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This Is How We Take Power Back From Facebook (And Every Other Monopoly)

The power of tech giants (and giants in industries from air travel to beer) are starting to have damaging effects on the environment–and our democracy.

This Is How We Take Power Back From Facebook (And Every Other Monopoly)
[Source Image: Sylverarts/iStock]

For all its fabled dynamism, the American economy isn’t particularly dynamic at the moment. The rate of new business creation is at historic lows. Wages are stagnating for a large portion of the population. Innovation is centered in a few big cities and coastal regions. Job mobility–the rate at which people are able to change jobs–has been falling.

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There are many reasons for these trends, of course. But one factor encompasses them all: market concentration. From beer to dairy, airlines to healthcare, large companies increasingly dominate their industries. Four brewers control 90% of the beer market, for example. Four airlines are responsible for two-thirds of all ticket sales. Almost 50 million Americans live in areas with only one broadband supplier. This hurts the ability of new companies to start up, economists say, and gives incumbents leeway to set prices and hold down wages.

If limited airline or internet options haven’t convinced you that monopolies (or oligopolies, when just a few companies control an industry) are a problem, you need to look no farther than the computer screen in front of you. For a long time, it may not have seemed particularly ominous that a few companies should control internet search, social networking, and a large part of the e-commerce landscape; it might have even made your life easier, and more convenient. But now we’re beginning to learn that Facebook, Twitter, and Google are also potentially enormous national security threats. Because they have enormous unaccountable power, they’re able to sway opinion and influence voters, and, in the wrong hands, they’ve been turned into cyber-weapons for intelligence agencies. Monopolies don’t seem like problems when consumers are benefiting from good services and decent prices (free services are even better). Then, one day, it seems strange that we should have handed so much control to a few guys in San Francisco and Seattle we don’t know very well and didn’t elect.

[Source Image: Sylverarts/iStock]

If you don’t mind potential election meddling, there’s also a lot of new research recently showing how market concentration may be harming the economy. Even Goldman Sachs, which benefits from mergers and oligopoly, is worried. Though Wall Street makes money from established companies, it needs startups for IPO business and enough market churn to increase volatility in share prices. Volatility means trading profits.

Workers bear the brunt of monopolization, as one highly cited paper illustrates. The economists behind the research–José Azar, Ioana Elena Marinescu, and Marshall Steinbaum–looked at posted vacancies from 2010 to 2013 on Careerbuilder.com, which advertises about a third of all online job ads. They wanted to understand how fewer employers in a particular area might affect what they are willing to pay prospective hires. What they found was fairly amazing.

When they calculated the number of companies advertising vacancies for two dozen occupations, from telemarketing to nursing, most of the country looked “high concentrated” according to the standard federal authorities are supposed to apply. The research points to what economists call a monopsony problem–where a lack of employers means a lack of competition and more power for companies to reduce wages.

Marinescu, Azar, and Steinbaum calculate that when a local market moves from the 25th percentile of the official concentration distribution scale (awkwardly known as the Herfindahl-Hirschman Index) to the 75th percentile, wages fall by 15% to 25%. More or less the only places in America that don’t have a monopsony problem, they say, are large cities where employers tend to congregate.

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[Source Image: Sylverarts/iStock]

A New Thinking On Antitrust

For more than three decades, regulators and many politicians essentially turned a blind eye to the wider economic impacts of monopolization. Following the conservative “revolution” in antitrust thinking during the Reagan era, the only standard that mattered when considering the effect of mergers and acquisitions was what’s called the consumer standard. If a merger didn’t raise prices for you and me, it was waved through, never mind the impact on workers or startup activity. When services were free, as they are with Google and Facebook, all the better–how could something that’s free be bad for America?

But a movement to rethink that standard is now growing, led by the Open Markets Institute and the leadership of Barry Lynn, a long-time champion of greater economic competition. Prominent Democrats have also begun sounding the alarm lately. Senator Cory Booker, of New Jersey, sent a letter to the Federal Trade Commission and Justice Department last year asking the authorities to consider how monopsony affects workers and earnings. Senator Elizabeth Warren of Massachusetts has given speeches warning that consolidation is not only a threat to business but to democracy itself. “Concentration threatens our markets, threatens our economy, and threatens our democracy,” she said last December. Others like Ro Khanna, who represents a lot of Silicon Valley in the House, have called for a rethink of how the federal government treats antitrust questions, including Amazon’s takeover of Whole Foods, last year.

As Democrats look for a sharper economic message in the age of Trumpian populism, monopoly looks set to be part of their agenda. Arguments about market power fit several themes together, including income inequality, worker rights, and growing concerns about the Big Tech companies.

“The main people who are thinking about running [in 2020]–every single one of them has already sort of made some comments about the dangers posed by the concentration of economic power,” Lynn tells Fast Company. “The issue is developing at such a fast rate that this is going to be absolutely one of the main issues that people are going to be discussing during the campaign.”

Lynn says he hopes the candidates move beyond rhetoric to laying out what they actually plan to do about market concentration. “It’s not just a matter of checking the box. The candidates won’t be able to say ‘yeah I’m concerned about monopoly and I’m going to plan for it.’ They’re going to have to understand this and demonstrate they understand that this is a fundamental problem,” he says.

[Source Image: Sylverarts/iStock]

The Big Three

Even before revelations about Facebook’s role in the election, the power of big tech was raising special questions among experts concerned about concentration in the economy. Some say Amazon, Google, and Facebook require special regulatory attention because of their platform and informational advantages. Amazon, Google, and Facebook not only dominate markets like e-books, search, and social, but they also control the information on which these markets run–for example, the sales information that’s transferred on Amazon’s third-party marketplaces. Facebook and Google are not only platforms for advertising–with about three-quarters of the market and most of the growth–they are also nontransparent holders of the information that marketers need to understand our online lives, campaigners say.

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Facebook can see what startups are becoming popular allowing them to buy the competition before they get too big, as it did with Instagram and WhatsApp. They can copy their rivals’ best ideas, as Facebook did in replicating Snapchat’s Stories feature on Instagram, crushing the former’s growth. Apple can deny updates to apps it doesn’t like, such as Spotify. The Big Three create a sort of Truman Show experience online that gives the appearance of competition without the reality, according to economists Ariel Ezrachi and Maurice Stucke, authors of Virtual Competition: The Promise and Perils of the Algorithm-Driven Economy.

As business professor Scott Galloway says in his new book The Four, Amazon, Google, Facebook, and Apple “have aggregated more economic value and influence than nearly any other commercial entity in history.” Together, they have a larger value than the GDP of France. They create relatively few jobs, pay only a smattering of taxes, and, because of their size, drive out competition (or discourage competition from even starting). These days, online startups are more likely to hope for acquisition by one of the big tech firms than take their business to the capital markets, Galloway says. IPOs and VC funding are down compared to the early 2000s.

“Since the turn of the millennium, firms and investors have fallen in love with companies whose ability to replace humans with technology has enabled rapid growth and outsize profit margins. Those huge profits attract cheap capital and render the rest of the sector flaccid. Old-economy firms and fledgling startups have no shot,” Galloway writes in a recent article in Esquire based on his book. (He might have added “journalists” to firms and investors.)

Some talk of the Four, or the Fearsome Five, including Microsoft in the conversation. But Lynn prefers to focus on just three. Apple, he says, doesn’t “control [market] choke points” the way the other three do. And Microsoft isn’t powerful enough these days. “Microsoft tried to be bad, but they’re just too slow to be really bad,” he says.

Lynn has personal reasons for being concerned about Google. Last year, he was asked to leave his position at the New America Foundation apparently because Alphabet’s then-president Eric Schmidt pressured the foundation (Google is a long-time donor to New America, and Lynn had praised a competition ruling against the company in Europe). New America denied the New York Times’s version of the story. But the incident seemed to show how Silicon Valley is willing to frame the public debate around monopoly power, aping the lobbying methods of more traditional companies. Indeed, 2017 was the year that “Big Tech” passed into journalistic usage along with Big Pharma, Big Ag, and so on.

[Source Image: Sylverarts/iStock]

How Can We Stop It?

If the case against increasing concentration is accepted, the big question will be what to do about it. Conservatives want the market to handle it. They believe that governments don’t have a role regulating markets because they believe markets are self-limiting. Some point to how Microsoft was hobbled more by Google than the Justice Department in the 1990s. They say a similar fate could befall Google, Amazon, and Facebook, if we let the market run its course.

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The argument against that is the information asymmetries of today’s online markets and the importance of that information to being successful. Microsoft fell behind because it was slow to pick up on the importance of the web. But that sort of myopia seems less likely with Amazon, Google, and Facebook because of their limitless visibility into their markets.

Lynn compares Google, Facebook, and Amazon to Walmart–once the main focus of anti-monopoly campaigners. “They were able to surge to power without having to buy 4,000 pieces of property to become really powerful like Walmart did. They just had to be smart for a period of six months and they retained their advantage forever,” he says. “This generation of business has grown much more swiftly, and that means people don’t understand the dangers they pose. It’s not a slow-moving, emerging trend. It’s happened suddenly.”

But Lynn argues a movement is building to rethink antitrust in light of concentration both offline and online. The intellectual foundations are being laid right now. The existing consumer standard for antitrust, he says, was preserved in “a closed loop within a very small academy.” But that academy is now opening up. Even the University of Chicago, once a proponent of bigger-is-better corporates, is now championing such scholarship.

Lina Khan, a researcher at Lynn’s Institute, wrote a widely read paper about Amazon, for example. Khan argues that Amazon is more like an internet utility and should be regulated as such. As well as being a retailer, it also supplies “the rails” on which its competitors are dependent (through its marketplaces). She argues Amazon should choose which part of the fishpond it wants to play in. It can’t be both a merchant and provide merchant services to its rivals.

Other ideas for regulating Big Tech include stopping Facebook from “spying” on its rivals; stopping Amazon from selling products below cost (as a way to kill off its competitors, critics say); a moratorium on the tech companies buying up startups; and opening up Facebook’s “social graph” for third-party development.

To make the case for new competition rules and enforcement, Lynn argues, like Senator Warren, for broadening the rhetoric beyond technicalities. Open markets aren’t just about whether companies have to ability to compete on a level playing field. They’re about the ability of all Americans to have equal opportunity and an equal say in the future. They’re not just about Facebook’s de facto control of social networking. They are about Facebook’s very real power to sway elections and influence campaigning.

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“The public doesn’t necessarily care about the markets, but they do know they care about liberty and democracy. Monopolization and concentration of control are bad for liberty and democracy. That’s a relatively easy argument to make,” he says.

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About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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