Lawmakers keen to break up 'big tech' like Amazon and Google need to realize the world has changed a lot since Microsoft and Standard Oil
- Written by Bhaskar Chakravorti, Dean of Global Business, The Fletcher School, Tufts University
Big tech is back in the spotlight.
The chief executives of Amazon, Apple, Facebook and Google are testifying before Congress[1] on July 29 to defend their market dominance from accusations they’re stifling rivals. Lawmakers and regulators are increasingly talking about antitrust action[2] and possibly breaking the companies up into smaller pieces.
I study the effects of digital technologies on lives[3] and livelihoods across 90 countries. I believe advocates[4] of breaking up big technology companies, as well as opponents[5], are both falling prey to some serious myths and misconceptions.
Myth 1: Comparing Google with Standard Oil
Arguments for and against antitrust action often use earlier cases[6] as reference points.
The massive 19th-century monopoly Standard Oil[7], for example, has been referred to as the “Google of its day[8].” There are also people who are recalling the 1990s antitrust case against Microsoft[9].
Those cases may seem similar to today’s situation, but this era is different in one crucial way: the global technology marketplace.
Currently, there are two “big tech” clusters. One is in the U.S., dominated by Google, Amazon, Facebook and Apple[10]. The other is in China, dominated by Baidu, Alibaba, Tencent, Huawei[11] and TikTok[12]-maker ByteDance.
This global market is subject to very different political and policy pressures than regulators faced when dealing with Standard Oil and Microsoft. For example, the Chinese government has blocked most[13] of the U.S. companies from entering its market. And the U.S. government has done likewise[14], blacklisting some Chinese outfits over perceived national security threats while discouraging others.
Since the COVID-19 outbreak, the Chinese government has doubled down[15] on championing its own technology companies.
U.S. companies’ size and data accumulation capabilities give the country economic and political influence around the globe. If the U.S. technology giants are broken up, the result would be a vastly uneven global playing field, pitting fragmented U.S. companies against consolidated state-protected Chinese firms.
Myth 2: Antitrust is about money
There are two main views of antitrust action among legal experts.
One focuses on consumer welfare, which has been the prevailing approach federal lawyers have taken since the 1960s[16]. The other suggests that regulators should look at the underlying structure of the market[17] and potential for powerful players to exploit[18] their positions.
Those two sides seem to agree that price plays a key role. People who argue against breaking up the tech giants point out that Facebook and Google provide services that are free to the consumer[19], and that Amazon’s marketplace power drives its products’ costs down. On the other side, though, are those who say that having low or no prices[20] is evidence that these companies are artificially lowering consumer costs to draw users into company-controlled systems that are hard to leave[21].
Both sides are missing the fact that the monetary price is less relevant as a measure of what users pay in the technology industry than it is in other types of business. Users pay for digital products with their data[22], rather than just money.
Regulators shouldn’t focus only on the monetary costs to the users. Rather, they should ask whether users are being asked for more data than is strictly necessary, whether information is being collected in intrusive or abusive ways[23] and whether customers are getting good value in exchange for their data[24].
Myth 3: Trust-busting is all or nothing
There aren’t just two ways for this debate to end, with either a breakup of one or more technology giants or simply leaving things as they are for the market to develop further.
In my view, the best outcome is right in the middle. The errant company is sued to make necessary changes but isn’t broken up. The very fact that the government filed a lawsuit leads to progress with other companies. That is exactly what happened in past cases against the Bell System, IBM and Microsoft.
In the 1956 federal consent decree against the Bell System[25] telephone company, for example, which settled a seven-year legal saga, the company wasn’t split up. Instead, Bell was required to license all its patents royalty-free[26] to other businesses. This meant that some of the most profound technological innovations in history – including the transistor[27], the solar cell[28] and the laser[29] – became widely available, yielding computers, solar power and other technologies that are crucial to the modern world. When the Bell System was eventually broken up[30] in 1982, it did not do nearly as much to spread innovation and competition[31] as the agreement that kept the Bells together a quarter-century earlier.
The antitrust action against IBM lasted 13 years and didn’t break up the company. However, as part of its tactics to avoid appearing to be a monopoly, IBM agreed to separate pricing for its hardware and software products[32], previously sold as an indivisible bundle. This created an opportunity for entrepreneurs Bill Gates and Paul Allen to create a new software-only company called Microsoft. The surge of software innovations that have followed can clearly trace their origins to the IBM settlement.
Two decades later, Microsoft was itself the target of an antitrust action. In the resulting settlement, Microsoft agreed to ensure its products were compatible[33] with competitors’ software. That made room in the emerging internet marketplace for web browsers, the predecessors of Apple’s Safari, Mozilla’s Firefox and Google Chrome.
Even Margrethe Vestager, the European Union’s top antitrust official and frequent tech-giant nemesis, has said that “antitrust prosecutions are part of how technology grows[34].” But that doesn’t mean they all have to achieve their most extreme ends and be broken up.
Myth 4: COVID-19 and the end of tech bashing
The current pandemic has highlighted the value of the technological innovations of the big tech companies.
Americans are relying more than ever on the internet and online shopping and delivery, while mobility data[35] has been critical in gauging social distancing behaviors and guiding policy. Digital tools[36] for tracking coronavirus cases, deaths and social distancing behaviors in the smallest counties have circulated widely[37], and social media and smartphone videos were crucial[38] to the recent protests and calls for social justice.
Altogether, this has led to a softening[39] of public opinion toward big tech[40] and calls[41] for an end to talk[42] of breaking them up[43].
But the pandemic has also revealed numerous digital fault lines: differences in access by country[44], race[45] and region[46]; the ability of tech companies to exploit labor[47]; and potential for new kinds of misuse of data[48].
Far from giving the technology industry a free pass, the pandemic is an opportunity to take a more balanced view. Yes, let’s celebrate the Silicon Valley’s value, but let’s not turn a blind eye to the problems they create or worsen.
During the hearings, you’ll likely hear politicians accentuate the bad stuff, while the tech CEOs will paint an overly rosy image of themselves. Antitrust is complicated enough without misconceptions clouding their judgments as well.
This is an updated and expanded version of an article originally published[49] on July 17, 2019.
References
- ^ are testifying before Congress (www.nytimes.com)
- ^ antitrust action (www.wsj.com)
- ^ digital technologies on lives (sites.tufts.edu)
- ^ advocates (www.politico.com)
- ^ opponents (www.weforum.org)
- ^ often use earlier cases (www.nytimes.com)
- ^ 19th-century monopoly Standard Oil (theconversation.com)
- ^ Google of its day (www.nytimes.com)
- ^ antitrust case against Microsoft (www.nytimes.com)
- ^ Google, Amazon, Facebook and Apple (theconversation.com)
- ^ Baidu, Alibaba, Tencent, Huawei (singularityhub.com)
- ^ TikTok (www.nytimes.com)
- ^ has blocked most (www.scmp.com)
- ^ U.S. government has done likewise (www.bloomberg.com)
- ^ has doubled down (www.amnesty.org)
- ^ since the 1960s (www.jstor.org)
- ^ underlying structure of the market (www.yalelawjournal.org)
- ^ powerful players to exploit (www.pbwt.com)
- ^ free to the consumer (slate.com)
- ^ having low or no prices (www.yalelawjournal.org)
- ^ hard to leave (techcrunch.com)
- ^ pay for digital products with their data (theconversation.com)
- ^ intrusive or abusive ways (theconversation.com)
- ^ getting good value in exchange for their data (www.axios.com)
- ^ Bell System (www.beatriceco.com)
- ^ license all its patents royalty-free (economics.yale.edu)
- ^ transistor (www.computerhistory.org)
- ^ solar cell (www.popsci.com)
- ^ laser (www.photonics.com)
- ^ eventually broken up (www.cio.com)
- ^ innovation and competition (si.wsj.net)
- ^ separate pricing for its hardware and software products (www.cnet.com)
- ^ Microsoft agreed to ensure its products were compatible (www.theverge.com)
- ^ antitrust prosecutions are part of how technology grows (www.nytimes.com)
- ^ mobility data (www.google.com)
- ^ Digital tools (sites.tufts.edu)
- ^ have circulated widely (gisanddata.maps.arcgis.com)
- ^ crucial (www.nytimes.com)
- ^ softening (www.coindesk.com)
- ^ public opinion toward big tech (www.coindesk.com)
- ^ calls (www.theverge.com)
- ^ end to talk (www.brookings.edu)
- ^ breaking them up (www.mercurynews.com)
- ^ country (hbr.org)
- ^ race (sites.tufts.edu)
- ^ region (sites.tufts.edu)
- ^ exploit labor (www.theguardian.com)
- ^ data (www.brookings.edu)
- ^ article originally published (theconversation.com)
Authors: Bhaskar Chakravorti, Dean of Global Business, The Fletcher School, Tufts University
