Break Up Big Tech?
Calls for the break up of ‘big tech’ companies have gathered political traction as of late, spurred on by Presidential candidate, Elizabeth Warren, who has made it a front-and-center issue in her 2020 campaign. But how did we get here? Here’s a brief overview.
America's antitrust laws
America’s antitrust laws reach all the way back to the turn of the 20th century when they were created in order to regulate how business corporations operated: to promote competition in the marketplace and protect the consumer.
There are several main statutes. The first is the Sherman Act (1890) - initially passed to prohibit the formation of cartels, the act bans price-fixing and any sort of collusion between companies that may stymie trade. It further outlaws the abuse of monopoly power. The second is the Clayton Act (1914) which is concerned with curbing the occurrence of the type of mergers and acquisitions of companies that could significantly reduce competition. The third is the Federal Trade Commission Act (1914), which prohibits unfair methods of competition and unfair practices that impact on commerce.
These antitrust laws were used aggressively in the late 1800s and early 1900s, but with the reintroduction of tariffs and the coming of the Great Depression, the antitrust movement was largely derailed throughout the 20s and 30s.
Then came President Franklin D. Roosevelt, who defined the struggles facing the nation as a problem of “industrial dictatorship” whereby a small group of powerful corporations and banks had, he said: “concentrated into their own hands an almost complete control,” such that many Americans were “no longer free” and across the nation “opportunity was limited by monopoly.” He proceeded to revive and enforce the country’s antitrust laws with vigor, so that in the decades that followed, anti-monopoly policies became a cornerstone of U.S. politics, and a key feature in State of the Union speeches. From Truman, who doubled down on initiatives to limit monopoly powers, and bolstered regulators’ powers to block mergers; to Eisenhower, who also reiterated the need to curb monopoly, attributing the success of the U.S. economy to the effective enforcement of antitrust laws.
Reagan changes everything
But then the public mood shifted. Focus on monopoly began to fall out of both public and political discourse, and after 1962 no president mentioned it as a point of concern during their State of the Union address. It was in this environment that Reagan assumed the presidency in 1981 and began to make big changes to the way antitrust laws were interpreted, entrenching a new approach to the way they were enforced. In tune with the administration’s more business-friendly agenda, in 1982 they issued new merger guidelines which stipulated that monopoly was only an issue if it increased prices for consumers.
This has had huge implications for how the U.S. government regulates big business to this day. Take, for example, Facebook’s recent purchase of Instagram. Under the current antitrust framework, the takeover was permissible since there was arguably no price for consumers: both platforms are free. But this ignores the impact on other companies in allowing Facebook to cement its dominance of the social media landscape. For companies who rely heavily on selling ads, for instance, they are now competing against this mass, multi-billion dollar operation. Some might say it’s not really a fair fight, not least, technology industry analyst Ben Thompson, who said that allowing this acquisition was “the greatest regulatory failure of the last 10 years”.
In essence, the Reagan-era antitrust framework doesn’t really work for regulators in today's world in which the costs to consumers aren’t particularly transparent (think privacy and data). In such an environment, challenging moves that are clearly anti-competitive, like Facebook buying Instagram, is much trickier.
So what happened next?
The birth of the new Reagan-era antitrust framework coincided with the start of the digital revolution (typically pegged to around 1980). Little did the administration know then just how big the technology sector would become, nor how rapidly it would come to dominate the marketplace, precipitating major societal change as it did so. Fast forward to 2010 and we see the so-called ‘Big Four’ (Google, Amazon, Facebook, Apple, and occasionally Microsoft) dominate cyberspace. And then just keep on growing.
The 'Big Four'
In his recent book “The Four: The Hidden DNA of Amazon, Apple, Facebook and Google,” NYU Stern professor, Scott Galloway, investigates the growth of these tech giants, highlighting that between 2013 to 2017, their combined market capitalization increased in size by the GDP of Russia ($1.4 trillion), and predicting that by the following year (he wrote the book in 2017) it would overtake the GDP of India (it did). The success of these companies, he notes, is in no small part attributable to the way in which they both understand, and then appeal to, our basic human desires, creating technology that is immediately easy and rewarding to engage with. So, we all got hooked - think how many times a day you refresh your Instagram feed, your Facebook homepage, your Whatsapp messages… talk about opium for the masses.
Next, he notes, they have fundamentally changed some key economic rules. Take, for example, Facebook and Google’s media duopoly. In creating products and platforms that continually improve with use, they have, Galloway says, created a “Benjamin Button economy” in emerging media. The more people use their platforms, the better their targeting algorithms become (this is called a ‘networking effect’), and hence the lower the cost of their advertising products. In 2016, for example, Google and Facebook comprised 103% growth in digital media advertising revenues, crushing smaller competitors in the industry - an industry now in decline.
So, while in the immediate aftermath of the financial crash, Big Tech enjoyed much public acclaim and Silicon Valley was seen as the emblem of hope amidst the country’s economic chaos, the mood has significantly changed. With a nation (and increasingly world) hooked on their platforms and services, with investors rewarding a small segment of these tech companies at the expense of the rest, with market competition increasingly squeezed out, and with outdated antitrust laws being enforced within a similarly out of date regulatory framework, for many, the influence of these tech giants has fast become far too dominant.
The Big Scandal
And then we come to the Cambridge Analytica Scandal, which exposed a monumental and consequential breach of users’ private data. Facebook's complicity in facilitating this highlighted with a new clarity just how powerful its platform had become both politically and socially, and just how at-risk our private data is as a result.
Lest you’ve forgotten: Cambridge Analytica is a political consulting firm that had ties to the Trump campaign. During the 2016 election, it harvested the data of roughly 87 million Facebook user’s profiles without their consent, and used it to build comprehensive data personality profiles that its clients could use for the “psychographic targeting of ads”. The Trump campaign relied heavily on such targeted advertising throughout the race.
The scandal prompted lawmakers to act and Mark Zuckerberg was called before Congress in April 2018, for hours of questioning around Facebook’s handling of personal data, as well as its role in the spread of ‘fake news’, Russian interference during the election, and the censorship of conservative media. As the company’s actions continue to raise concerns with critics around its size and power, Zuckerberg has again been called before Congress this week, where he will face a similar line of questioning, with additional scrutiny over its plans to expand, i.e. by creating its own cryptocurrency.
Break em' up?
Last year the EU took a big step toward regulating the big tech companies and creating ‘digital rights’ for its citizens. It introduced The European General Data Protection Regulation (GDPR), which established a new standard for data collection, storage, and usage amongst companies working in Europe, and represents one of the most stringent data privacy laws in the world. Now Congress is beginning to act too.
In July, The Department of Justice announced a new, broad antitrust review and said it would examine “whether and how market-leading online platforms have achieved market power and are engaging in practices that have reduced competition, stifled innovation, or otherwise harmed consumers.” While they didn’t specify names, it’s clear Facebook, Google, and Amazon will be looked at.
Over the summer, the Financial Trade Commission also announced that after years of investigating Facebook over the Cambridge Analytica scandal, and other privacy violations, the company would be fined $5 billion (the second-largest fine the FTC has ever imposed) and face a series of new restrictions on its business. For some, this didn’t go anywhere near far enough and equated to “blanket immunity for Facebook executives” who had essentially been let off the hook.
So where are we now? There is a growing debate around the future of big tech regulation that veers between calls for current antitrust laws to be more effectively implemented, to the more radical demand that the Big Four be broken up. It has become a key issue in the lead up to the 2020 election. Here’s what some of the candidates think...
What the Candidates Say...
Senator Elizabeth Warren: She’s leading calls for the breakup of Big Tech and earlier this year published her proposal for exactly how she’d go about doing this. Amongst other things, it included a plan to make tech firms “platform utilities” and prohibit them from owning participants on their platforms. She has explained her argument by way of a sports analogy: “You can be the umpire in a baseball game or you can have a team in the game,” Warren says, “but you don’t get to be the umpire and have a team in the game.
Senator Amy Klobuchar: She’s one of the few candidates who brought up issues like net neutrality and data privacy in her campaign speech. Earlier this year she introduced legislation that would update antitrust laws and return the focus of our regulatory framework to the competition model that existed pre-1980s.
Senator Cory Booker: He's criticized "ill effects" of "corporate consolidation" and has pledged to bolster antitrust laws if elected. But Booker stops short of going as far as breaking up the 'Big Four'.
Former Vice President, Joe Biden: He hasn't been particularly vocal on the issue, but the Democratic frontrunner suggested back in May that breaking up the big tech companies is “something we should take a really hard look at.”
President Donald Trump: He's been critical of the European Union’s large fines on American big tech companies, but when asked about Facebook, he suggested it might be worth looking into antitrust issues.
What the public thinks...
According to a recent YouGov/Data for Progress poll, just over 60% of Republicans, Dems and Independent voters support breaking up big tech companies by undoing recent mergers (like Facebook buying Instagram for example), and closer to 70% of Republican, Dems and Independents support a break up to ensure that companies like Amazon don’t prioritize content they benefit from financially.
And now for the podcasts...
Want to learn a bit more? Here are several excellent podcasts delving into this important issue in a little more depth.
Can We Trust Antitrust Laws
Enforcing strong antitrust laws was once high on the agenda of the U.S government - protecting free competition in the marketplace was key and thus blocking the formation of domineering monopolies was essential. President Theodore Roosevelt, for example, sued 45 companies under antitrust legislation during his time in office.
But does the rise of giant tech companies like Facebook and Amazon suggest that our current antitrust laws are broken or not enforced? Should the government be doing more to curb ‘Big Tech’s’ growing powers and protect market competition?
In this episode, Planet Money investigates.
Beware Of Zuck?
It has been 15 years since Chris Hughes co-founded Facebook with his Harvard roommate, Mark Zuckerberg. It has been over a decade since he’s worked for the company - now a multi-billion dollar social media platform, considered one of the ‘Big Four’ tech companies, alongside Amazon, Apple and Google. Neither of them foresaw how seismic an impact their creation would have on the world, nor how embroiled it would become in endless political scandal. But Hughes got out, so has watched from the sidelines as Zuckerberg’s power has magnified to a level Hughes describes as both ‘unprecedented and un-American’.
Now the former Facebook co-founder joins the likes of Presidential hopeful Elizabeth Warren in calling for the social media behemoth to be broken up. In this episode, he explains to The Daily why he thinks it’s time for lawmakers to hold Zuckerberg to account.
The EU’s Digital Czar
As the European Union’s competition commissioner, Margarethe Vestager became the blight of Big Tech as she imposed billions of dollars of fines and launched investigations against Google, Apple and Facebook for violating antitrust laws and damaging consumer interests. Earlier this month, Vestager was elected to an unprecedented second term in the job with a much-expanded portfolio, making her the equivalent to the European Union’s ‘digital czar’. In this podcast interview, recorded earlier this year at SXSW, Vestager discusses regulating ‘Big Tech’ with Decode’s Kara Swisher, and explains why she sees breaking up the tech giants as a last resort.
Words by: Emma-Louise Boynton
Editing by: Jim Cowles, Stacy Perez and Emma-Louise Boynton