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# Digital Capitalism
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In 2008, a new world economic crisis of capitalism started that resulted in significant drops of the rate of profit in both the USA and the EU. In the USA, the effect was that the capitalist class heavily intensified exploitation in order to drive up the rate of profit. In the EU, the economy stagnated and the rate of profit remained at a low rate in the years after the crisis started in 2008.
The wage share is the share of the total wages in the gross domestic product (GDP), whereas the capital share is the share of capital (profits and constant capital) in the GDP. These two shares are indicators for the power of labour and capital. Figures 9.3 and 9.4 show the development of these two variables in the USA and the EU.
From the early 1960s until the mid-1970s, the wage share increased in both the USA and the EU, which signified an increasing power of the working class and relatively successful class struggles during this period that compelled capital to increase wages. In the mid-1970s a period of wage repression started in both the EU and the USA, which result in significant drops of the wage share. At the same time, the share of capital in the total economy increased.
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Since the mid-1970s, two contradictory tendencies have shaped capitalism: (a) computerisation’s increase of the organic composition that resulted in increasing constant capital costs; and (b) top-down capitalist class struggle that decreased the wage share. As a result, the profit rate remained relatively constant and never returned to the levels of the 1960s. Capital was therefore searching for other ways for making profits, which resulted in an increased financialisation of capitalism. Significant shares of profits were invested in finance because capital is driven by the need to accumulate ever more profits and financial speculation promised high returns. The volatility of the economy steadily increased.
The share of the finance industry in the total value added has in many countries significantly increased. A general increase can be observed that has been especially strong in the USA, where the share has doubled from 1970 until 2005, when it made up 8.1% of the USA economy’s total value added (data source: OECD iLibrary, STAN, financial industry=ISIC Rev. 3, C65-C67). There has been an increasing financialisation of capitalism.
Derivatives are relatively high-risk financial instruments that derive their value from other assets. Over-the-counter derivatives are traded directly between two partners. They include instruments such as foreign exchange contracts, forwards and forex swaps, currency swaps, interest rate contracts, forward rate agreements, interest rate swaps, equity-linked contracts, or credit default swaps. They are high-risk because they are not direct ownership titles, but derived from the value of other assets. Figure 9.5 shows the development of the share (in %) of the global gross market value of over-the-counter derivatives in world GDP.
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The Capitalist Crisis
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The rise of neoliberalism resulted in relative stagnation and wage losses, whereas profits rapidly increased. Neoliberalism therefore is a class struggle project of the ruling class aiming at increasing profits by decreasing wages with the help of strategies such as deregulation of labour laws, precarious labour conditions, welfare and public expenditure cuts, tax cuts for the rich and companies, the privatisation of public goods, the global offshoring and outsourcing of labour, etc. Many working families had to take out loans, consumer credits, and mortgages in order to be able to pay for their everyday life requirements. At the same time, capital investment into high-risk financial instruments boomed because the growing profits needed to be reinvested. Workers’ debts were packaged into new financial instruments, so-called asset-backed securities, mortgage-backed securities, collateralised debt obligations, and credit default swaps. The financial market promised high financial gains, but the profits in the non-financial economy could in long run not fulfil these growth expectations, which created a mismatch between financial values and the profits of corporations and the expectations of shareholders and the reality of capitalist accumulation. The results were financial bubbles that burst in the 2008 crisis.
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The data show that the capitalist economy has since the middle of the 1970s been shaped by the capitalist class’ neoliberal struggle against the working class, increasing inequality between capital and labour, an increase of household debts, a decrease of capital taxation, a rising financialisation of the economy, and as a consequence an increased crisis volatility. The contradictions between capital and labour, fictitious value and actual profit, the production and consumption/investment of capital were heightened by the development dynamics of neoliberal capitalism and finally resulted in a new world economic crisis and a crisis of capitalist society.
Sections 9.3–9.5 aim to show that capitalism and its crisis are an important factor that has shaped social media. One aspect is that capitalism’s crisis has favoured the expansion of targeted online advertising.
9.3 Targeted Advertising and the Crisis
Table 9.1 shows the development of the global advertising revenues. Whereas the share of broadcast advertising (radio and television) has, in the years from 2009 until 2013, slightly declined from 43.6% to 42.0%, the decline was more drastic in the print industry, where the share went from 32.4% to 25.2%. At the same time, the share of Internet advertising increased from 15.7% to 24.8%. These statistical data give grounds to the assumption that advertisers find online advertising more secure than other forms of advertising because it can be targeted, personalised, and it is based on consumer- and user-surveillance. The new capitalist crisis may have accelerated this shift from traditional advertising to online advertising because corporations are then especially afraid of bankruptcy and making losses. The crisis of journalism and the print news media stands in the context of the commercialisation of the media and the changes of advertising. In the United Kingdom, 37.1% of the advertising revenue was spent in the online industry, 28.3% in broadcasting, 18.7% in the print industry, 9.5% on direct mail advertising, 5.3% on outdoor ads, and 1.0% in the movie industry (Ofcom 2015, 375).
In 2014, Google had a share of 31.10% in the global digital ad revenue, Facebook 7.75%, Baidu 4.68%, Alibaba 4.66%, Microsoft 2.72%, Yahoo! 2.36%, IAC 1.00%, Twitter 0.84%, Tencent 0.83%, AOL 0.81%, Amazon 0.70%, Pandora 0.50%, LinkedIn
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Targeted Advertising and the Crisis
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0.49%, SINA 0.38%, Yelp 0.24%, and Millennial Media 0.08%.1 Such data indicate that Google, Facebook, and Baidu are the key beneficiaries of Internet advertising’s growth. One should not be mistaken: Google, Facebook, and Baidu are not communications companies. They do not sell digital content or access to online platforms. They are some of the world’s largest advertising companies. They sell user data as commodity to advertisers, who in return can present targeted ads to users: in 2014, 89% of Google’s revenues came from advertising (data source: SEC-Filings Google, Form 10-K 2014). In the case of Facebook this figure was 92% in 2014 (data source: SEC-Filings Facebook, Form 10-K 2014), for Baidu it was in the same year 98.9% online marketing services (data source: SEC-Filings Baidu, Form 20-F 2014).
Google and Facebook are very profitable companies (see figures 9.6 and 9.7). They not just monopolise online search and online social networking, but are also key players in the business of targeted advertising. In 2015, Google was the world’s 39th largest transnational company and Facebook the 28th largest (data source: Forbes 2000 [2015]).
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1 China’s leading ad sellers to take 10% of the worldwide digital market this year. eMarketer, 16 December 2014.
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Twitter has been struggling financially, it became a stock-traded public company in November 2013, although its annual net losses were US\$ 645.32 million in 2013 (Twitter SEC-Filings, Form 10-K 2013). Weibo – a subsidiary of Sina – made losses of US\$ 116.74 million in 2011, 102.47 million in 2012, 38.12 million in 2013, and 62.7 million in 2014 (Weibo SEC-Filings, Form F-1 registration statement).
Just like Twitter in 2013, Weibo became a stock-marketed listed corporation in April 2014 when it made its initial public offering (IPO) on the NASDAQ stock exchange. And also like Twitter it made this move although it had made significant losses in the previous years and continued to make a total loss of US\$ 62.6 million in financial year 2014. Weibo and Twitter’s share values have been fluctuating. In December 2014, eight months after its IPO, Weibo’s share value dropped below its initial value of US\$ 17. The same happened to Twitter’s share value in August 2015, when it dropped below the initial value of US\$ 26. Both shares have been fluctuating and volatile. They have until late 2015 not seen large increases.
Twitter and Weibo are not communications companies, but predominantly large advertising agencies. Targeted advertising is their main revenue source. Around 85% of Twitter’s revenues came from advertising in 2012 and 89% in 2013 (Twitter SEC-Filings, Form 10-K, annual report for 2013). About 78.8% of Weibo’s revenues were in 2013 derived from advertising and marketing, 12.2% from games, and 5.9% from VIP membership services (Weibo SEC-Filings, Form F-1, registration statement). In 2014, Weibo generated 79% of its revenue from advertising and marketing (ibid.). The rest of the revenue was made from online games and data licencing (ibid.).
Weibo and Twitter are high-risk financial companies because they have been listed on the stock market without making profits. So, whereas their share values are positive, their net income is negative, which constitutes a divergence between profits and share values. Both companies hope that their large number of users attracts advertisers and financial investors. They assume that they will make large profits in the future and that this hope will keep investors confident.
The risks these companies face is two-fold: (a) they face a highly competitive online advertising market, in which Google and Facebook dominate in the West and Baidu is a big player in China; and (b) microblog communication has an immensely high speed and short attention span. It is difficult to place targeted ads on them and make users klick on them. It is not easy to make profits with targeted advertising because the average click-through-rate is around 0.1% (Comscore 2012); users only click on every 1000th online ad presented to them. And even then it is not sure if such clicks on targeted ads tend to result in purchases or not.
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Twitter and Weibo’s political economy is an indication that the social media economy is highly financialised and that investments in it are insecure. Financial crises can start if finance bubbles burst because there is a large divergence between actual profits and stock market valuation and investors lose confidence. The dot.com crisis in 2000 was an earlier expression of the high financialisation of the Internet economy, in which actual profits could not keep up with the promises of high stock market values. A new round of financialisation in the Internet industry has enabled the rise of social media while the ongoing world economic crisis showed us how crisis-prone financial markets are. Targeted advertising is a high-risk business. Users only klick on a small amount of ads and it is uncertain if and how often they purchase something on the landing pages to which they are transfered.
The future of the social media economy in China and the West is uncertain. It is clear that it is both in China and the West a highly financialised capitalist industry that depends on the influx of investments on finance markets and the confidence of advertisers that advertising works. There are many uncertainties associated with advertising capital accumulation models, especially concerning users’ privacy concerns, the use of ad-block technologies and other limits to advertising, and the question if targeted ads are effective or not. The possibility of a dwindling confidence of investors after some trigger event and a resulting social media crisis cannot be ruled out because financialising and corporatising the Internet is accompanied by huge risks that both China and the West are facing.
Social media also has cultural, political, and ideological dimensions. One question that arises in this context, that is in the context of political crisis, is what social media’s role is in revolutions.
9.4 Social Media Ideology #1: “Twitter and Facebook Revolutions”
Times of economic crisis tend also to be times of a crisis of the state. In such situations, protests and revolutions do not necessarily emerge, but are more likely. In the course of the protests and revolutions that took place since 2008, the technodeterminist ideology that Twitter, Facebook, and other social media caused such collective political action could often be heard. Even the New York Times wrote that the “Egyptian revolution began on Facebook”.2
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Social Media Ideology #1: “Twitter and Facebook Revolutions”
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There is very little serious empirical research about the actual role of social media in protests and revolutions. Most published academic works are speculative or big data analyses that can say nothing about how prevalent social media use was among actual activists who occupied squares.
The OccupyMedia! Survey studied the role of social media in Occupy movements. I published its results in the book OccupyMedia! The Occupy Movement and Social Media in Crisis Capitalism (Fuchs 2014c). About 429 respondents, who participated in the Occupy movement, took part in the survey. One question was what the role of specific media was in protest mobilisation (see table 9.2).
The data indicate that face-to-face communication, Facebook, e-mail, phone, SMS, and Twitter are the most important media that occupy activists employed for trying to mobilise others for protests. Activists use multiple media for mobilisation-oriented communication. These include classical interpersonal communication via phones, e-mail, face-to-face, and private social media profiles as well as more public forms of communication such as Facebook groups, Twitter, and e-mail lists.
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2 Spring awakening. How an Egyptian revolution began on Facebook. New York Times Online. 17 February 2012. http://www.nytimes.com/2012/02/19/books/review/how-an-egyptian-revolution-began-on-facebook.html? pagewanted=all&\_r = 0
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I also conducted a correlation analysis of the variables that cover protest mobilisation communication (Fuchs 2014c): the frequency of activism tends to positively influence the frequency of media use for informing oneself about the movement, sharing user-generated content online, communication between activists using various media, and using media for protest mobilisation communication. The use of face-to-face communication and online communication tend to mutually reinforce each other. The use of various online media for information, the sharing of user-generated content, and protest mobilisation also tends to mutually reinforce each other. We can therefore not say that online communication either determines protest or is unimportant. There is a dialectic of online and offline protest communication: activists use multiple online and offline channels for obtaining information, discussing protests, and trying to mobilise others. Online communication and face-toface communication for these purposes tend to mutually reinforce each other.
The next section will show how right-wing ideology has in the contemporary crisis not just shaped society, but as a consequence also social media.
9.5 Social Media Ideology #2: Red Scare 2.03
Anti-socialist ideology is at least as old as capitalism. After Marx’s death, British rightwing media described Das Kapital as being “repellent in its cold formalism” and called Marx the “cold and methodical organiser of the International Association of Workers” (The Morning Post, March 19, 1883). The “English working men would not care to be identified with these principles [of communism] in their bald form” (Leicester Chronicle and the Leicestershire Mercury, 24 March 1883). The Times (18 January 1919) wrote three days after Rosa Luxemburg and Karl Liebknecht had been assassinated about Luxemburg: “Had power in Germany fallen into her hands, she would have surpassed the reign of terror of the Russian Bolshevists”. This statement indirectly welcomes her murder and implies that not her assassination is a form of terror, but that her politics were terroristic and that she therefore deserved to be killed.
In the 1980s, right-wing British news media characterised the Labour Party-left and especially the Greater London Council, local London councils, Ken Livingstone, and Tony Benn as the “loony Left”. The term “loony Left” “combines two concepts, insanity and left-wing politics, with a subtext that suggests irrational authoritarianism” (Curran, Petley and Gaber 2005, 229).
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Social Media Ideology #2: Red Scare 2.03
3 This section is a short summary of some aspects presented in Fuchs (2016c).
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