Part III: Will Market Competition Solve These Issues?

Who Done it?

Luigi Zingales is an Italian born MIT doctorate, now Professor at the University of Chicago. He is the author of two widely reviewed books: “Saving Capitalism from the Capitalists” and “Capitalism for the People: Recapturing the Lost Genius of American Prosperity”. Economic and financial journals have published his work extensively. He has expressed a number of concerns about “Big Tech” to which I will try to do justice in a short three part series.

How much impact is Big Tech having?

There is plenty of evidence of distortion of competition in the tech sector. Distortion not only on the market side. Consider the recent EU case against Google. The EU charged Google with preferring its own shopping comparison tool to others; but on the social side as well. Google also unilaterally decided to de-rank payday lenders in their search results. De-ranking is a subtle form of censorship. A company de-ranked by Google is effectively condemned to irrelevancy.

Regardless of what we think of payday loans, who is Google to decide that for us? Why would Google have done it? Was the timing related to the Obama administration initiating a campaign against payday lenders at the same time? Is it hard to imagine that Google cultivates the gratitude of politicians having the power to regulate and legislate in ways that impact Google’s interest?

Will the market heal the potential ills from Big Tech?

Many hold the view that technology will solve the Big Tech problem because that is what has occurred in the past. This view suffers from the fallacy Bertrand Russell called “the inductivist turkey.” A turkey observes that his owner comes each morning to feed him. The turkey inductively infers that he will continue to be fed each morning by the owner. That inference breaks down each year at Thanksgiving. Just because something happened in the past, does not mean it will happen in the future.

It is simply not true that technology alone has been sufficient in the past. IBM’s dominance lasted 30 years and Microsoft’s less than 20 years. Neither company was dethroned without government intervention. IBM lost its primacy because the Department of Justice went after it on antitrust grounds for decades. Because of this pressure, it decided to outsource part of its computer manufacturing. That is what led to the PC revolution.

Google and Facebook are not part of Microsoft today because Microsoft too was under antitrust scrutiny. As one of the lawyers in that case said, “The trial is the remedy.” So historical precedent actually supports the idea of subjecting Big Tech to antitrust scrutiny. It is absolutely true that growth comes from technological innovation. It is wrong to think that letting Big Tech companies continue unhindered will necessarily lead to that innovation. So is antitrust the answer or should it ever have been used?

If we believe the market cannot heal the damage then what?

Perhaps there is another way. Let’s assume there should be no massive overhauls. Such overhauls create uncertainty and pose a danger of killing the goose that lays the golden eggs. There are significant economies of scale in search algorithms. Wouldn’t it be better to split Instagram from Facebook? There are no strong synergies between them. It was a mistake for antitrust enforcers to allow Facebook to gain so much market power.

Should we try to promote competition? The reason we don’t see a conservative Facebook being developed is because people want to be where other people are. It’s very costly in terms of time and effort for people to “multi-home” meaning to be on multiple social networks. Compare this, for example, with using both Lyft and Uber, which is convenient and efficient.

The same might be true with social media if users could post their content to an intermediary. The intermediary would then disseminate it to all their preferred social media sites. The intermediary could also collect and organize content from their friends and present it in one place. The reason this is not already happening is that federal law prevents it.

If the approach is good why hasn’t it been tried?

A company called Power Ventures made an application to do all this. It was shut down by court order when Facebook sued. As a result of that lawsuit, it is a crime for a company, even with an individual’s permission, to obtain that individual’s data from Facebook. This is a clear example of Facebook using government to create barriers to entry. Elimination of such barriers would be pro-competition and pro-free market; not interventionist.

This is called “portability of the social graph.” It’s no different than the portability of our cell phone numbers. There was a time when we did not own our phone numbers. The telephone company did. If we moved or switched companies we lost our number. Why do we now think it is normal to own our phone number? Because the FCC forced phone companies to allow portability. This is another instance or regulation creating more competition, not less, and reduced consumer cost.

Conclusion:

To create more competition perhaps we should begin with this kind of lean regulation in the tech sector. Maybe that in turn would lead to more innovation and a better result for all. Regardless of approach taken it is imperative we recognize that we face a situation our technological advancement has created. We need to decide who we are. What values and principles do we hold? What is important? Then we need to decide how to apply those values and principles to the conundrum Big Tech presents.