Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed

City Journal

Close Nav

Disruption Ahead—and Regulation

eye on the news

Disruption Ahead—and Regulation

Reflections on Apple’s historic $1 trillion valuation and the lessons of history August 14, 2018
Economy, finance, and budgets
Technology and Innovation

The story is iconic: in 1976, Apple began in a garage in suburban Los Altos, California; in 2018, it became the first $1 trillion company. It took AT&T close to the same number of years to rise from its founding to become the first company to reach a $1 billion valuation in 1924; a similar time elapsed from GM’s founding before it became—in 1955—the first company to hit the $10 billion mark.

Apple epitomizes the reality that digital companies are no longer scrappy entrepreneurs poised to bring down “the man,” as Apple famously styled itself in an epoch-setting Super Bowl commercial in 1984. Now, powerful Silicon Valley rules the roost. Perhaps symbolic of today’s digital gilded age is the fact that Apple’s leviathan new headquarters cost five times more to build than the Pentagon (in real dollars). The history of technology revolutions suggests that Apple’s trillion-dollar milestone—and similar valuations soon to be reached by a half-dozen other digital companies—signals that our new era is far from maturing; it’s just starting to roll. This means that the social, economic, and political disruptions caused by digital technologies have only begun.

History also provides some lessons on what to expect. Comparisons are often made to the electric utility industry, but the granddaddy of tech revolutions, the railroads, provides the best analogy. In 1878, Cornelius Vanderbilt sat in the New York City headquarters of the company he headed, the New York Central Railroad, when it reached the first $100 million valuation on the New York Stock Exchange. That single railroad company—known for its technological sophistication and the speed of its locomotives—accounted for a 7 percent share of the value of all companies then on the exchange; Apple’s current valuation is less than half as significant, relative to today’s market. The New York Central’s 1878 benchmark didn’t signal the end of rail, but rather the mid-point of an era in which the railways would be a central driving force in the economy for another 30 years. Only then did the automobile capture more per capita travel. Meantime, the New York Central continued operations for 90 years after its 1878 milestone. As one gauge of how much our unfolding digital era still stands to grow, consider that the collective revenues of today’s tech companies equal about 30 percent of the federal budget. In 1878, railroad revenues equaled 150 percent of federal government revenues.

But the analogies go beyond money. Pre-rail society was agrarian, and commerce could only be transacted at the speed of a horse or boat. The railroad created the America we live in today, an industrialized society where commerce is conducted at the speed of light. Rail systems “collapsed distance,” transforming the social and economic landscape. Rail dictated where towns were located and how they were laid out, where people lived, and how they traveled. As one historian wrote, rail brought “everybody . . . within the reach of the market [and] ended generations of economic isolation.” The geographic reach and velocity of rail operations also required a radical change in the way business was organized and managed, thus giving birth to a new corporate structure that remains the standard today. And railroads, not Congress, created the time zones, critical to the then-new velocity of commerce. Entrepreneurs used rail infrastructure to build massive new businesses, notably Montgomery Ward and Sears, the Alibaba and Amazon of their day.

It was the fortuitous invention of telegraphy that made the rail system possible, because railways could not operate without the ability to exchange safety and scheduling information at speeds faster than the rail cars could move; before then, information traveled by Pony Express. Thus, as telegraph wires followed the new rail corridors, the new physical infrastructure literally dragged along and accelerated the productive use of a new information infrastructure. The atoms dragged the bits.

And it was the fortuitous invention of the wireless Internet that made smartphones and the cloud possible, because none of what has since changed the world could happen from isolated desktop PCs or cloistered mainframes. Now, in the era of the cloud and e-commerce, the symbiosis between bits and atoms is reversed. The cloud’s information infrastructure is forcing a revolution in the location and nature of physical industries from “bricks-and-mortar” commerce and warehousing to manufacturing. Today the bits drag the atoms along.

The digital revolution is still unfolding. The amount of venture capital invested each year to fund tech startups (tomorrow’s Apples) exceeds the individual GDP of 120 countries; many tech marvels have yet to emerge, from bioelectronics to true cognitive computing. For a prescient articulation of the digital age yet to come, I recommend a short lecture (appropriately immortalized on YouTube) that Steve Jobs gave in 1985 at Sweden’s Lund University—a school founded in 1666, in the era of Isaac Newton.

Historians have noted that even the most farsighted rail executives failed to anticipate the profound and broadly beneficial social transformations that the rail era would bring about. We are similarly myopic about the future implications of the digital era. But promises of economic growth and new conveniences do not diminish anxieties about the leaders and the companies that invent and promulgate the new technologies. Consider an Atlantic magazine exposé of the railroad industry around the time of Vanderbilt’s 1878 stock market record. “In less than the ordinary span of a life-time,” wrote H.D. Lloyd in 1881, “our railroads have brought upon us the worst labor disturbance, the greatest of monopolies, and the most formidable combination of money and brains that ever overshadowed a state. The time has come to face the fact that the forces of capital and industry have outgrown the forces of our government.”

The phrase, and enduring mythology about, “robber barons” was itself created in the rail era, notably by Vanderbilt’s competitors, and then eagerly embraced by the media; it continues to have salience today. Echoing the media of 150 years ago, a recent New Yorker essay typifies today’s techno-alarmism: “American democracy is struggling to withstand the rampant, profit-based manipulation [by Silicon Valley] of the public’s emotions and hatreds.” Given the power of Big Tech companies, others have similarly written, “our culture, economy, and politics are all at stake.” And when tech titans defend themselves by claiming that “we’re making the world a better place,” their protests have the same hollow ring to the proverbial man on the street as the apocryphal assertion 65 years ago of General Motors’ chairman that “What’s good for GM is good for America.”

It was public anxiety over the social and political disruptions emanating from the power of the railroads, eagerly amplified by the media, that caused Congress in 1887 to create the Interstate Commerce Commission (ICC), the progenitor of all subsequent economic regulatory agencies in the long march toward today’s Administrative State. The rail barons learned, as today’s tech titans are now (finally) learning, that the federal government holds the trump cards when it comes to reining in both real and perceived abuses of the public trust.

With other tech companies set to follow Apple to the $1 trillion milestone, we should expect a lot more media and political heat yet. To deflect public opprobrium and government overreach, companies have stepped up their lobbying and public relations efforts. But if history is any gauge, there’s a political law of nature wherein foundational technological revolutions breed new regulatory entities. It began with the ICC’s attempt to throttle the rail magnates and continued with every one of modern history’s other iconic revolutions. Chemistry, electricity, telephony, radio/TV, automobiles, aircraft, pharmaceuticals, and nuclear fission all inspired Congress to create technology-specific regulatory entities: the Federal Communications Commission, the Federal Highway Administration, the Federal Aviation Agency, the Food and Drug Administration, and the Nuclear Regulatory Commission, to name but a few.        

Vanderbilt’s stock market record of 1878 happened contemporaneously with the enactment of the ICC. So far, Apple has managed to reach a stock market record of its own without the emergence of a fledgling Interstate Data Commission. But had Benjamin Franklin lived in the age of the Administrative State, he might have modified his iconic aphorism to suggest that there are three inevitable things in life: death, taxes, and regulation.

Photo by Spencer Platt/Getty Images

Up Next
eye on the news

The Workforce Revolution That’s Long Overdue

Virtual-reality technology can open a new frontier in job training. Mark P. Mills July 24, 2018 Technology and Innovation


Send a question or comment using the form below. This message may be routed through support staff.