Rebooting Big Tech
What’s the best way to fix Silicon Valley?
This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the January/February 2020 issue.
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It’s no secret that the giant tech companies have been in hot water lately. The huge online corporations are facing scrutiny on all sides, from investigations by President Donald Trump’s Justice Department and the Federal Trade Commission, to getting pilloried by the liberal Democratic presidential candidates, to Facebook CEO Mark Zuckerberg flinching in the face of Representative Alexandria Ocasio-Cortez’s withering questioning.
The question on the minds of many across the political spectrum, then, is: What to do with them? Regulation, breakup, and nationalization are all possibilities, with different public figures supporting different options. But choosing among them requires first understanding why the tech companies are so enormous and powerful in the first place.
Corrupted Data
Today’s tech monopolies are shaped by a number of market processes, the most prominent being network effects: a service distributed over a network actually gains value as more people use it. For example, as more people gained access to the early landline phone network, the network itself became more valuable, because more people or institutions could be contacted with it. When you get the same kind of sneakers as I have, it doesn’t make my shoes more valuable. But your uploading clips to YouTube does make the service more valuable to me—more videos attracts more users to the site, which in turn attracts more video creators. It’s the unique nature of networked services.
Network effects thus create an especially strong tendency for market concentration, since people want to join social networks with many users, not just a few, and that tends to make early leaders run away with the market. And once a company has become a dominant hub for some kind of information, and becomes an essential default venue where users and creators are strongly attracted due to the presence of so many other users, it is often called a “platform.” The largest corporations of our time, including Google, Facebook, Amazon, and Apple, are platform companies, which make much of their revenue by acting as a host or middleman to sharing online video, social media posts, or independent retail.
But this means we have a large number of online services that are monopolized—Facebook arguably monopolizes the online social media market (Twitter being more niche), YouTube has near-total control of online video, and Microsoft’s monopoly on important productivity apps—Word for writing, Excel for spreadsheets—lasted for decades. Even in smartphone operating systems we have just a duopoly, with Apple’s iOS and Google’s Android family. Here the network effect is more indirect—part of the reason we use these devices is for the apps, the fun or useful software created by developers to run on a particular operating system. This means, however, that operating system platforms with more users attract more developers, which in turn attracts more users, leading to another positive feedback loop that fosters dominance by market leaders with strong early followings.
The result is platform economics—platforms being huge online hubs where users and producers of goods, like online video or software applications, can come together. A site becomes a platform through institutionalized network effects—people join Facebook for social media since most people are using it, and people upload video to YouTube since most video makers and viewers are already there. The global scope of these markets allowed today’s online platform companies, like Google, Facebook, and Amazon, to attract billions of users and to become the biggest corporations in the world. Obviously, these firms are powerful as a result, leading to the especially critical question of how to cope with the tremendous influence of the platform corporations of Big Tech.
Troubleshooting
With yet another new class of gigantic corporate monopolies rising to the dominant core of capitalism, addressing the power of platforms has become a part of progressive policy proposals and political campaigns. The proposed solutions vary dramatically, but are relatively easy to understand. These solutions have been on the policy spectrum for decades, and with the competitive 2020 Democratic primary we’re seeing candidates sort into different traditional slots on monopoly policy.
The campaign of Senator Elizabeth Warren is most closely associated with the historic antitrust-based policy goal of breaking up Big Tech—as Politico reported, Warren “has put the trust-busting message front and center.” Other Democrats have gone out of their way to cozy up to tech, most grovelingly former Mayor Pete Buttigieg’s cutesy carride video with social media monopolist Mark Zuckerberg in the spring of 2017. Since then, when it comes to regulating Big Tech, Buttigieg has suggested at most a mild “behavioral” approach where the gigantic companies are held to modest regulations limiting what additional future mergers they can make or exactly how they may use their monopoly. Microsoft was convicted of using its operating system monopoly to take over the market for web browsers in 2000, but narrowly avoided being broken up, instead being subjected to new light-touch behavioral limits on its conduct, and crucially was mostly left to monitor its own compliance. Shockingly, the company continued its market power-abusing practices, like software that overrode a computer user’s browser choice in favor of Explorer if they clicked a simple prompt that appeared two weeks after activation. This shows the weakness of this conditions-based approach when used on such insanely large and rich companies.
For his part, rival Senator Bernie Sanders has publicly supported breaking up Facebook, and when asked about similar action for other tech titans, replied “It’s something we should definitely take a look at, yes.”
Warren has staked out a clear position advocating for strong antitrust legislation, so let’s review that. On her campaign’s official blog post on the subject, Warren does make the convincing case that the tech giants are too powerful, and especially criticizes them for suppressing innovation, and thus keeping down the “next generation” of tech companies. But notably, most of the core technological innovations that make up today’s internet and mobile phone technology come from the public sector, in research by the Pentagon and university system into miniaturization, interface design, and the internet. The Warren campaign fails to engage this history, and thus readers could reach the conclusion that the main harm of Big Tech, which thoroughly tracks us and shapes the ideas we’re exposed to, is that they are delaying the Bigger Tech of tomorrow.
Warren’s proposal calls for the platform companies to be “broken up,” the common term for the forced sale or divestiture of large parts of a conglomerate. The campaign envisions this largely in the form of “reversing” the biggest mergers made by the platforms over the last decade or so—requiring, for example, Facebook to sell off its WhatsApp messaging service, and more meaningfully its Instagram subsidiary; making Google sell its traffic app Waze and its major online advertising acquisition DoubleClick, and forcing Amazon to sell off the Whole Foods chain it bought in 2017.
These steps would be significant advances, as the companies use all of the other companies they have acquired to collect data to better profile consumers, and the acquisitions are responsible for major parts of their recent corporate growth. However, it’s extremely important to recognize that this approach fails to really address the monopoly power of the tech platforms—breaking Waze off from Google doesn’t do much about Google’s main monopoly, in mobile search. Or, for that matter, the utter monopoly held by its preposterously large YouTube video unit. Facebook could lose its messaging arms and even Instagram and still hold major monopoly power over social networking.
And these monopolies could be expected to endure, of course, because of the magnetic power of the network effects that led to their platform status in the first place. People will still turn to Facebook for online social media, or YouTube for online video, due to their ability to attract an increasing number of viewers and thus creators and thus more viewers. The Warren campaign’s Medium post outlining its tech antitrust policy is quick to point out that American tech companies have mostly achieved their dominance through two key strategies: the first one is the great mergers that limited competition (like those listed above), and the second is using proprietary markets to limit competition—like Amazon, which runs its great market for online shopping and also competes in that market, with its Amazon Basics and other company label products.
For sure, both of these are clear methods by which the firms have augmented their monumental powers, but notice that the basic economics of network effects—the growing value of networks as more users join—is completely left out. How did these companies grow so large in the first place, and become so big that they can buy up their main competitors or compete in a market they also own, if not for this simple economic reality? In fact, Facebook is such a textbook case of the pioneer-advantaging power of network effects that it’s literally a textbook case—many basic economics textbooks, including the one from which I teach, use the company as a paradigmatic example.
So it’s probably not expecting too much that it at least be mentioned in a major policy document like Warren’s Medium post, which never once brings up this well-recognized concept. It does, however, refer to it indirectly, in 19th century Gilded Age cases “where the value of the company came from its network,” but only to describe the conflict of interest in owning a market while also competing in it, as Amazon does and Apple does in its App Store. Presumably the pivotal concept of network effects was left out because it undermines the liberal hope that vigilant antitrust enforcement will prevent serious abuses of power by monopoly—no one is proposing to break up YouTube or Facebook proper, since it’s recognized that the economics of the services requires them to remain one unit.
Also, it should be noted realistically that the time to block these monopoly-enhancing mergers was at the time that they happened, not 10 years later. In several cases, including Google’s crucial purchase of DoubleClick, the software is now so integrated that it’s not clear if a divestiture is even possible or exactly what it would mean.
And indeed, history provides some highly cautionary tales about attempts to break up platforms—most notably the Microsoft antitrust case. There, the company was only broken up by an independent-minded federal judge after a fairly amusing series of horrible, tone-deaf mistakes at trial, above all the many internal company emails and documents that directly disproved the company’s official corporate statements, including the video testimony of former CEO Bill Gates. Gates also managed to come off as smug and condescending in the testimony, highlights of which can be viewed online. But it took all that for the company to be ordered to be broken up into operating system- and application-making units, and of course in the end the U.S. Justice Department gave up its breakup demand after the George W. Bush administration took over in 2001.
One favorable feature of Warren’s plan, however, is that it aims to designate platforms as “platform utilities.” Certain basic services like electricity or water are called “utilities,” and have a strong tendency to be monopolized, since the costs of wiring a city grid or building a water system are enormous, and since competing would mean putting in duplicate power lines and sewer mains, which would be a hugely expensive and redundant idea. Therefore, these markets are often called “natural monopolies” due to these characteristics, and subject to serious government regulation to keep the monopolist power companies from running off with the store.
So Warren’s campaign calling a platform like Google a “utility,” then, suggests its monopoly should be seen as economically inevitable, and that it should be regulated like gas and electricity suppliers. This would indeed be a major departure from the recent history of the tech industry, which has benefited from an extremely loose regulatory environment with few limits on platform growth, treatment of user data, giant mergers, or other problems that are now receiving attention.
Warren’s position is to subject these platform utilities to regulation, likely similar to that applied to AT&T during its heyday as the nationwide telecommunications monopoly, but under regulations requiring it to operate as a public trust. Notably, this included “common carrier” rules similar to those briefly applied to the modern internet from 2015 to 2018, under the Federal Communication Commission’s short-lived net neutrality-inspired policies.
Turning It Off and On Again
But fittingly, while the Warren campaign is most popularly associated with reforming Big Tech, it is again the Sanders campaign making the boldest proposals, and his campaign has taken a position on tech to Warren’s left. Sanders does support antitrust action—when asked about breaking up tech titans, replied “It’s something we should definitely take a look at, yes.” But beyond that, Sanders has recently positively referred to both public ownership of utilities and to workplace democracy, in the form of a stronger union movement that would get workers more of a say, and indeed board seats, or ideally gradual stock transfers to the workforce over many years.
A traditional leftist demand is for public utilities, including for assets on a national scale like the transportation network or electric grid, where this is referred to as “nationalization.” Indeed, in an October tweet, Sanders suggested “It is time to begin thinking about public ownership of major utilities.” In California he said the scandal-plagued investor-owned utility PG&E should be made public, and “The renewable energy generated by the Green New Deal will be publicly owned.”
This would be a major change, as regulated private water and power utilities have a history of capturing their regulators with lobbying, gifts, or a revolving staff door, so it is sometimes argued that a utility has to be public to put the necessarily monopolized service decisively into the public interest, rather than maximizing near-term investor returns.
For years, the question of public ownership, usually through a nationalization move, has been something that distinguished European social democrats from liberal U.S. Democrats—nationalizing utilities or railroads is a regular goal of Jeremy Corbyn’s U.K. Labour Party leadership, while figures like former Democratic Senator Ted Kennedy are usually willing to settle for regulation in some form. So Sanders’s announcement of possible support for public utilities is a real step to the left, one of numerous ones taken to satisfy an increasing progressive Democrat base. Furthermore, if Sanders would agree with Warren that the enormous platforms like Amazon and Facebook should be seen as public utilities, then support for online platform nationalization would follow.
Crowdsourcing Common Ownership
And yet nationalization—bringing giant, important utilities under some limited democratic decision-making process—is not yet socialism. If our lives and economy rely on these firms and their platforms, they are too important to be left to the companies, and a distant government is only a limited improvement. A positive fundamental change would be to bring them under the control of the people who run them, and the users who create so much free content for them.
The most prominent online form of user control is definitely platform co-operativism, in which the platform’s contributors share collaborative decision-making about the system. Wikipedia is by far the most prominent example of this organizational form—decisions about deleting or editing articles, or politicking controversial content, are made by the contributors and editors of the articles which make the platform useful and interesting. Notably, they do not own the platform or make broader decisions about the entire system, which may be owned by a nonprofit, as in Wikipedia’s case, or privately, as with Craigslist. But Wikipedia’s example has been hugely influential and is tremendously valuable as an example of giant success without capitalist incentives.
This suggests too the limits of nationalization, which would likely be needed as a step to bring colossal platforms like YouTube or Facebook under user control. Nationalization in itself only establishes public ownership rather than private, and is quite compatible with continued top-down decision-making and a lack of user control. Platform cooperativism is associated with an extremely valuable conception of large platforms as “commons,” with a shared social stake and an expectation of user participation in at least a major part of decision-making. This disconnect between simple nationalization and actual user control is often exploited by right-wing critics of nationalizing the platforms, who claim government ownership will mean tyrannical control, ignoring that existing corporate ownership is already tyrannical and unaccountable except to shareholders. So further improvements in our online platforms can be conceived—an economic system where capital is run by the workforce, known as socialism, can most definitely be achieved in the online economy. Therefore, an online socialism ought to be recognized as a major priority for radical change, replacing the power wielded by the tech sector with democratic control over the internet’s crucial platforms. Online socialism would represent a movement to impose a form of popular representation in decision-making about platforms, where the workers maintaining them and users making them fun decide how they will operate. So rather than logging on to find a new, confusing legal update to the Terms of Service has been made by the platform company, users would discuss together what changes would benefit the platform, and what limits should exist on selling user data, and decide democratically. Online socialism could change the world.
These may seem like bold steps, but consider the limits of the liberal solution, antitrust. Its long arc is one of waxing and waning enforcement, mostly allowing oligopolies to go on dominating markets, as long as they’re not too nakedly colluding or about to merge into a monopoly. The ability of giant oligopolists to leash policy after the Reagan revolution argues for the limits and ultimate futility of antitrust, as capital can wait out public attention and then jump in to reshape ideology and policy with the giant power of its resources, resources left mostly in place by antitrust itself. Nationalization is a far more decisive move, and more meaningful as it embodies a principle that the public sector and elected decision-makers have an important role in economic development, rather than leaving it to allegedly efficient market actors.
But online socialism would be a yet better option, with real participation in decision making by users and platform architects, rather than a legalese leash that the beasts of business can wrestle off when the coast is clear. Nationalizing the platforms would be a great step toward clearing the way for a socialist goal, but both sure look better than Warren’s valuable but market-friendly, limited antitrust approach. Reforming the platforms and socializing social media should be part of our election-year conversations. Don’t let Big Tech get away with new regulations they can game, or the odd divestiture—from each according to their content platform, to each according to their bandwidth.
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