Credit: The Telegraph
We’re making the same mistakes with Big Tech as we made with banks during the 2008 financial crisis — and consequences could be devastating.
That’s the stark warning given by former HSBC chief, John Flint, this weekend in an article for the Financial Times in which he claimed that Big Tech poses a systemic risk to society.
"My 30 years as a banker required me to look into the future and anticipate risks. I can confidently say that for tech companies, the warning signs are showing," wrote Flint. "We must act now."
Flint believes the likes of Google and Amazon have evolved to resemble banks before the financial crash: mammoth companies which can take swathes of society down with them if they are allowed to fail.
If they were to fail, many believe they would trigger the next financial crash. There is broad consensus, however, that even if a Big Tech company was to collapse, it wouldn’t be any time soon.
Tech stocks have surged throughout the year, with Facebook up 31pc from the start of the year and Google up a similarly impressive 28pc, both easily beating the S & P 500’s 10.9pc rise in 2020 so far.
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But if a tech giant, at any point, found itself forced to pull out of a market, shockwaves would be felt around the world. The so-called "Big Five" – Facebook, Google, Apple, Microsoft and Amazon – have become intertwined in public life. They enable businesses to advertise, trade and deliver their products. They can even determine the popularity of politicians.
When Google, Facebook and Amazon announced their bumper third quarter earnings in October, they added a combined $163bn (£122bn) to their market caps, more than the value of McDonald’s. The global headcount of Amazon this year passed 1 million people, meaning it currently employs the same amount of people who live in Cyprus.
"They’re so big that society, maybe some parts of society or some of our infrastructure also risks falling apart if we don’t have [these companies]," says Jesper Niemann, manager at strategic foresight consultancy, Rohrbeck Heger. "I don’t think there’s a chance that they go under but it is really the risks more of what influence do they have."
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The pandemic has demonstrated the extent of that influence. Across the world, millions of people have downloaded contact tracing apps onto their phones that are based on foundational technology created by a partnership between Apple and Google.
If one of those companies were to suddenly go under, that global interoperable system, however effective, could collapse, says Niemann.
"People would be scrambling to develop their own contact tracing solutions," he adds. "You’d also wonder what happened with the data they had."
The pandemic has also shown how reliant the world is on the communications tools built by technology businesses. Companies like Google, Zoom and Microsoft have built the world’s most used video conferencing services, helping organisations to continue running while working from home.
“If communications services are disrupted, it will affect every industry and segment of the population,” says Abishur Prakash from the Center for Innovating the Future.
“Many businesses won’t be able to function. Governments will struggle to give people new updates. Alongside all of this, politics will be jolted, as officials are unable to convene virtually.”
When Boris Johnson was told to self-isolate last month, he used video calls to continue running the country. If those services face disruption or collapse, the UK could face a delay at the very top of Government.
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Google has gone even further, laying its own undersea cables to connect different continents. But Gregory Francis, the managing director of technology lobbying firm Access Partnership, isn’t concerned about the risk of reliance on big technology companies, however.
“It wasn’t a problem in the days when telecom networks were carrying the signal,” he says. “In a pinch, if there’s really a national security concern, governments know perfectly well how to deal with that.”
“If you think of the number of different platforms that you need to be ready to use for a call, you probably have seven or eight apps lined up on your iPhone,” Fisher adds. His message is clear: this is no different to previous reliance on telecoms networks.
Look deeper beyond the polished websites and apps of technology giants and you’ll find that many of them are becoming thriving cloud computing businesses, using their servers to power large percentages of the world’s governments and businesses.
The risk that an outage in Amazon’s server networks, such as the one that occurred last month, takes down vast swatches of the internet is now very real.
For some, this is an unacceptable risk that demands action. Germany and France are leading a European push named GAIA-X to build the continent’s own cloud computing service.
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“Where’s your prison record hosted? Where’s your patient record hosted? If they were to understand that was hosted in the States and outside our UK national legal framework, I think that would be of great concern to people,” says Simon Hansford, the chief executive of British cloud computing business UKCloud.
American technology giants “can use that data to create those new insights and new industries and wealth and puts us to a massive disadvantage,” he adds.
Major banks have cottoned on to this already, prompted by regulators already worried about the risk of using a single major cloud provider.
“Most big banks are going multi-cloud because they know that they can’t get caught out,” says Jason Bates, a co-founder of financial technology consultancy 11:FS.
“Regulators would definitely have a problem if they were too reliant on a single point of failure on a Big Tech cloud provider,” he continues. “I don’t think any bank is going to rely on AWS only as their provider, many of them have these multi-cloud approaches.”
Large technology businesses have their eyes set upon getting into the world of finance, with Apple and Google already launching their own payments services. The risk of the world’s financial system becoming reliant on American technology giants is surely not lost on Flint.
“If Big Tech gets caught in the crosshairs of governments, and as a result, the financial world is hijacked, it will create havoc in the economy — from day-to-day banking to investments to dealing with emergency actions,” says Prakash.
Despite concerns about the consequences, the idea that big tech companies could follow in the footsteps of banks like Lehman Brothers remains purely hypothetical.
Yet regulation should prepare for the worst. And according to Nikita Aggarwal, associate researcher at the University of Oxford’s Faculty of Law, the legal system would not be prepared to oversee the huge amounts of data held by just one of these companies if it was to fall into insolvency.
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"There’s no very robust regulatory regime governing how the data assets are managed beyond the way all assets are managed and insolvency i.e. they just sold to the highest bidder as part of the insolvency estate," she says, adding that selling personal data to the highest bidder could spark a spike in financial fraud or identity theft if it were to enter the wrong hands.
For her, it’s not just about Facebook, or even big tech. Instead the question is broader. "Think about the companies that have gone under [or could go under]. These companies all have a lot of data, they have a lot of customer data. What happens to that data when these companies go into insolvency?"
The power that the world’s largest technology companies have over us, and their ownership of our data, has become larger and more secure than ever before. But with that reliance comes increased risk that if anything were to go wrong, we could be left with a political and economic collapse. Regulators are still searching for an answer for how to offset that risk.
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