 John Naughton on curb­ing the power of the dig­i­tal giants

The Observer - The New Review - - Agenda - John Naughton

One of the para­dox­i­cal things about dig­i­tal tech­nol­ogy is that while in theory it fos­ters com­pe­ti­tion, in prac­tice it leads to win­ner-takes-all out­comes. The rea­sons for this are com­plex – they in­clude zero mar­ginal costs, pow­er­ful net­work ef­fects, pow­er­law dis­tri­bu­tions and tech­no­log­i­cal lock-in – and need not de­tain us here. But we are all too fa­mil­iar with the win­ners: Google in search; Apple’s IoS and Google’s An­droid in mo­bile op­er­at­ing sys­tems; Face­book in so­cial net­work­ing; YouTube in video; Mi­crosoft in of­fice soft­ware; Ama­zon in on­line re­tail­ing.

The five big­gest com­pa­nies in the world are now all dig­i­tal giants, each wield­ing mo­nop­o­lis­tic power in their mar­kets. We are in­creas­ingly aware that some of their ac­tiv­i­ties are so­cially dam­ag­ing: they are deep­en­ing in­equal­ity, avoid­ing tax­a­tion, un­der­min­ing demo­cratic pro­cesses, creat­ing ad­dic­tive prod­ucts, erod­ing pri­vacy and so on. And yet, with the odd ex­cep­tion (mostly rep­re­sented by the Euro­pean com­mis­sion), our so­ci­eties seem trans­fixed by them, like rabbits paral­ysed in the trac­tor’s head­lights. Politi­cians bleat about the need to do some­thing about the dig­i­tal giants, but so far it’s been all talk and no ac­tion.

This is strange be­cause democ­ra­cies have ex­ten­sive le­gal tool­kits for deal­ing with over­ween­ing cor­po­rate power. We have an­titrust and com­pe­ti­tion laws, mo­nop­o­lies and merger com­mis­sions and fed­eral trade com­mis­sions com­ing out of our ears. And yet – again with the sin­gle ex­cep­tion of the Euro­pean com­mis­sion – they seem un­able to deal with the dig­i­tal giants. Why?

The an­swer is partly his­tor­i­cal and partly ide­o­log­i­cal. Our ap­proach to mo­nop­oly was shaped a cen­tury ago as the US Congress strug­gled to rein in the huge in­dus­trial trusts as­sem­bled by rob­ber barons of the day. Then, the harms in­flicted by mo­nop­o­lis­tic power were rel­a­tively vis­i­ble and the so­lu­tion was seen as an­titrust laws de­signed to foster open com­pe­ti­tion in mar­kets.

The ide­o­log­i­cal twist came in 1978 when the Amer­i­can le­gal the­o­rist Robert Bork lobbed a grenade into the cosy con­sen­sus. In his book, en­ti­tled The An­titrust Para­dox, he ar­gued that the his­tor­i­cal ob­ses­sion with com­pe­ti­tion had be­come ir­ra­tional and, in fact, was bad for con­sumers, who of­ten ben­e­fited from cor­po­rate merg­ers. The proper test for mo­nop­o­lis­tic abuse, he main­tained, was whether it harmed con­sumers. Just be­cause a com­pany was dom­i­nant didn’t mean that it was evil.

Bork’s book was pre­scient (he was writ­ing be­fore the in­ter­net emerged) and it greatly in­flu­enced how reg­u­la­tors (and Amer­i­can judges) thought about mo­nop­oly power. So when, in due course, dig­i­tal tech­nol­ogy de­liv­ered the new mo­nop­o­lists, Bork’s the­sis came like manna from heaven – for it meant that if Ama­zon, say, be­comes dom­i­nant, even though com­peti­tors are just a click away, then surely its mo­nop­oly is a sign of ex­cel­lence, not evil. And, given that its prices are fa­mously com­pet­i­tive, where’s the con­sumer harm?

The strange com­bi­na­tion of leg­isla­tive ob­so­les­cence and ide­o­log­i­cal ac­cep­tance meant that, over two decades, com­pa­nies such as Ama­zon, Google and Face­book grew into cor­po­rate giants with­out any se­ri­ous reg­u­la­tory over­sight. Then, in Jan­uary 2017, an in­trigu­ing ar­ti­cle ap­peared in the Yale Law Jour­nal. Its ti­tle, Ama­zon’s An­titrust Para­dox, was clearly a poke at Bork, so I set­tled down to read. A hun­dred foot­noted pages later, I came away with the thought that there might be light, af­ter all, at the end of the an­titrust tun­nel.

What was perhaps most re­mark­able was that this aca­demic tour de force was the work of a young law stu­dent, Lina Khan. Ama­zon, she points out, is no or­di­nary com­pany but a cor­po­rate en­tity that has po­si­tioned it­self at the heart of e-com­merce and meta­mor­phosed into an es­sen­tial in­fra­struc­ture for a host of other busi­nesses that de­pend upon it. “In ad­di­tion to be­ing a re­tailer,” she writes, “it is now a mar­ket­ing plat­form, a de­liv­ery and lo­gis­tics net­work, a pay­ment ser­vice, a credit lender, an auc­tion house, a ma­jor book pub­lisher, a pro­ducer of tele­vi­sion and films, a fash­ion de­signer, a hard­ware man­u­fac­turer and a lead­ing host of cloud server space.” She doesn’t men­tion that Ama­zon is also plan­ning to en­ter the food and health­care busi­nesses be­cause her ar­ti­cle pre­dated those par­tic­u­lar ex­ten­sions. And there are, no doubt, more in the pipe­line.

Khan’s anal­y­sis shows that the cur­rent frame­work of (Bork­ist) an­titrust think­ing, par­tic­u­larly its dogma for mea­sur­ing com­pe­ti­tion in terms of “con­sumer wel­fare” (de­fined as short-term price ef­fects), is in­ca­pable of cap­tur­ing the kind of mar­ket power that Ama­zon now pos­sesses. In or­der to deal with it, there­fore, we need to de­cide if the com­pany should be treated as a plat­form (and con­trolled through up­dated com­pe­ti­tion law) or ac­cept that it is a mo­nop­oly and reg­u­late it ac­cord­ingly. Ei­ther way, our re­signed pas­siv­ity in the face of such a cor­po­rate gi­ant has to end. Over to you, EC com­pe­ti­tion com­mis­sioner Mar­grethe Vestager. And how about re­cruit­ing Ms Khan as an ad­viser?

Lina Khan, author of Ama­zon’s An­titrust Para­dox. Bran­don Thibodeaux/ New York Times/ Re­dux/Eyevine; AP Photo

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