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Why Should We Heavily Regulate or Break Up Big Tech?
It wasn’t long into my reading of last weekend’s Wall Street Journal essay “Can the Tech Giants Be Stopped?” that I realized the author must be the same one who wrote “Is It Time to Break Up Google?” back in the New York Times last April.
Indeed, the writer of both is Jonathan Taplin, director emeritus of the Annenberg Innovation Lab at the University of Southern California. I found that first essay sort of odd because I really didn’t discover a strong argument for government action. Oh, Taplin made some assertions and declarations such as “It is impossible to deny that Facebook, Google and Amazon have stymied innovation on a broad scale” and that we need to stop “pretending that unfettered monoliths don’t inflict damage on our privacy and democracy.”
But I thought the evidence Taplin provided fell far short of backing up those statements. “Impossible to deny?” — really? Taplin also raises many questions and concerns in the WSJ piece, but especially this. Taplin:
It has been an astonishingly rapid rise for the tech giants, and it’s far from over. The big question for the future is: How will their ever-expanding control affect other businesses and the labor market? Over the past decade, Google, Facebook and Amazon have wreaked havoc on much of the creative economy—journalists, musicians, authors, filmmakers. In the decade ahead, the tech behemoths will use their dominance in artificial intelligence to overturn much of the service economy as well, including transportation, medicine and retail. With what result? To give just one example, Goldman Sachs recently reported that self-driving cars (a technology that both Google and Apple are developing) could eliminate as many as 300,000 jobs a year in two decades or more. Will we be ready when the flood of unemployment brought about by the artificial-intelligence revolution is upon us?
Oh, so the problem is that Big Tech is going to cause mass technological unemployment? Do I have that right? Then how will regulating them or breaking them up change that momentum, unless the goal is to slow tech progress? (Wait, is that really the goal?) Anyway, if the scope and size of the tech giants is currently limiting innovation “on a broad scale,” then Taplin’s preferred interventions — using his logic — would actually increase innovation and thus more unemployment, yes? Also as the Economist recently argued, “Breaking up a firm like Google into five Googlets would not stop network effects from reasserting themselves: in time, one of them would become dominant again.”
And of course this all assumes robots will simply gobble up all the jobs, which is a stretch. Again, from my The Week column on this subject:
Published in Economics, TechnologyGoogle’s top economist Hal Varian had an op-ed in the Financial Times in which he made the case that tech giants are nothing like the robber baron monopolists of old. Rather, they are constantly subject to “disruption” while continuing to innovate and bring cool new products and services to consumers and small businesses alike. . . . It wasn’t so long ago that MySpace was the largest and most dominant social networking site. Fortune magazine once declared Yahoo the winner of the “search engine wars.” The founders and executives at top tech firms hardly think their positions are forever secure. Will smart bots threaten Google’s core search business? . . . [One should also point out] all the ways — in addition, perhaps, to an anti-trust rethink on the right — to make the economy more competitive, including reforming occupational licensing laws, less stringent patent and copyright protection, and reviewing tax and regulatory rules that benefit incumbents over startups.
The same argument was made about ATT, IBM, Microsoft, US Steel, etc… same old argument.
Monopolies are only a phase in any technologically innovative cycle. Absent government support for the monopoly, it will self-correct into competing entities.
Because markets are not actually efficient, there is no actual evidence that they are except in a very limited and weak form, and there is substantial evidence of market failure.
And then there are good reasons to regulate social media sites which are non economic reasons.
Absolute bunk. Natural monopolies are actually a thing, and monopolies can actually extract monopoly profits while also fending off disruption and substitution.
Policy by platitude is bad when conservatives do it too.
Without government intervention monopolies cannot exist for long. Every new business has a little monopoly power until it doesn’t. Nothing could be a greater threat to our freedom than an alliance between big government and big tech. If we allow the government to regulate them or act as if it was going to break them up we will get a symbiotic relationship protected from technological upstarts and a de facto monopoly that will never go away. And by the way which robber baron was a monopolist? Certainly not Standard oil, the Railroads? Because of government, Shipping? government again. The only real monopoly is government itself and we have to break it up by moving what we can’t kill to the states. The other big monopoly was the AFL/CIO and they put themselves out of business..
The stolen base is the assertion of “we” in the post title. Who exactly are the royal we? Let the market rip `em up if necessary. Trust the users.
Completely missing from this post is any analysis of the actual antitrust statutes and if/how the ‘behemoths’ in question are out of compliance with them. That would seem like a good place to start.
My personal problem is that Amazon has a stock price that is 1000% overvalued. This has very worrying implications.
1.) A bubble that will have serious national ramifications in the future
2.) Investor expectations of extracting monopoly profits.
The complete lack of market discipline when it applies to tech companies. (Amazon’s only profit comes from AWS). We subsidize their business to the tune of a buck fifty for each package delivered. The lack of market discipline leads to things we would consider to be anticompetitive in any other context such as strategic losses to destroy competitors. This goes back to how monopolies actually behave to protect themselves against competition.
If Amazon had to post a 10% margin to satisfy investors, what would the market implications be? Either there would be less reinvestment and thus slower market share growth, or there would be higher prices and less market share.
Given their behavior, and their stock price. Investors are obviously planning on extracting monopoly profits in the future. What do we do in the situation when we can clearly see that a business with a dominate market position is engaging in anticompetitive behavior, and the stock price clearly signals the expectation of extracting monopoly profits.
Amazon is at least one case where the FTC has some serious work to do.
Maybe investors expect that government will attempt to regulate them and turn their market advantage into a monopoly. Their strength is not monopoly, everything they sell is sold by many others; they can’t extract monopoly profits, they can extract monopsony cost advantages and do which our laws, I think, do not cover. Fortunately. We don’t want the government in this at all anywhere in any way, ever. If we subsidize them in any way remove it. But otherwise stay away. How many times do we have to learn this lesson?
I am frequently struck by the absolute faith so many people have that government regulators will always do the “right” thing, and know exactly the right regulations to get the “best” result. Even if we were to all agree that there is a problem, why do so many people have such confidence in government regulators to produce a result better than what currently exists?
Which is it, lack of discipline or the reasonable expectation of monopoly profits?
I am not yet decided on whether it rises to the level of needing government intervention -but I am also more worried about their network power than their economic power. In the current economy, Google and Facebook are darn close to water despots. However, “close to” and “actually are a threat to our liberty” are separated by a wide gorge -and for the moment I will wait until I see more evidence that this gorge is being bridged.
Rightly so, but numerous large, even dominant, social media platforms have come and gone. We should be careful not to exaggerate the power of these networks effects. As long as there’s no major penalty for opting out the market power will always be limited. As somebody whose social media presence is limited to Ricochet, is equally happy with an Apple, Android, or Microsoft phone, and spends more money at Walmart than Amazon, I don’t think we’re there yet. However, as those characteristic put me outside the mainstream (except the Walmart part), perhaps I underestimate the problem.
Its a bit of both. They aren’t exclusive.
Amazon basically breaks even (except for AWS), tolerance of investors for not getting paid is their primary competitive advantage, their stock price this is either a hype bubble that will burst (probably true in either way), or clear information about what they expect in the future.
I don’t think we need to take any action (yet), I think they just need to be reminded that action is possible, and may become necessary.
Yes, let’s have the federal government jump in and break up these harmful monopolies such as Amazon, Google, and Facebook, because, after all, the government knows best and is so successful when it acts to break up monopolies (from Wikipedia):
So, thanks to government action, one large monopoly became 7 smaller, regional monopolies – which eventually became two large, nationwide almost-monopolies (after two absorbed four of the Baby Bells (plus one former competitor GTE). The remaining Baby Bell (US West) was in turn absorbed by Qwest, which was in turn absorbed by CenturyLink. [sarcasm off]
Now, in this age of rapid technological innovation, it could be argued (and probably will be argued) that we’re better off with two giant phone services (Verizon and AT&T) and lots of small competitors (Sprint, Boost, Cricket, T Mobile, Metro PCS etc.). But at the time of the AT&T breakup, cellular telephone was not even a gleam in anyone’s eye, and given the way Verizon and AT&T have gobbled up their former Baby Bell competitors, who’s to say they won’t gobble up (or marginalize) their cellular competitors. Or are we comfortable with the federal government stepping in to restructure the playing field every time they conclude it’s gotten too stacked in one side’s favor.
I oppose government regulation of these companies. I may favor breaking them up.
The best argument for breaking up Google, Amazon and Facebook is political, not economic. The combination of their monopoly power, deep entanglement with the Democratic party, and commitment to constraining liberties (other than their own) pose a unique danger to society.