twitter is well enough documented, but there hasn’t really been enough focus on the more significant failures of more significant websites. We should talk about some of the key ones.

Look on these works, ye mighty…

Facebook is dying a quiet death, its user numbers are too low for the parent company to admit what they even are, and advertisers are becoming increasingly sceptical as to whether they are actually paying to advertise to anyone. If you’ve used Facebook lately, you know why people aren’t logging on like they used to: what once was an almost indispensable tool for contacting friends and family now just gives you horrible torrents of inane and unpleasant memes you never asked for, in a desperate bid to cover the fact that, aside from its overpriced ads, there’s really nothing much in it now. Other platforms, notably Instagram, are similarly affected, but not as far along in their decline.

Amazon has become worse in a much more insidious ways: the conflict of interest it has as a combination of advertiser, vendor and broker has resulted in the site being incentivised to maximise its income by a variety of unprincipled means. It charges other companies fees to advertise and carry their stock, only to undercut them by steering consumers to a product that Amazon makes the margins on. One that’s probably also worse for you as the consumer.

But the most shameful example is unquestionably Google, which is basically collapsing and bringing the internet down with it. A mere few years ago, Googling something took you about five seconds and got you what you wanted almost instantly. Today, a Google session has become a frustrating, tedious slog, as you desperately enter and re-enter various combinations of searches and scroll through pages of adverts and unwanted nonsense in vain bids to get anything resembling the output you wanted. The uselessness of Google, however, has a horrible feedback effect back into the wider internet. Pages are having to be constructed or reconstructed to try to be seen through Google’s increasingly labyrinthine algorithms, not to carry the best information … in fact the quality of information basically doesn’t matter to Google at all, so no effort (money) can be spent on that.

The journalist and author Cory Doctorow was an early identifier of this horrible process around eighteen months ago, and he gave it its popular name: ‘enshittification’. Now, the exact way that enshittification works and when it began is debated, but for our purposes, it’s probably simplest to look at as a function of the unhealthy dependence of Big Tech on constant capital investments.

Karl Marx, famously, described capitalism as being a system in which the relationship between money, M, and commodities, C, was like this: M-C-M. This was to say that money was spent to create a commodity, and that this was then sold on a market to get more money. The commodity is therefore not the ‘point’ of the capitalist production process, the purpose is to get more money. That shouldn’t be to say that the commodity doesn’t matter, however, it just needs to be suitable for getting that second lot of money.

At some point during the era of near-zero interest rates, M-C-M has gotten severely distorted, and is not happening properly. Huge, apparently successful, businesses are taking investor cash, M on the left, and then getting another hit of it that means that the profits, M on the right, never really need to arrive. But… that was the only reason you actively cared about C. As long as Big Tech got Big Finance to keep stumping up, they could keep going, and it is even possible to appear to be making returns on investment by giving one investor’s cash to another. Which is great … but that’s not production, that’s an unsustainable fiddle called a Ponzi Scheme.

….and Despair

Big Tech makes commodities in the form of products and services that are designed to look like a smart investment, but sees it as a waste of money to make them actually any good. Even if they are initially good, the pressure on the company to reduce expenditure on whatever it is, after it is no longer ‘new’, will mean that it won’t stay good for long. Streaming services are an excellent example: these exploded in popularity in the run-up to and during the Covid lockdown, and at one stage there were more than half a dozen major platforms competing for the market. Many of these have gone to the wall and the ones that survive are offering inconsistent rosters of content, which can often disappear from the service suddenly and permanently. This is to say nothing of the fact that terms and conditions are so arbitrary that it is apparently no problem to suddenly introduce adverts on a paid service that hadn’t previously had them.

As mentioned with Google, though, the most serious issue is not just that you can’t get good deals like you used to, it’s that the absurd power of the tech companies is such that their poor decision making actually harms the internet. To an extent, their nature as practical monopolies has even undermined what the internet was intended to be. The whole basis of the system in the 1970s was to construct a super-robust form of electronic communication which would keep operating in the most extreme of catastrophes, including nuclear war. Fifty years on, it is so captured by oversized private companies that relatively small mistakes can simply lock large chunks of it down entirely. Google’s services fell over worldwide in 2020 and 2022 multiple times. Facebook and its other apps did the same in 2021. Most alarmingly so far, just last month, Microsoft caused global chaos when it allowed a single error by a subcontractor to crash computers in essential services all over the planet.

NFTs, the metaverse and AI – as well as other even more stupid ideas like driverless cars – were essentially products for no market at all, since it was never clear how they would ever actually be commercialised. We can file them along with a bunch of other ‘solutions to no problem’: to attract the next investment hit while we all wait for the next idea. It really looks like the end of the road, though: there is no obvious replacement for AI when that bubble bursts.

The Virtual World ruins the real one

For far too long, we treated the internet as if what happened in it was occurring in another dimension. This was ultimately because it was very easy to keep the details of its functioning out of sight and out of mind, but it means that unpleasant realities have caught up with us rather rudely.

The nastiest shock is the revelation of just how bad the tech sector is for the environment. Big Tech doesn’t do much without Big Energy, and its energy consumption has started to become a real obstacle to decarbonisation targets. The internet does not live in actual ‘clouds’, it is housed in vast computer warehouses called datacentres, and these need to be powered and cooled with electricity. Far from trying to economise and moderate these needs, the tech sector has been doubling down and demanding more constantly. It is an international scandal that the production of cryptocurrencies and NFTs churned out more CO₂ than many countries, contributing to global warming and consuming vital resources that so many people in poor countries lack, all to produce entirely pointless products.

The AI carbon footprint is even worse than that of crypto, however, and part of what made Goldman Sachs announce that that party is over, is that the AI companies are demanding literally impossible quantities of electricity for the next iterations of their commercially unwanted software. This is power demand to support an absurd number of new datacentres, to be filled with an absurd number of Nvidia processors. If you think that there might be a link from all this back to the events described at the top of this article, I would agree with you.

The US state has, this very week, begun to act against the economic domination of tech companies: Google has finally been ruled to have a monopoly in the general search market, after twenty years of being one. It is difficult to say much to this development other than ‘too little, too late’. The sector is an utter mess, unsustainable financially, ecologically, economically or politically. It’s downfall will not be fun, as huge numbers of jobs are lost and America is dragged into near certain recession.

In real terms, what the left needs to take away from this crisis is not just the understanding that it is going to lead to another major period of instability (regardless of who wins the American elections this year), but also to begin seriously to consider how, if we could, we would have done this period of technological development differently. It’s a challenge to imagine our own vision of a truly public internet, but think about it this way: we couldn’t have got it much more wrong than these guys.