29 July 2017

Chavez, cloud computing and the case for cutthroat capitalism


Here’s a question for you. Which of the big tech firms is growing the fastest? Here’s a hint: it’s the one that has quadrupled its revenues over the last three years, while slashing its prices some 62 times. It’s also the one that this week announced another quarter of extraordinary growth, with sales up 42 per cent year on year.

Actually, it’s a trick question. The firm in question is Amazon Web Services, the cloud computing division of Jeff Bezos’s retailing giant.

People talk about AWS as providing “software as a service”. But that’s underselling it. What it actually does is turn computing power into an on-demand utility. The companies and charities and government departments that use it don’t need to maintain vast banks of servers. They can buy (or rather rent) as much processing power, or bandwidth, or data storage as they need, for pennies on the dollar.

This sounds rather technical. But think of it this way. If you’re a small team running a start-up in Liverpool, you’ve suddenly got the infrastructure to cope with the web traffic if the world beats a path to your door. If you’re an engineering firm based in Swansea, you can model a thousand, or even ten thousand, variations on the design of your latest product, simulating their aerodynamics within hours rather than tasking an in-house computer to spend days crunching through them. If you’re running London’s transport network, you can call on the latest machine learning software to spot patterns in millions of people’s Oyster card usage.

The availability of cloud computing is not just speeding up innovation, but making it possible. Much of the recent wave of tech innovation – the explosive growth of firms like Airbnb, Lyft or Spotify – would not be possible, or would have been exponentially harder, had those firms had to bolt together their own computer systems, still less had to replicate that capacity in every new market they entered.

Access to cloud computing, in other words, is becoming like electricity, or gas, or water, or transport – one of the basic prerequisites for a functioning modern economy.

But AWS’s story points to something else. I’ve written quite a lot recently about the way the modern economy – especially the digital bit of it – tends towards monopoly. But those monopolies are a problem of success: they exist, at least in tech, because those companies are so damn good at giving the customers what they want.

Now imagine if the Government had tried to provide cloud computing. Imagine a John McDonnell, sitting in the Chancellor’s offices, deciding how to equip Britain to face the challenges of the 21st century. There would be funds, and directives, and regulations, and probably even some state-owned enterprises. There would, above all, be Plans.

Jeff Bezos, when he set up AWS, didn’t have a plan – other than to find some use for all the computing capacity that Amazon had piled up. He didn’t want to make the world a better place, either. That was a happy side-effect.

This weekend, many of us are trying to come to terms with the ruination of Venezuela. That tragedy came about, as I wrote yesterday, because of people with Plans. People who thought that an economy was best guided from on high, rather than down below. (An economic error which Deepak Lal, the latest guest on our CapX podcast, spent decades correcting.)

The problem with Venezuela, of course, wasn’t just the Plans. It was what happened when Venezuelans’ actual behaviour failed to conform to them. At every stage, the Chavistas interfered and intervened that little bit more – slowly compounding and compounding their mistakes, and their citizens’ suffering. And they were cheered on every step of the way by their fellow travellers in the West. (I’d call them ‘useful idiots’, but I’m not so sure about the ‘useful’ part.)

Yes, capitalism as practised in the West has its problems – which you’ll daily find anatomised on CapX and elsewhere. But in the end, it’s far better to be the kind of country that produces start-ups than the kind that nationalises data centres.

This article was taken from CapX’s Weekly Briefing email. Sign up here.

Robert Colvile is Editor of CapX