{"id":130595,"date":"2019-04-08T12:00:45","date_gmt":"2019-04-08T11:00:45","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=130595"},"modified":"2019-04-02T14:19:39","modified_gmt":"2019-04-02T13:19:39","slug":"how-to-think-about-breaking-up-big-tech","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2019\/04\/how-to-think-about-breaking-up-big-tech\/","title":{"rendered":"How to Think about Breaking Up Big Tech"},"content":{"rendered":"
\"\"<\/a>

Sen. Elizabeth Warren speaks to local residents in Queens, New York, on March 8, 2019.
Photo: Frank Franklin II\/AP<\/p><\/div>\n

1 Apr 2019 – <\/em>Sen. Elizabeth Warren\u2019s plan to break up tech giants<\/a> Amazon, Google, Facebook, and Apple has given concentrated corporate power its most prominent political platform<\/a> since the 1912 presidential election \u2014 and we\u2019re still nearly a year away from the first round of primary voting. This tracks with the rising awareness of the corrosiveness of monopoly power generally and those tech giants specifically.<\/p>\n

Whether such policy boldness<\/a> means anything in a brand-obsessed political landscape<\/a> will be determined when ballots are cast. But it is undeniably driving a policy discussion that the next Democratic presidential nominee, no matter who it is, will likely take up. In that context, the debate over Warren\u2019s plan is critical, as it prefigures the trajectory of each and every challenge to corporate dominance.<\/p>\n

First, many critiques will come from those with a direct stake in the outcome \u2014 in this case, Big Tech-funded individuals or organizations, which are so ubiquitous as to create an echo chamber. Second, the critiques will highlight the \u201cradical\u201d nature of the changes, setting them at odds with American history, even though Warren\u2019s central proposal \u2014 to structurally separate business lines in an effort to eliminate anti-competitive conduct and foster competition \u2014 has a century-old pedigree. And third, we\u2019ll be assured that the cure is worse than the disease, that Warren\u2019s ideas would destroy everything from online shopping to the smartphone, a perspective that relies on deliberate misinterpretation.<\/p>\n

This roadmap for discrediting policy solutions that confront power should be easy enough to spot by now, and will be employed long into the future. So it\u2019s worth breaking down how it works.<\/p>\n

The Manufacturing of Dissent<\/strong><\/p>\n

\u201cThe issue is not the size and current market dominance of these [tech] companies,\u201d wrote the American Enterprise Institute\u2019s Michael Strain<\/a>\u00a0for Bloomberg, in response to the Warren plan. \u201cIf anything, politicians should be celebrating these companies as crown jewels of the U.S. economy.\u201d<\/p>\n

Strain\u2019s employer, AEI, is funded in part by Google, according to the company\u2019s transparency page<\/a>. This is not noted in Strain\u2019s Bloomberg op-ed. But AEI and its writers have done several critical pieces<\/a> about Warren\u2019s proposal<\/a>,\u00a0as well a California privacy regulation<\/a> that also imposes stricter rules on Big Tech. All of these opinion articles indirectly benefit one of AEI\u2019s donors.<\/p>\n

The episode points to a significant trend of writers and scholars opining on the Warren plan while conflicted by the overwhelming amounts of Big Tech cash that have infested Washington. Google\u2019s list of organizations<\/a> to whom it has donated is massive, and combined with Facebook<\/a> and Amazon\u2019s<\/a> dominance of Washington, it\u2019s hard to find anyone with a critical eye toward Big Tech regulation who doesn\u2019t have something to disclose.<\/p>\n

Rich Lowry of National Review unleashed a pack of industry talking points to explain how Big Tech \u201chelps create a strong American society<\/a>.\u201d National Review takes Google money. Here\u2019s a similar sentiment dragging the Warren plan on the pages of National Review<\/a>, from a senior fellow at the Competitive Enterprise Institute, which also takes Google money. The American Action Forum<\/a> seems to dislike the Warren plan; the group, well, takes Google money.<\/p>\n

Geoffrey Manne and Alec Stapp condemn Warren for \u201cwanting to turn the Internet into a sewer.\u201d Manne\u2019s organization, the International Center for Law and Economics, has taken a boatload<\/a> of Google money; as of 2015, he had contributed to at least eight white papers commissioned or funded by Google\u00a0that endorsed Google\u2019s policy positions, in addition to being a frequent pro-Google commentator in news articles<\/a> and congressional testimony<\/a>. Stapp, before hooking up with Manne at ICLE, worked at the Mercatus Center at George Mason University, another recipient of Google funds. A former Manne co-author, Joshua Wright, worked at George Mason University and has been periodically on and off the Google payroll<\/a> in between government work.<\/p>\n

Manne and Stapp\u2019s piece got the pile-on treatment on Twitter from representatives of the Google-funded Cato Institute<\/a> and Niskanen Center<\/a>; Stapp previously worked at Niskanen. Several<\/a> venture<\/a> capitalists<\/a> who currently rely on Big Tech for exit strategies for their companies also gave the thumbs-up to the piece.<\/p>\n

The Computer and Communications Industry Association, a trade group that includes Amazon, Facebook, and Google among its members<\/a>, uses a subsidiary named Springboard to hurl critiques<\/a> at regulatory tech policies. In addition to the aforementioned articles from AEI and National Review, Springboard points to the opinions of a partner at Andreessen Horowitz<\/a>, an early investor in Facebook, and the CCIA\u2019s own vice president for Law an Policy<\/a>\u00a0\u2014 which amounts to CCIA linking to itself as outside confirmation of its beliefs.<\/p>\n

These linkages are virtually endless and show an incestuous network of academics, think-tankers, advocacy organizations, and trade groups, all of which happen to agree on every issue important to Big Tech. The money supports extending the prominence and megaphone of these organizations, and with nearly unlimited pocketbooks, it creates the impression of a tsunami of support for the industry.<\/p>\n

A \u201cRadical\u201d Idea That\u2019s Been Around for Over a Century<\/strong><\/p>\n

The core of Warren\u2019s plan, which for now is just a proposal on Medium<\/a> rather than legislation, involves what is known as \u201cstructural separation.\u201d Companies with over $25 billion in annual global revenue that operate platforms \u2014 connectors between people, people and advertisers, or people and merchants \u2014 would not be allowed to both own the platform and also participate as a seller on that platform. The classic example would be Amazon\u2019s marketplace, where Amazon also operates its own line of Amazon Basics, competing with its third-party sellers. Google\u2019s ad exchange also competes on Google with ad tech companies, and would need to be spun off. The same would go for Google\u2019s local search, which routinely deprioritizes<\/a> recommendation sites like Yelp.<\/p>\n

The idea is that these entities get preferential treatment from the platform they own, giving Basics, Google ad tech, and Google Search an unfair advantage and extending the platform\u2019s dominance. Only the biggest companies would have to structurally separate; smaller platforms would still have to meet a standard of fair, reasonable, and nondiscriminatory treatment for participants on the platform and its users.<\/p>\n

This forced divestiture of tech platforms\u2019 other business lines has been described as radical. Manne and Stapp claim it will turn the internet into your sewer service<\/a>\u00a0\u2014 mainly because Warren uses the word \u201cutility\u201d to describe regulated platforms.<\/p>\n

Jeff Bezos didn\u2019t come up with the idea of owning a marketplace and using it to sell your own stuff at an unfair advantage against rivals. Reading Railroad, for example, became the largest company in the world by owning the rails that carried anthracite coal,\u00a0as well as the coal mines along the route. Rival coal producers that wanted to use the lines got less favorable rates, fell behind, and got swallowed up by Reading Railroad.<\/p>\n

Congress put a stop to it in 1906 by adopting the Hepburn Act<\/a>, which prevented the railroads from carrying products that they owned. This forced the Reading Railroad to divest the P&R Coal and Iron Company, the subsidiary that owned the coal mines. Warren is merely following a long history of structural separation that began when Teddy Roosevelt was president.<\/p>\n

Theater owners were not allowed to also produce and distribute films after the Supreme Court\u2019s Paramount decision<\/a> in 1948. Television networks were prevented from owning the programming they ran in prime time, under the Financial Interest and Syndication<\/a>, or \u201cfin-syn,\u201d rules imposed by the Federal Communications Commission in 1970. In telecom, AT&T was heavily circumscribed and restricted to common-carrier telephone service, banning\u00a0the company from capitalizing on innovations from Bell Labs and forcing compulsory licensing of those patents in 1956, which created the modern electronics industry. Banks were structurally separated between investment and deposit-taking commercial lines after the Glass-Steagall reforms<\/a>. Rep. David Cicilline, D-R.I., the chair of the House Judiciary\u2019s antitrust subcommittee, has analogized<\/a> a structural separation in tech as a Glass-Steagall type of rule.<\/p>\n

These structural separations have widespread goals: diversity, financial stability, decentralization of power, and innovation. \u201cWe owe the internet to structural separation,\u201d said Harold Feld, a senior vice president with Public Knowledge, referring to the Carterfone decisions<\/a>, where the FCC allowed people to connect their own devices, like a modem, to the telephone network. \u201cClearly this has a long and successful history in telecom.\u201d<\/p>\n

Some of these restrictions, like those on banks or television stations, have been dismantled. And there are cases of companies selling products in a store while also owning the store: Kirkland products at Costco are ubiquitous, for example. But as Lina Khan, scholar and staffer for Cicilline\u2019s antitrust subcommittee, has pointed out<\/a>, the key question is whether the platform, be it brick and mortar or digital, is creating a bottleneck by privileging its own products over rivals. And there\u2019s a lot of evidence that Amazon in particular does just that<\/a>, reacting to high-selling products by creating a generic version, and down-ranking the competitor in its search. Because half of all e-commerce is sold on Amazon, competitors have few alternatives but to sell in what feels like a rigged marketplace.<\/p>\n

India has already instituted a Warren-like rule<\/a> to prevent e-commerce platforms from selling their own products on the platform. \u201cWe should go back and understand the wisdom of that kind of separation,\u201d said Peter Carstensen<\/a>, a professor emeritus at the University of Wisconsin Law School. \u201cWe would never want the interstate highway system to be owned by Walmart. It simplifies the market functions if you separate them out.\u201d<\/p>\n

Another benefit to structural separation is the relative ease of regulation. Instead of well-paid economists fighting it out over what constitutes anti-competitive conduct or restraint of trade, large companies simply can\u2019t compete with rivals on their own platform, because of the threat of market power.<\/p>\n

The Warren plan sets a rather arbitrary number of $25 billion in annual revenue as the dividing line for that power, a kind of substitute for the technocratic determination. This has angered critics: Andy Kessler at the Wall Street Journal denied<\/a> that antitrust law has anything to do with bigness.<\/p>\n

The idea that John Sherman, author of the Sherman Antitrust Act, was not concerned with bigness would come as news to Sherman, who once said<\/a>, \u201cIf we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life.\u201d Warren\u2019s campaign sees the $25 billion figure as a clean way to assist regulators with pinpointing market dominance. \u201cIt has the benefit of a clear rule,\u201d said one senior campaign adviser, who was not authorized to speak on the record. \u201cWe should presume if a company with over $25 billion in revenue is operating a marketplace, it has power and leverage.\u201d<\/p>\n

While agnostic on the specific dividing number, Feld gave Warren\u2019s team credit \u201cfor trying to come up with something that makes sense.\u201d Others are not as thrilled about it. But their arguments often misconstrue the Warren plan.<\/p>\n

Assuming the Worst<\/strong><\/p>\n

Ben Thompson, a former Apple and Microsoft analyst who writes about the business of technology, had one of the sharpest critiques<\/a> of the Warren proposal, and it starts with denying Warren\u2019s claim on the history of technology. Warren has credited the Microsoft trial for creating space for the modern tech giants to emerge, something Thompson mocks. \u201cBing was not even launched until 2009, eight years after the Microsoft case was settled. MSN Search, its predecessor, did launch in 1998, but with licensed search results from Inktomi and AltaVista; Microsoft didn\u2019t launch its own web crawler until 2005.\u201d<\/p>\n

This view neglects the politics of the U.S. trial against Microsoft, which put a dominant company under pressure and wary of extending that dominance into the then-emerging web services arena. As Gary Reback, who represented Netscape against Microsoft in the 1990s, has often said, including to me in a 2017 interview, \u201cThe trial is the remedy.\u201d By exposing Microsoft\u2019s machinations to the nation, it made the company gun-shy to choke off competition, Reback argues.<\/p>\n

\u201cThe only way to get to Google was the Microsoft browser,\u201d he said. \u201cMicrosoft could have put up a big red sign saying this site is unsafe. It could have killed Google in the cradle, but didn\u2019t. The reason why, and this is from Microsoft people, is they had this public trial. It wasn\u2019t worth it as a company.\u201d<\/p>\n

Feld concurred that Microsoft\u2019s behavior changed after the public spotlight of the trial, and the kind of aggressive actions to shut down competitors largely stopped. You can apply this to IBM\u2019s antitrust issues in the 1970s and \u201980s<\/a> opening space for Apple, and AOL\u2019s forced interoperability of Instant Messenger<\/a> in 2001 giving room to social media. \u201cBig companies are sensitive to this stuff; after they\u2019ve been burned, they do generally play it safe,\u201d Feld said, noting that big cable hasn\u2019t had such a spotlight and they managed to crush TiVo swiftly and completely. So while Thompson focuses on specific Microsoft business decisions, he ignores the political context.<\/p>\n

Thompson also warns that applying the structural separation standard to Apple, as Warren confirmed in an interview<\/a> at South by Southwest, would lead to smartphones shipped without any applications. \u201cWas Apple breaking the law when they shipped the first iPhone with only first-party apps?\u201d Thompson asks. \u201cAt what point did delivering an acceptable consumer experience out-of-the-box cross the line into abusing a dominant position? This argument may make sense in theory but it makes zero sense in reality.\u201d<\/p>\n

This argument also has zero bearing on what Warren\u2019s talking about. Whether Apple is unfairly tying or bundling its own apps onto its phones at purchase is a question for existing antitrust laws \u2014 it was the question in the Microsoft case, in fact. \u201cThe ordinary rules apply in that case,\u201d said the senior Warren adviser. \u201cThe key thing we\u2019re talking about is the marketplace.\u201d<\/p>\n

Contrary to what critics have claimed<\/a>, Apple would not have to divest from the App Store completely under Warren\u2019s plan, nor would the security benefits of Apple managing what goes onto its phone wither away. Apple would merely be disallowed from selling its own apps next to competing ones. This would hardly destroy Apple, largely a phone and hardware manufacturer and not primarily an app-maker. It would allow competition on the platform.<\/p>\n

Apple does have a legitimate antitrust problem<\/a> with the App Store, as Thompson acknowledges. Spotify has complained<\/a> to the European Union that Apple takes a 30 percent cut from all revenues from its iPhone app, while preventing it from emailing users directly or allowing upgrades. This indirectly benefits Apple Music, Spotify says. Apple has accused Spotify of using \u201cmisleading rhetoric<\/a>\u201d in its complaint.<\/p>\n

Spotify wants changes to Apple\u2019s conduct<\/a> on the App Store \u2014 which is not only fair game for traditional antitrust that can identify anti-competitive impositions of market power,\u00a0but is also part of Warren\u2019s plan, which mandates fair and nondiscriminatory treatment to marketplace participants. And it shows how Warren is highlighting a consumer welfare issue: If Spotify has to absorb a 30 percent transfer of revenues to Apple for use of its iPhone customers, it likely has to raise prices, and it cannot offer services like upgrades directly.<\/p>\n

Thompson and others run through all sorts of reasons why Warren\u2019s proposal would degrade the consumer tech experience. This isn\u2019t warranted from a proposal that simply says platform monopolies shouldn\u2019t suck up all the benefits of every adjacent money stream related to the platform. The idea that a Google shorn of its advertising platform would revert to a nonfunctional \u201c10 blue links<\/a>\u201d website, instead of a model where it can charge for supplier access but not control it entirely, is simply fearmongering.<\/p>\n

The argument also suffers from a lack of imagination. Is Apple Music really the best the world can do? With a fair market, let\u2019s see what innovation is possible.<\/p>\n

The upshot of<\/u> these familiar points of attack is a kind of denialism, where the plain facts \u2014\u00a0a set of entrenched companies swallowing competition and profits \u2014 get pushed to the side. Any effort to deal with this reality is termed the flip side of Trumpism, as the outlet owned by Amazon CEO Jeff Bezos put it<\/a> recently.<\/p>\n

What Warren\u2019s plan does is target the denialism. The vast majority of internet traffic flows through Amazon, Google, Facebook, or sites they control. The five biggest firms have acquired 436 companies<\/a> in the past decade, nearly all without antitrust review. (Warren\u2019s plan, incidentally, would unwind several of these mergers.) The remaining holdouts, like Yelp, find themselves in the \u201ckill zone<\/a>,\u201d attacked by Big Tech to the point of irrelevance. Facebook has a subsidiary app<\/a> that hunts for rivals gaining market share, so it can either purchase or crush them. The impact on competition, innovation, entrepreneurship, wages, and inequality is real.<\/p>\n

There are certainly reasonable concerns<\/a> to express about a short presidential campaign proposal, without legislative language, intended to start a discussion about the power and influence of one industry. What\u2019s unreasonable is outsourcing opinions on the matter to self-interested parties, distorting history, or leaping to unverifiable conclusions about the horrors of a post-regulatory world.<\/p>\n

Warren\u2019s plan is the first to actually propose regulation that\u2019s specific to the tech sector. \u201cThis is why it\u2019s great to kickstart the debate,\u201d said Feld. \u201cYou couldn\u2019t write the piece of legislation tomorrow; real homework has to be done. But these are really the right lines of the debate.\u201d<\/p>\n

_____________________________________________<\/p>\n

\"\"<\/a><\/p>\n

 <\/p>\n

David Dayen<\/a> – david.dayen@\u200bgmail.com<\/a> <\/em><\/p>\n

 <\/p>\n

 <\/p>\n

Go to Original \u2013 theintercept.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

1 Apr 2019 – Sen. Elizabeth Warren\u2019s plan to break up tech giants Amazon, Google, Facebook, and Apple has given concentrated corporate power its most prominent political platform since the 1912 presidential election. Whether such policy boldness means anything in a brand-obsessed political landscape will be determined when ballots are cast.<\/p>\n","protected":false},"author":4,"featured_media":130596,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[55],"tags":[],"class_list":["post-130595","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-capitalism"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/130595","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=130595"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/130595\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media\/130596"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=130595"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=130595"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=130595"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}