MONOPOLY MATTERS

Why Monopolies Abroad Don’t Justify Monopolies at Home

In a recent interview, Facebook COO Sheryl Sandberg deployed a talking point that other platform monopolists are increasingly using. Don’t break up Facebook, she said, because that will just allow Chinese companies to come in and fill the void.

Just days later, former Google and Alphabet chairman Eric Schmidt evoked the same justification in an interview with The Daily Telegraph. The British newspaper reported that “Mr. Schmidt … expressed concern that US and European ‘regulatory bias’ was hampering the competitiveness of the Western technology industry in favour of China.”

The idea has traction with more than a few policymakers as well. The French and German finance ministers, for example, recently criticized the European Union for cracking down on European consolidation by evoking the fear that unless Europe develops “industrial champions,” Chinese monopolies will dominate.

Similarly, in an April interview, Sen. Mark Warner, D-Va., said, “I have some concern, as somebody who is very concerned about the rise of China, that if we were to kind of chop off the legs of Facebook and Google, that they might be replaced by Alibaba, Baidu, Tencent – companies that are totally enmeshed with the Chinese government in their global economic plan.”

What’s wrong with this argument?

In most instances, it presents a false choice.

Forcing Facebook to divest its WhatsApp and Instagram lines of business, for example, wouldn’t destroy these businesses. It would simply roll back the amount of user data that Facebook currently collects and thereby restrain its ability to leverage that data into a monopolistic share of the world digital advertising market.

That’s hardly a threat to American citizens. Everyone could still use WhatsApp and Instagram or just stick to Facebook’s core social media functions, with the benefit of less comprehensive surveillance. And it would hardly threaten America’s national interest if the digital advertising sector became more competitive than it is today.

The real choice before us is not whether we have to tolerate domestic monopolies in order to avoid domination by foreign monopolies. The way to avoid domination is to apply anti-monopoly principles not only to domestic trade – such as through antitrust law – but also to international trade.

As Open Markets Fellow Beth Baltzan writes in her recent article for the Washington Monthly, the FDR and Truman administrations prioritized trade rules dispersing economic power to structure international markets. Specifically, Baltzan writes, “the architects of the postwar systems got fifty-three nations to sign off on a treaty known as the Havana Charter, which included rules that guaranteed workers’ rights, provided protections against destructive foreign investor behavior, and required trading nations to abide by anti-monopoly rules.”

The Havana Charter can be a model for the United States today, Baltzan argues. The United States has incredible power to help shape trade rules, besides using tariffs, so as to promote strong antitrust enforcement worldwide.

Vanderbilt law professor Ganesh Sitaraman, likewise argues, “International engagement must focus as much on rebuilding unions, enforcing antitrust laws, adopting smart regulations, closing tax havens, and restricting the money power from politics as it does on lowering barriers to trade.”

History illustrates that an anti-monopoly approach complements a strong foreign policy. The period that saw some of the most aggressive use of anti-monopoly law and policy in America, between the mid-1930s and the early 1980s, was also the period when the United States won military victories over the great industrial powers of Germany and Japan, and put into place the foundations for our Cold War era bankrupting of the Soviet Union. In other words, the highly competitive industrial structures of this era provided Americans with the technological and business process innovations that helped make the nation the most powerful on earth.

Monopolies, by contrast, both at home and abroad, were regarded as enemies. Indeed, for many Americans, one lesson of the Second World War was too much concentration of economic power by giant corporations can disrupt democratic systems and even contribute to the rise of autocracy.

The challenge is no different today. Making a global economic system work for many people, not only the owners of corporations in increasingly concentrated industries, means making unaccountable private power accountable. That might require democracies to undergo, as Sitaraman puts it, “selective disentanglement” from authoritarian regimes “to protect themselves from dependence on these countries.”

Yet doing so is critical to the health of the country’s, and the world’s, political economy. As Financial Times columnist Rana Foroohar wrote in March, “A handful of tech giants are unlikely to create sustained growth on their own. A broad and diverse supply chain, including companies of all sizes, in high growth industries, could.”