Sen. Elizabeth Warren (D-Mass.) put her habit of mincing no words in policy discussions on display two weeks ago when she released a proposal to “break up Amazon, Google, and Facebook.”
This was a courageous move on several levels. First, the big tech companies long have been assumed to be natural allies of the progressive wing of the Democratic Party, the presidential nomination of which Warren has been seeking. Nevertheless, she brought her plan to the SXSW Conference, an annual high-tech hoedown in Austin, Texas, showing that she wasn’t afraid of fielding fastballs from those who might be most directly affected.
Warren outlined her proposal in terms that customers of the named companies are likely to understand.
“Today’s big tech companies have too much power — too much power over our economy, our society, and our democracy,” she wrote. “They’ve bulldozed competition, used our private information for profit, and tilted the playing field against everyone else. And in the process, they have hurt small businesses and stifled innovation.”
She’s right; if anything, her proposal is too narrow. It should be applied not merely to tech platform companies with revenues of $25 billion of more, as she proposes, but to other monopolizing corporations that have consistently eroded freedom of choice and privacy protections, such as internet service providers.
The three companies she named — and some she did not — have grown too big and too quickly for U.S. government regulators to get their hands around their consequences for competition and innovation.
European regulators, who work with a different set of antitrust rules, don’t seem to have the same problems. The European Union on Wednesday fined Google $1.7 billion for using its dominance in online search to force third-party websites to restrict ads for Google competitors. The action brought the total EU fines imposed on Google, a unit of Alphabet Inc., to about $9.3 billion since 2017.
Thanks to their ownership structures, Facebook, Amazon and Google have been almost impervious to outside scrutiny in the U.S. Facebook’s co-founder and Chairman Mark Zuckerberg controls 60% of shareholder votes thanks to a two-class share structure; Amazon.com founder and Chairman Jeff Bezos owns only 16.3% of its shares, but he’s so closely identified with its success that it’s almost inconceivable that the company would follow any course with which he disagreed.
That means that imposing regulatory discipline from outside is imperative to keep these companies from flouting the public interest.
Warren proposes to do so in two main ways. First, she would use existing antitrust authority to unwind mergers that the big companies have used to stifle competition. Among those she mentions are acquisitions by Amazon of the grocery chain Whole Foods, by Facebook of the social media firms Instagram and WhatsApp, and by Google of the advertising platform DoubleClick, the home appliance company Nest, and the traffic app Waze.
Warren’s argument is that these takeovers gave the parent companies too much power to advantage their own products and services over competitors’ offerings. They could do so thanks to their control of their “platforms,” through which they attract consumers to their websites and extract personal data they can sell or otherwise exploit, typically without the full awareness of their users. These platforms include Amazon’s online marketplace, Google search, and Facebook’s social network.
That leads to the second part of her plan, which is to designate the big platforms “platform utilities” and prohibit any company to own both a platform utility and a service using that platform. Amazon could own either its merchandise distribution platform or its online store, but not both; Google would have to spin off its search service and its advertising exchange.
The platforms, which are free to users but funded from ad sales or commissions from commercial transactions, could still carry advertising or charge transaction fees, Warren says; they would just have to do so in arm’s-length arrangements.
Warren’s plan quickly attracted a backlash from conservatives and pro-business pundits. “Warren’s proposal is obviously formulated without taking any account of the interests of users and consumers,” declared Rich Lowry, editor of the conservative National Review.
Lowry and other critics wrung their hands over how Warren’s proposal would reduce the big companies’ ability to drive innovation.
The truth is, however, that most innovation in Silicon Valley and the broader high-tech world comes from small start-ups, exactly the kinds of companies that struggle to reach the marketplace, in part because the big companies stand in their way to protect their own products and services.
That’s also true of the activities of big internet service providers that have been permitted to acquire content companies, resulting in the Comcast-NBCUniversal and AT&T-Time Warner mergers. Signs that providers unaffiliated with ISPs face higher costs and other disadvantages reaching the public have proliferated.
On CNBC, New York Times business columnist James Stewart asserted that “there is nothing illegal about becoming a monopolist because you’re so good at what you do that others can not compete with you.” That’s true, but Warren’s point is that these companies have become monopolists by using their heft to disadvantage others that might have better ideas but can’t reach the public with them.
Nor is there anything particularly novel about the principles Warren is expressing. “From Standard Oil to the railroads to AT&T, America has a long history of breaking up big conglomerates,” she told me by email. “Back then, we recognized that ownership of a network and participating on the network caused a conflict of interest. My plan follows that same tradition.”
Government-mandated breakups of large corporations aren’t panaceas for what has ailed capitalism, but it’s incorrect to dismiss them out of hand, as Stewart did.
The 1934 breakup of United Aircraft & Transport into United Airlines, Boeing and United Technologies arguably liberated the aircraft manufacturing and airline industries from anti-competitive conflicts of interest. The 1948 court order requiring the movie studios to divest their theater chain broadened the availability of films to the moviegoing public.
The best example is the court-ordered 1982 breakup of the AT&T monopoly into seven “Baby Bells,” which launched a period of unparalleled innovation and price-cutting in telecommunications. Before then, AT&T had the power to control the design and distribution of telephones, to stifle the development of data networks such as the internet, and to profiteer from local and long-distance calls.
After the breakup, we got new phone technologies, cheaper phones, less-expensive calling plans, and vastly expanded data communications.
Stewart scoffed that the Baby Bells have just coalesced back together, so the effort was just a waste of time and money, but his take was both incorrect and irrelevant.
The spinoffs have reunited into not one but two companies, Verizon and the rechristened AT&T (formerly Southwestern Bell or SBC). In any case, that development is the result of lax antitrust enforcement after 1982, not of any flaws in the original breakup, the virtues of which long have been manifest. As it happens, Warren in her proposal points directly to the drawbacks of “weak antitrust enforcement,” and she pledges to turn that around if she’s elected.
The anti-competitive ills that Warren talks about are hardly mythical. In 2014, Amazon interfered for months with sales of books from Hachette Book Group, the owner of Little, Brown and other imprints, in a dispute over Amazon’s pricing of online sales of Hachette books. In 2010, Amazon pulled books from Macmillan — the owner of Farrar, Straus & Giroux, St. Martin’s Press and other publishers — in a dispute over e-book prices.
Facebook, for its part, managed to prove Warren’s point about the excessive power of the big platforms by removing several ads her campaign had placed promoting her proposal.
“Curious why I think FB has too much power?” she promptly tweeted. “Let's start with their ability to shut down a debate over whether FB has too much power.”