National Post (National Edition)
Fundamental questions about tech giants
NEWS ORGANIZATIONS ARE FACED WITH AN IMPOSSIBLE CHOICE. — SEAN SPEER
Ahealthy debate has broken out in recent days about whether Google and Facebook should be required to compensate Canadian news organizations for using their journalistic content.
The debate has different dimensions. At one level it’s a debate about the news industry’s business model in the digital age. At another level it’s about the role of these digital platforms in modern society. The former is more urgent. But the latter will invariably be more important and longer lasting.
As I observed in a recent column on this topic, growing questions about the economic and social impacts of these digital firms are now cutting across partisan lines. In Washington, Democratic Sen. Elizabeth Warren and Republican Sen. Josh Hawley don’t agree on much but they both believe that Facebook and Google need to be subject to greater regulation and even possibly broken up. Similarly here in Canada the Liberal party and the Conservative party have both committed to reforming the tax treatment of large global technology firms in the name of tax fairness.
This new bipartisan scrutiny is justified. There’s evidence that these massive data-driven companies are significantly different than large dominant firms from the past. The biggest difference is their scalability. Intangible assets such as a proprietary algorithm don’t face the physical or cost constraints that tangible assets necessarily do. This permits them to be scaled at close to zero marginal cost. The result is a huge incumbency advantage and a tendency towards what has been described as a “winner-takeall” paradigm.
We’re only starting to grapple with what this means for our economies and government policy. We presently have more questions than answers.
When these large technology firms acquire promising startups does that speed up innovation or retard it? What are the domestic costs and benefits of having large global technology firms in our startup ecosystem? How should we think about their use of proprietary data to enter new parts of the economy? And what responsibilities do they have as monopolistic online platforms to vet content or compensate content producers?
Although there’s still considerable uncertainty about such questions, it’s increasingly clear that our conventional economic frameworks for thinking about the market and the role of competition may not be fully applicable to the unique features and characteristics of intangible capital. Free market economist Arnold Kling describes it as “trying to stuff the square page of intangible investment into the round hole of neoclassical capital theory.” Financial Times columnist Martin Wolf has called on “policy-makers (to) get an intellectual grip on what is happening.”
Which brings me back to the question of whether Google and Facebook should be required to compensate Canadian news organizations. It’s reflective of these bigger, more fundamental questions but is also more urgent because their growing market dominance in digital advertising is harming the immediate-term viability of the domestic news industry.
The main argument against mandating some level of compensation as Australia has recently announced is that these firms are merely drawing on publicly-available content from new organizations. But this fails to recognize the market power of these digital platforms and in turn overstates the degree of choice available to news companies. The Wall Street Journal’s 2017 experience is notable in this regard. The newspaper pulled out of a Google initiative that permitted users to bypass its paywall and as a consequence its web traffic plunged by 44 per cent. The reason was simple: Google’s algorithm scanned the internet and prioritized free content.
It has since changed its policy to permit the publishers greater flexibility on paywalls and participation in Google’s search engine. But the episode demonstrates the monopolistic power of these digital platforms in shaping and driving web use. News organizations are faced with an impossible choice: follow their rules or experience a drop in their web traffic.
The upshot is that there’s a role for public policy to correct for the market failure. One option is the Australia model to mandate remuneration for news organizations. Another is an American proposal to permit the news publishers an exemption from antitrust laws to collectively negotiate a partnership with Facebook and Google. And another yet is the Public Policy Forum’s concept of a journalism fund paid in part by platform companies. The key here though is to recognize that the relationship between domestic news organizations and these digital giants isn’t a normal or fair market transaction.
More fundamentally, Canadian policy-makers will need to get a grip on the role of large, global technology firms in our economy and society and the right policy framework for regulating them. Other countries are increasingly asking these questions. We must do the same.