Break up those tech giants?

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The rise of the tech giants—Google, Apple, Facebook, Amazon, Spotify, Netflix and Microsoft—brought with them the belief that the world would become a better place. At the turn of the century, these garage-built giants transformed the way the people of the world interacted, sourced information and came together in an open space that would foster democratic debate and transparency. At their core, Google’s mission “to organize the world’s information and make it universally accessible and useful” and while Facebook’s goal was to “give people the power to build community and bring the world closer together” are both truly admirable and few people would disagree with them.

Some might argue that these companies were built in line with an overarching trend that started with McLuhan’s proclamation that the world was becoming “a global village”: a flat world where widespread exchange and access to information, technology and different cultures would lead to a Fukuyama-eske end of history. Less than two decades later, a tsunami of criticism has started to unleash on these companies. Claimed to be a “menace” to society and “obstacles to innovation” (Soros at the WEF), leviathans that have shifted away from their initial altruistic goals towards “parasitic companies” that only care about exploiting and enslaving their consumers that do not understand the extent to which they are being manipulated. These tech giants are the new oil giants, yet except of oil, their reserves drown in incredibly rich data and don’t seem to be running dry anytime soon.

Are these companies just a “necessary evil” however? Yes, consumers are uncomfortable with the size and power of these tech giants, yet they still use them every single day and for multiple hours on end. Yes, city governments and politicians in the U.S. have openly criticized tech giants such as Amazon for their market power and detrimental effect on smaller businesses, yet they are painstakingly lobbying the internet company to build their second headquarters in their hometown or state. These tech giants have entirely reconditioned consumer buying habits through their technological advances including, cloud computing, personalized shopping recommendations, global linking network, and distribution networks – while all in the (perceived) benefit of the consumer (which, legally speaking, allows them these companies to remain giant). “Breaking up” these companies could be the most drastic and negative option to take when addressing at which point is too much control over the internet too much control.

These were some of the arguments exchanged in the Intelligence Squared debate the PSJ attended last week. Here is our breakdown and policy implications of the “Break Up the Tech Giants” debate.

 

The Motion for Breakup

Mark Zuckerberg apologized recently and admitted (again) that Facebook has problems. Looking at his Facebook feed gives a good glimpse of the many times he has had to ask for forgiveness and admit that the platform has led to divisiveness through the spreading of “fake news” (at least, our—and the Pope’s—definition of it), uninformed, non-constructive and divisive insults—rather than debate. The filter bubbles that Facebook and Google have created through their algorithms have reinforced prejudice and biases and built more walls instead of taking them down. It is true that “men willingly believe what they wish is true” (Julius Caesar) and that confirmation bias has always existed, but these tech giants’ algorithms have reinforced this trend. Amazon, on the other hand, uses these algorithms to manipulate consumer buying habits in the most addictive of ways.

These tech giants are mired in anti-trust issues, patent infringement cases and monopolized their ecosystems, eating up all source of competition and therefore checks and balances. Rana Foroohar and Luke Johnson, speakers for the motion, claimed that these companies are monopolies and need to be broken up. A classic monopolist sells at a mark-up price over marginal cost and inhibits markets from reaching efficiency. These tech giants do their own version of anti-competitive practices, with callous efficiency, by flooding the market with predatory prices, ads or just information in general that expand supply and decrease overall prices and awareness. Amazon’s low prices are not overly profitable in the short-term; however, in the long-term, the low prices squeeze out other market competitors. Currently, legitimate competitors are scarce, which effectively enables Amazon to control price—a classic characteristic of a monopoly. Thus, the tech giant is in a position to exploit its power in one sector to gain market share in another, inching ever so closely to market domination. Furthermore, critics (and shareholders) of these tech companies think the question is not “if” the company will raise prices, but rather “when”?

These have created black holes around them, disincentivizing new groundbreaking innovation and disrupting creativity, entertainment and civic life. We’ve now often heard that “Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate” (Goodwin). Instead of adding value to our societies, the FANGS (Facebook, Amazon, Netflix, Google) have sucked the data out of us.

The only way we will get our freedom back, the proposition argued, is to free ourselves from the shackles of these monopolist Silicon Valley companies and break them up—finally, creating a dispersion of market share and market influence.

 

The Motion Against the Breakup

Breaking up the tech giants is the most drastic “solution” to this market predicament. How would it even be done—along product line, geographically or just by breaking up the profitable cloud computing businesses? This approach would create vast disruption in the market that would realistically be met with mass disapproval from the people benefiting and other companies, calling for less government intervention.

Dr. Pinar Akman, competition law expert, made a compelling case against breaking up these giants in which she called to three main reasons that breaking up these giants would not match the proportionality for wrongdoing those claim against the companies. The largest reason for breaking up the giants is that they are “monopolies” but there is no support for these giants being monopolistic since the market is still competitive. She calls on the audience to think back ten years ago when AOL and Yahoo were cashing in on being the first to the market and yet vanished from the spotlight a few years later. The internet market is a competitive one and to claim that there is no competition is inaccurate. If anything, having these companies has created even more incentive to be creative and innovative in the internet age. The number of start-ups and digital entrepreneurs has sky rocketed in the past decade.

Another way in which they are not monopolies is that laws are in the benefit of the consumer—which these companies clearly are. While this legal interpretation might be outdated since it is mainly in response to the Industrial Revolution, one must draw the line somewhere and have the benefit go to the consumer rather than the producer seems to be the best for most sectors. Dr. Akman also makes a case for these companies not being essential, they are a choice that a rational person and consumer makes to incorporate into their lives which leaves them (mostly) better off. There is talk about treating the giants as “utilities”—a private company granted a monopoly by the government, then regulated by the government. The classic example of the utility of supplying water in that it’s more efficient to have one source of water than many company’s pipes leading to one house. This is also an inaccurate interpretation of the situation with the tech giants, mainly because they are not essential to everyday life and nor do they aspire to be in any way.

Elizabeth Linder, founder and former head of Facebook’s Politics and Government division for the EMEA region, brought in another perspective when it came to breaking up the tech giants while she also was the only one on the panel to have been ‘on the inside’ of these tech giants. She called upon the civic nature of these companies in that, everything is going tech and that the use of technology to improve the world makes these companies not just a service but an addition to the positive effects of globalization. The decision to break up these companies would have a huge and divisive impact on those who don’t have a voice in this conversation—especially in the developing world whose use of technology from these companies is seen as a massive step in a beneficial direction (such as perhaps providing a platform for freedom of speech, organization, information and identity).

These tech companies, are given an abnormal amount of trust by regulators—in an effort to promote a free market—because they benefit consumers and positively impact overall economic growth. The natural evolution of this deference is that certain companies gain a disproportionate amount of market power. But should those companies really be disrupted, and will that really solve everything that the other side claims to be the outcome of the tech giants—such as populism, addiction, and anti-creative behavior? One could even argue these issues are the outcome of globalization in general. It’s hard to imagine a perfect world where this type of massive market disruption would actually fit or be proportional to the wrongdoing claimed. Harsh government intervention in the free market is always a delicate issue, but maybe a reasonable solution is not a drastic policy change, whereby industry leaders like Amazon are limited (i.e. broken up) so competitors can catch up, but rather a sensible solution might be a global modernization of market policies to fit the current makeup of internet companies. Laws and regulations enacted in response to the Industrial Revolution are not appropriate for today’s tech giants or the internet age in general. That being said, any policy solution to counteract powerful tech companies must continue promoting market efficiencies and consumer savings—both in the short-term and in the long-term. Breaking up the tech giants would be the nuclear option and the wrong response to the problems it is trying to solve as it would cripple the platforms’ economies of scale and thus worsen the service they offer consumers.

 

Our take

A derivative policy option to the one just mentioned is to make the companies’ licenses and other intellectual property available to the public. For example, in 1956, the U.S. government forced Bell Labs to license its patents to any American company royalty-free. As a result, there was an increase of innovation in communication technology, including cell phones, computer languages, and satellites (coincidentally, these tech companies were arguably an indirect result of this policy approach.) The goal with this tactic is to even the playing field and allow competitors to keep up with those in control now, competitively and technologically; however, this policy option would likely be devastating to the current companies and their future. This might also lead to another, more philosophical problem related to who we trust with our data. Do we place more trust in the hands of these companies or our governments? The answer to this question might wildly vary depending on the country in which respondents live.

Another policy option is to regulate price by setting minimum prices for goods, which prevents companies like Amazon from asserting their pricing influence on the competition. This approach increases market prices immediately, which consumers will not appreciate, and governments must present compelling analyses that demonstrate the long-term benefits to consumers.

Yet another option is to update the legal framework that surrounds the ownership and exchange of data. As we argued above, personal data are the currency in which customers actually buy services and we should therefore make sure to give tangible rights to individuals from whom rich data is being sourced.

In light of these policy options however, some difficulties exist. The first difficulty of this debate lies in defining who the ‘tech giants’ really are. Are we having a debate about monopoly power or about high data concentration and mistrust? How do we truly define a monopoly in the ‘tech’ market and what ‘market’ are we truly discussing? The second difficulty lies in defining what the real harmful effect is of these companies and establishing a causal link between their creation, their products, behavior, and trends such as populism, depression, and manipulation. The contribution to society of these companies’ products is not as black and white as some would like them to be. While we are figuring this out, more regulation and sanctioning would probably be the better policy option. Breaking the tech giants up would likely create a vacuum that will inherently be filled by the very same companies we are trying to control. This topic will be at the center of many conversations to come in our generation.


Felix Keser is editor in chief of the Public Sphere Journal. He is a second year Master of Public Administration candidate at the London School of Economics. Prior to pursuing his graduate studies, Felix completed a Bachelor’s degree in Political Science and Developmental Economics at McGill University in Montreal. He worked as Public Affairs consultant in Brussels and has a wide range of experiences working at the Clinton Foundation, the Tent Foundation as well as for BMW’s urban technology incubator Urban-X in New York. 

Mallory Smith is a first year Master of Public Administration candidate at the London School of Economics. She grew up on Main Street in Kansas City, Missouri and earned her Bachelor’s degree in French and International Relations from the University of Arkansas, Fayetteville. Prior to pursuing her graduate studies, Mallory worked at an oil and gas contract drilling company in Tulsa, Oklahoma as a Trade Compliance Specialist in the legal department.  


 

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