Big arguments about big tech
If you want to break-up big tech, be clear about which type of domination you’re against
What to do about big technology companies like Amazon, Apple, Facebook and Google? Leading American politicians like Senator Elizabeth Warren have been arguing that digital platforms such as Amazon’s shouldn’t be able to sell their own products on them, and US academics like Tim Wu have written about the Curse of Bigness. Both have claimed that these companies dominate their markets unfairly and need to be broken-up because they are preventing new and better companies from growing. The European Union fined Google €1.49 billion in March this year for restricting the freedom of its rivals to advertise.
Big profits
Apple’s market capitalisation is thought to be nearly a trillion US Dollars, making it perhaps the world’s biggest company, while Alphabet — Google’s owner — could be worth nearly as much. Amazon is responsible for half of online retail sales in the United States.
The big technology companies are thought to benefit from the ‘tippiness’ of some digital markets. Britain’s recent Unlocking Digital Competition review by Harvard professor Jason Furman pointed out that social networking services like Facebook’s try to quickly add as many users as possible because doing so improves the service for others but also kills the competition. The University of Chicago’s Stigler Center recently released a report into the structure of digital markets and described tippiness as competition for the market, rather than competition in the market. In other words, the big digital firms once went through a period of intense competition, but are now the undoubted winners. That might mean such markets aren’t going to return to competitive conditions by themselves.
Big markets
But does that add up to enough to mean that companies like Apple and Facebook should be broken up? Leading economists like Tyler Cowen of George Mason University have argued that doing so would be a mistake. He believes that Google isn’t a monopoly because there are several alternative services available, like Bing; and that one can switch away from Facebook to LinkedIn, Twitter, Snapchat and the like. The Financial Times’ John Gapper recently argued that the inability of platforms like Netflix to dominate their industries is pushing them to vertically integrate through acquiring production space in Pinewood Studios and the like. And the flip side of Apple being able to offer its own apps on its store is that it has provided consistent technology and a common marketplace for lots of other developers to supply other apps at the same time.
In 2018 the Progressive Policy Institute’s Michael Mandel went through the indicators for assessing whether leading firms in the US technology, telecoms and e-commerce sectors were showing market-strangling behaviour. He found that the combined annual revenue of Apple, Amazon, Google, and Facebook was recently equivalent to 2.9 percent of US GDP, much lower than the 5.4 percent accounted for by General Motors, Ford, General Electric, and IBM in the 1960s; that these sectors accounted for nearly 50 percent of US private sector growth outside the health sector between 2007 and 2017, all while prices fell by 15 percent; that worker compensation as a percentage of value-added was nearly up to 50 percent; and that American shoppers were saving as much as 20 minutes per week from online shopping compared to a decade ago. In other words, there’s a digital shed load of good reasons as to why we might think that the big technology firms have significantly benefited consumers, the key metric for considering competition and anti-monopoly questions for the past few decades. Alphabet’s Eric Schmidt shows his knowledge of this technicality when he says that breaking-up Google might mean higher prices and lower consumer welfare.
Big politics
Dig around a bit in the arguments for breaking-up big tech and you’ll see that many of them aren’t about market dominance. They’re about other types of dominance — like that of social norms and politics — that economics can’t deal with.
Take the view of Harvard economist, Kenneth Rogoff. He believes that the tech giants are stifling innovation but also that they need to be regulated for fake news and their effects on democracy. The best recent review of the political arguments around big tech — by Matthew Yglesias of Vox — argued that we’re just as much having arguments about the cultural position of big tech forms as we are about economic and legal issues.
If we’re not talking about market dominance, what are we talking about? Perhaps John Sherman, who authored the US Sherman Antitrust Act of 1890, was on to something when he said that “If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life.”
Chris Hughes, a Facebook co-founder, believes that Mark Zuckerberg might be that king. In a recent article for the New York Times, Hughes was concerned about the Facebook owner’s integration of Facebook, Instagram, and Whatsapp into one, but was much keener to point out Zuckerberg’s titanic control of the companies — he controls around 60 percent of voting shares — and hence his power over what counts as hateful speech or which privacy settings are available to over two billion users. In other words, Hughes believes that Zuckerberg combines considerable power across at least three spheres of modern American and international life: the economic power of dominating the social networking market; the political power of determining what users on Facebook are allowed to say; and the social power of choosing how users are allowed to relate to each other by the information that is available about them. According to a profile of Zuckerberg in the New Yorker, it used to be a running joke among staff that they could change an election by deciding where and when to deploy features that would raise turnout.
Big academia
The US academic, Lina Khan, has best articulated the new anti-trust policy towards large, digital firms that Chris Hughes wants towards Facebook. In Amazon’s Antitrust Paradox, Khan argues that the consumer welfare standard — taken from the work of Robert Bork in the 1970s — is too focused on prices and should also measure things like the affect of a big firm on product variety and innovation in a market. She goes on to argue that competitive markets are undermined when firms such as Amazon can observe the sales of other producers’ products on its platform, steeply discount its own ones to push the competitor out, and then recoup the losses through pricing on other items. According to Khan, regulators have a hard time tracking what might be predatory pricing behaviour, because Amazon can obscure its price changes through regular fluctuations and offering personalised prices to consumers that others never see.
But the metrics in Khan’s work don’t match the range of her ambition. She suggests tests of market dominance, like whether a firm has above, say, 40 percent of it; or whether its data collection gives it useful insight into the operations of other firms; but that’s about it. And that’s before we get to the methodological concerns in the Unlocking Digital Competition review about whether we can define a digital market and who is in it. And if you can’t do that, it’s impossible to determine whether a firm is dominant and abusing its position.
But Khan’s focus is not really on market domination. In her Financial Times profile she states that the ‘new Brandeis movement’ — which takes its inspiration from Louis Brandeis, the American Supreme Court Justice who campaigned against monopolies in the early twentieth century — is actually about changing the values in antitrust law so that government can do something about markets that might be going in a direction that ‘…we, as a democratic society, decide are not compatible with our vision of liberty or democracy..’ In her paper, Khan writes about how antitrust laws were originally passed by the US Congress for protecting the interests of ‘workers, producers, entrepreneurs and citizens’, and that if this doesn’t happen, economic power will lead to political influence that steers things for everyone. In Amazon’s case, that means it using its weight in the US publishing industry to influence what is being read in America, thereby threatening free speech.
Big government?
The economist Carl Shapiro has asked ‘Antitrust is sexy again, where does this take us?’
Towards a need for a better idea of the differences between economic, social, political, and other types of domination, that’s where. Lina Khan, Tim Wu, and Chris Hughes are mixing different types of dominance into one sticky ball of problems that economics and anti-trust can’t solve. And if that happens, we’ll just end up empowering lots of politicians on both sides of the Atlantic to use anti-trust cases for big, public fights that get them lots of attention and leave the rest of us with more expensive digital services and a democracy that’s no healthier.
For a start, Americans don’t believe that big technology companies need to be broken-up because of their effects on the economy.
A Pew Research Center poll in 2018 found that 74 percent of Americans thought that the products and services of big technology companies had benefitted them, and 63 percent that wider society had come out well. This is despite 65 percent believing that the same firms were poor at predicting the affects of their technology on society. American energy companies are thought by 57 percent to have an outsize influence on the US economy, compared to 55 who believe the same about technology companies. Americans are also excited by future technology, with nearly 60 percent expecting their children’s lives to be better because of it and 70 percent believing that self-driving cars will materialise in their lifetimes.
And Brits don’t seem to agree either, really.
In a 2018 report by Doteveryone, 82 percent of survey respondents said that the internet had made their lives better, and 52 percent that they wouldn’t be able to complete daily tasks without it. Then again 69 percent said that they wouldn’t accept an online retailer offering one-day delivery if it meant local shops closing down, and 56 percent that they wouldn’t want their local council to lower taxes by putting services online if this meant that some locals couldn’t access them. This from a country which had the world’s first Amazon drone delivery and hasn’t uprated council taxes in England since 1993.
Reaping the harvest of digital technology requires returning to an old concept that America and Britain have broadly applied in their constitutions: the separation of powers. The judiciary is split from the executive because mixing the dominance of law enforcement by the former with the political dominance held by the latter, would lead to corruption. Politicians are not meant to lead large companies while being in office, as that would give them the ability to use financial means to manipulate political behaviour, or vice versa. The church is split from other sources of power — at least in the United States — so that it’s clear who is meant to be opining on deep moral beliefs and who is meant to be following them. As a result we’re able to trust each other’s motives and build tolerant, trusting societies.
The big technology companies can’t do that by themselves. Google said ‘Don’t be evil’ because it knew that it was accumulating economic and political power that needed moral constraint, but was still tempted to make a censored search engine for China. Facebook is tortured by its economic dominance having forced it to adopt the social power of deciding who gets to say what on its site, and it will never win because it won’t be given the legitimacy to do so — 72 percent of Americans think social media platforms censor political views, rising to 85 percent of Republicans and their supporters, and 67 percent of Brits worry about fake news.
Economics and anti-trust — not Robert Bork’s consumer welfare standard, nor the new Brandeis movement’s taste for innovation — is going to sort this out. They don’t have anything to say about political, social, and moral legitimacy. And keeping them at bay while we gradually understand dominance in the radically new, digital world we’re building, will at least keep us getting wealthier in the meantime.
