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The Corner Newsletter, May 30, 2019: Why Monopolies Abroad Don’t Justify Monopolies at Home

Welcome to The Corner. In this issue, we discuss the idea that the best way for Americans to counter the power of Chinese tech giants is to accept the concentration of power by corporations like Google and Facebook.

May 30, 2019  |  by Open Markets

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.”

🔊 ANTI-MONOPOLY RISING:

  • House Speaker Nancy Pelosi, D-Calif., strongly criticized Facebook after it refused to take down an altered video of her. In a radio interview on Wednesday, she said that Facebook has “proven — by not taking down something they know is false — that they were willing enablers of the Russian interference in our election.”
  • Rep. David Cicilline, D-R.I., wrote a letter last Wednesday strongly criticizing Makan Delrahim, the head of the Justice Department’s Antitrust Division, for advocating for legal positions “that would hamper robust enforcement of the antitrust laws,” and pointed to one case that raised “serious ethics questions.”  (Cicilline cited Open Markets’ Matthew Buck and Sandeep Vaheesan’s New York Times op-ed explaining why Delrahim’s amicus brief program threatens to strengthen already-dominant companies.)
  • Sen. Tom Udall, D-N.M., joined by Sens. Amy Klobuchar, D-Minn., Richard Blumenthal, D-Conn., Elizabeth Warren, D-Mass., Ed Markey, D-Mass., and Cory Booker, D-N.J., wrote a letter last week to the Federal Communications Commission and the Justice Department calling on them to block T-Mobile’s plans to take over Sprint. The senators said, “Among other issues, the behavioral conditions and voluntary commitments offered are filled with loopholes, lack meaningful enforcement mechanisms, and do not come close to ameliorating the negative effects that a reduction in wireless competition would cause for consumers across the country, including the wholesale and prepaid markets.”
  • Sen. Josh Hawley, R-Mo., in a statement Wednesday, said he was “frankly shocked” by Facebook’s response to an earlier letter of his asking how the platform would emphasize privacy given that their business model relies on gathering user data. “I thought they’d swear off the creepier possibilities I raised,” Hawley said. “Instead, they doubled down … My advice to consumers is simple: when Facebook tells you its messaging services are private, you can’t trust them.”
  • Texas Attorney General Ken Paxton expressed concern in an April 17 letter to T-Mobile CEO Jean Legere that T-Mobile’s pending acquisition of Sprint would hurt Texas residents’ access to 5G services and increase their wireless prices, according to The Daily Caller. Since the letter, the Federal Communications Commission has indicated that they will approve the merger. The Justice Department’s staff attorneys have recommended that Assistant Attorney General for Antitrust Makan Delrahim challenge the merger.
  • Surface Transportation Board Chair Ann Begeman  after a hearing on the growing trend among the major four Class I railroads ofcutting the amount of time that companies have to load their goods onto rail cars, then charging fees if companies go over that shorter time – said that no board member was “convinced that the status quo is acceptable.”
  • The Irish Data Protection Commission opened an investigationlast Wednesday into whether Google’s online advertising exchange illegally collects and handles users’ “sensitive personal information” such as their ancestry, health, and political leanings.

📝 WHAT WE’VE BEEN UP TO:

  • Beth Baltzan testified before the House Ways and Means Subcommittee on Trade last Wednesday on “Enforcement in the New NAFTA.” Baltzan criticized the “structural bias against viewing labor and environmental issues as genuine trade issues, that is, issues that affect global conditions of competition.”
  • Matt Stoller wrote an essay for POLITICO Magazine arguing that congressional Democrats should hold the Federal Trade Commission accountable for allowing behemoths like Facebook and Google to grow. Stoller explains that “the FTC has done little … not because it lacks authority, but because its officials simply do not believe there is a problem to be solved … The FTC might kick a scam artist once in a while, but when it comes to big companies, FTC officials don’t want to use the authority they have. They see themselves not as cops but as deal-makers.”
  • On “Bloomberg Technology,” Sally Hubbard discussed Facebook co-founder Chris Hughes’ New York Times op-ed calling for antitrust enforcers to break up Facebook. Hubbard agreed with Hughes’ article, telling Bloomberg, “Facebook has become too powerful. It controls way too much of information flows around the globe. Antitrust enforcers have really been asleep at the wheel. We’ve had neither regulation on privacy measures nor antitrust enforcement when Facebook has acquired companies that were competitive threats.”
  • Matt Stoller spoke on a panel for the Lincoln Network’s “Reboot American Innovation 2019” conference earlier this month. Stoller discussed the role of antitrust enforcement and lawsuits that forced corporations to share their patents to help catalyze innovation in the postwar period of American history: “All of these suits were done with the same theme and the same policy objective in mind and that was … to open up the electronic century for all comers, not just in America, but allies in Japan, allies in Europe, and it worked.”
  • Sally Hubbard spoke at Canada’s Competition Bureau’s Data Forum event today in Ottawa. Hubbard discussed the relationship between privacy and competition, explaining the ways that Facebook’s and Google’s invasions of privacy threatens democracy and require regulation and competition: “To the extent Facebook and Google can get away with these practices because they lack competition, they are antitrust problems. Users need to be able to vote with their feet when their privacy is invaded. They need competitive alternatives.”
  • Sandeep Vaheesan spoke at the Law & Society Association Annual Meeting today in a session on “Corporate Problems and Possibilities.” Vaheesan discussed how antitrust law is “Privileging Consolidation and Proscribing Cooperation.”
  • Sarah Miller talked to Fortune about the fact that breaking up Facebook has become a major 2020 presidential campaign question. Miller noted that much of the energy around questioning and challenging Facebook’s power came around the time that the public learned of many of Facebook’s scandals, which brought together “a range of different groups across the ideological spectrum.”

📈 VITAL STAT:

>75%

Percentage of top Federal Trade Commission officials this century who “have either left the agency to serve corporate interests confronting FTC issues, joined the agency after serving corporate interests on these issues, or both,” according to a new study by Public Citizen.

📚 WHAT WE’RE READING:

  • “Why Privacy is An Antitrust Issue” (The New York Times, Dina Srinivasan): How Facebook’s lack of competitors allows it to offer its users a lower quality product, as measured by its increasingly exploitative privacy policies. “The price of using Facebook has stayed the same over the years (it’s free to join and use),” Srinivasan writes, “but the cost of using it, calculated in terms of the amount of data that users now must provide, is an order of magnitude above what it was when Facebook faced real competition.
  • “Google’s Chrome Becomes Web ‘Gatekeeper’ and Rivals Complain“ (Bloomberg, Gerrit De Vynck): “…[H]ow Google’s dominance of the browser market – and the underlying technology tools – gives the company far-reaching control over how the web works, and who gets to create new ways of accessing it.”
  • “The Writers Guild’s Dispute Had a Prequel. Lew Wasserman and the Feds Were the Stars” (The American Prospect, Harold Myerson): Why film and television writers fired their talent agents last month and why antitrust enforcers in the 1960s had prosecuted talent agencies for nearly identical behavior before.
  • “The Radicalization of Fiona Scott Morton” (The New Republic, David Dayen): How a prominent Yale professor “has emerged as a strident voice for cracking down on the behemoths that control our economy … Today, she calls monopoly power ‘an emergency.’”

 

Image courtesy of MicroStockHub.

 

Written by Barry Lynn, Phil Longman, and Matt Buck

Edited by Barry Lynn, Phil Longman, Laura Hatalsky, Katherine Dill, Stella Roque, Claire Kelloway, Bhargav Setlur, Garphil Julien, Olivia Webb, and Matt Buck

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The Open Markets Institute, formerly the Open Markets program at New America, was founded to protect liberty and democracy from these extreme -- and growing -- concentrations of private power.

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