Game over for the monopolists?

On the race to regulate Big Tech

Calls for the regulation of Big Tech are being heard across the board, as the monopoly-dominated economy undergoes ideological collapse. At least three approaches to regulation are currently on offer. But only one can properly meet the challenge that Big Tech poses to democracy.

Here’s the problem with Big Tech, in a nutshell. A few years ago, Mark Zuckerberg said the following: ‘In a lot of ways Facebook is more like a government than a traditional company. We have this large community of people, and more than other technology companies we’re really setting policies.’ Zuckerberg is seeking to establish a supreme court for content moderation, to structure the media environment with a quasi-cartel of publishers, and even to create his own currency. Such concentrations of private power are simply not compatible with democracy.

So how are Americans reacting to the debate over Big Tech, to an assumption of political power by people like Zuckerberg and corporations like Google? As the unaccountable power engendered by Silicon Valley becomes apparent, they are changing their minds. Two thirds of Americans think Facebook and Google should be subjected to antitrust investigations. Politicians too are changing their minds. We are undergoing a collective learning process.

In April 2019, Mark Zuckerberg testified before Congress. There was tremendous fear within the company when Zuckerberg went to Washington, because of the corporation’s many scandals. But over two days, leaders at the company and all over Silicon Valley sighed in relief at what the tech press widely perceived as an embarrassing display of ignorance by American politicians. Wired magazine mocked these elected leaders, quoting one Facebook executive as saying, ‘I was personally surprised by how ill-prepared the members were. We have made some mistakes, but these guys know even less.’

But when Zuckerberg testified again in October 2019 the situation was very different. Here’s Wired on Zuckerberg’s justification his new attempt at creating a global currency:

Beyond the verbal thrashing, members of the Financial Services Committee have some genuinely relevant queries. Unlike Zuckerberg’s first congressional appearance, especially in the House, a lot of his interlocutors seemed to have done considerable homework, and they raise issues that credibly challenge some of Facebook’s pronouncements about Libra.

What happened? And what are the different proposals for reform of Big Tech?

Google offices in New York. Photo by Scott Roy Atwood from Wikimedia Commons

The roots of the monopoly-dominated economy

The short story of what happened is that the prevailing neoliberal policy framework that has undergirded American policymaking for forty years underwent an ideological collapse. A lot of people think that American capitalism simply means inequality and the private sector. That is a myth invented in the 1950s by a few American academics. In fact, American capitalism for a long time meant equality. The Americans tended contrast their system with the aristocratic monarchies in Europe.

Since the 1970s, American policymakers – and I suspect it’s global – have encouraged mergers, concentration and corporatism. The number of public companies on American stock markets has halved over the past twenty-five years, mostly through mergers. This took place under the pretext that big business would be good for consumers. Today, in both the US and Europe, the goal of competition policy is consumer welfare. Facebook and Google are, after all, free.

Google, Facebook and Amazon are the pacesetters of this new monopoly-dominated economy. We tend to think of these companies as innovative tech enterprises that started in garages. This narrative is a political story, and not really accurate. These are financial holding companies built through mergers and legal shifts. For example, in 1995, Jeff Bezos located Amazon in Seattle because it allowed him to avoid charging sales tax and to use that advantage to undercut competitors. It was a tax arbitrage play. In 1996, the Telecommunications Act offered a liability shield for tech platforms. Sheryl Sandberg got her start in the Clinton administration at Treasury, where one of her projects was to help remove laws and regulations ‘that may impose a barrier to electronic transactions or otherwise impede the conduct of e-commerce’. She then went to Google, and then to Facebook.

From 2004 to 2014, Google spent at least $23 billion buying 145 companies, including the advertising giant DoubleClick. And since 2004, Facebook has spent a similar amount buying 66 companies, including key acquisitions allowing it to attain dominance in mobile social networking. Allowing these mergers was policy, in both the US and Europe. Similarly, the absence of public rules structuring the use of data – such as the failure of the Do Not Track project at the Federal Trade Commission in 2011 – enabled a particular regulatory regime based on concentrating the flow of information, advertising and data.

These financial holding companies are now dominant. Google has dominant market power in consumer-facing products such as search engines, browsers, maps, online videos and mobile phone operating systems, while Facebook has similar dominant power in mobile social networking. But these consumer-facing products reveal only one facet of their power. Both Google and Facebook have control over the online advertising plumbing that nearly every publisher, advertiser, data broker and ad tech firm must use. These companies structure the rules of data-rich commerce, and they do so to encourage data leakage and invasive surveillance.

It is easy to understand this basic linkage when we consider why these corporations have adopted the particular business models that lead them to capture and acquire so much data about individuals and corporations in the first place. In the case of Google and Facebook, it is to be able to manipulate users into making certain decisions about how and where to spend their money. That’s what allows the corporations to sell roughly $150 billion in advertising services last year; to corporations, states and individuals interested in buying goods, services and ideas.

In other words, these companies collect personal data to acquire monopoly power and to shape markets to their own benefit. To protect privacy and democracy, the problem needs to be addressed at source: the monopolistic business models enabled by our current legal framework.

These monopolies are killing the free press. In the US, advertising revenue for print newspapers has fallen by two thirds since 2006. Two thirds of counties in America now have no daily newspaper. This problem is global. Democracy is under threat.

Ideological crack-up

The crisis has been evident for years. What changed to prompt a real political response?

Three events have cracked the ideological foundations supporting these companies. First, the financial crisis destroyed the legitimacy of neoliberalism. Before the crisis, banks and corporations seemed to be neutral technical building blocks of society. But after the crisis we understood banks and corporations as political institutions.

Second, there was the election of Donald Trump. For a time, Big Tech avoided the scepticism that most of us felt towards Wall Street. Obama administration officials thought that working for Wall Street was a bit sleazy but that Facebook and Google were progressive. But when Trump won, it turned out these institutions are just marketing platforms.

Third, the Cambridge Analytica scandal showed that these corporations are political actors first and foremost, no different than the banks that crashed the economy.

This ideological crack-up is happening in the business community too. Earlier this year, Fortune magazine did a poll and found that 50% of Fortune 500 CEOs believe that Facebook ‘has grown so large and influential that it needs additional regulation’. Forty one percent believe the same about Amazon and 39% about Google. Recently, Salesforce CEO Marc Benioff added his voice to the chorus of those who want to break up Facebook (a chorus which includes Facebook co-founder Chris Hughes and early investor Roger McNamee), and even went so far as to call for a new version of capitalism. Meanwhile, Brad Smith of Microsoft is lauding the social power of Big Tech and governments working together to foil Russian hackers.

What does all this mean?

It’s hard to tell about immediate policy impacts, because Donald Trump is not consistent in his policy goals. The government official in charge of antitrust, Makan Delrahim, is similarly inconsistent, and the head of the Federal Trade Commission, Joe Simons, has shown deference to Big Tech. On the other hand, William Barr, who runs the Department of Justice, seems to want to take over the Big Tech investigation. Again, this is inconsistent.

Congress is more serious. Congress is investigating the tech platforms through the House Antitrust Subcommittee, led by David Cicilline. Cicilline himself has joined the international committee of parliamentarians examining Facebook. Competitors are giving information to his investigators, who seem to know what they are doing. And at a state level, every state has an attorney general. And these state AGs are looking to do something significant, perhaps even break up Google. California passed a privacy law modelled in some ways on the GDPR. This law may force tech platforms to silo their data, which will limit what kinds of ad targeting they can do.

The politics are also changing. Big Tech is now a political issue. Elizabeth Warren has proposed splitting up tech platforms, and all Democrats are expressing more scepticism towards Big Tech. This political pressure is forcing federal enforcers to play catch-up to Congress and the states.

Neoliberal status quo or regulated monopoly?

What are the proposals on the table? It is early stages, but there are basically three philosophies when it comes to addressing the concentration of power in Big Tech. The first is to continue the neoliberal underpinning of our culture and to allow private governments in the form of Facebook and Google. That’s what Mark Zuckerberg wants. Even when civil rights group or conservative groups ask Zuckerberg to censor content according to their preferences, they are accepting that he governs.

Much of the antitrust establishment in the United States on the centre left and right is in thrall to this framework, i.e. the consumer welfare standard. They might seek some tweaks, but they basically accept the dominance of Big Tech corporations. Some people in this neoliberal school want privacy rules, but privacy rules that don’t hinder the ability of Google and Facebook to structure the internet according to their whims. This would be a stronger notice and consent regime, or privacy audit committees like those demanded by the Federal Trade Commission, or due process for the private court system that Facebook is currently setting up.

The second philosophy is the national champion framework. This is organized around the concept of regulated monopoly. National security experts want to protect Big Tech because they perceive large American corporations as essential to blocking Chinese competition. For example, Jon Bateman at the Carnegie Endowment for International Peace has called for a veto over antitrust action by the intelligence community. Only large corporations like Amazon and Microsoft, he says, have the scale necessary to build out technologies like cloud computing.

Brad Smith, the president of Microsoft, is the most aggressive proponent of this new corporate liberalism. In his book Tools and Weapons, Smith calls for a fusion of big business and big government on behalf of the common good. Smith has appointed a team of ‘Microsoft diplomats’ to work with policy makers and industry partners around the world, in order ‘to advance trust and security on the internet’. He lauds how companies are now involved in a “new generation of humanitarian and arms limitation issues’.

In this context, data regulation makes sense so long as it does not hinder the ability of the corporate state to wield power. The deal is that mass commercial surveillance by large entities is useful for national security ends but must be kept within bounds so as not to offend other large and powerful actors. Facebook, for instance, is now working with large media companies and powerful rightwing figures in the US to distribute content, in a sort of cartel arrangement.

The democratic alternative: regulated competition

The third philosophy, to which I adhere, is regulated competition. This means decentralizing political power by breaking up monopolies and regulating business practices in the resulting markets. Elizabeth Warren, for instance, seeks to break up large technology platforms and then use public utility rules to make sure that there are no conflicts of interest in the dominant platform business model. In other words, if you operate a marketplace and set its rules, you cannot also sell products on it.

The intellectual forebear of this model is Supreme Court Justice Louis Brandeis. Brandeis’s view was that democracy and unregulated monopoly are incompatible. George Soros made the same point at Davos a few years ago, saying there could be ‘an alliance between authoritarian states and these large, data-rich IT monopolies that would bring together nascent systems of corporate surveillance with an already developed system of state-sponsored surveillance. This may well result in a web of totalitarian control the likes of which not even Aldous Huxley or George Orwell could have imagined.’

The real answer to addressing the power of Google and Facebook is simple. If something is too big, make it smaller. Google has eight products with more than a billion users. Why do these all need to be in the same corporation? Break apart Facebook and impose interoperability mandates and vertical restraints, so that we maintain the benefits of scale but eliminate the inappropriate political power of Mark Zuckerberg. In this schema, regulating the use of data is not about protecting privacy, but about preventing coercion and manipulation, or theft.

Fundamentally, the question that Mark Zuckerberg, or institutions like Google or TikTok present to liberal democracies is critical. Can we muster the will to govern ourselves? Or will we allow ourselves to be distracted or frightened into submission? Every generation gets its chance to answer these questions, but the question always looks different. In our case, those who seek to put us into servitude look like Google and Facebook. Though their power can seem overwhelming, we do not have to submit.

 

This article is based on the speech given by the author at the Friedrich Ebert Stiftung in Berlin on 30th October 2019 during the 2019 Digital Capitalism Congress.

Published 27 February 2020
Original in English
First published by Blätter für deutsche und internationale Politik 2/2019 (German version); Eurozine (English version)

Contributed by Blätter für deutsche und internationale Politik © Matt Stoller / Friedrich Ebert Stiftung / Eurozine

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