Commentary: The US govt is getting closer to a plan to tame Big Tech

Commentary: The US govt is getting closer to a plan to tame Big Tech

US presidential candidates Bernie Sanders and Elizabeth Warren are right to call for stronger action to rein in powerful tech companies like Amazon and Facebook, says Cornell University's Kaushik Basu.

The big online firms Google and Facebook are the first of the major tech platforms to face antitrust
The big online firms Google and Facebook are the first of the major tech platforms to face antitrust investgations in the United States in the recent wave of legal reviews. (Photo: AFP/DENIS CHARLET)

ITHACA, New York: The Internet was once hailed as a powerful democratising force – enabling innovative start-ups to compete with established businesses, disrupt entire industries, and create new ones. 

But as some of those start-ups grew into behemoths, they turned this force on its head.

Far from levelling the playing field, Big Tech now largely owns it, and rather than democratising the economy, the Internet has ended up exacerbating the world’s inequality problem.

Big Tech’s rise has made a few people extremely wealthy. The richest among them, Amazon owner Jeff Bezos, lost US$7 billion – more than the total wealth of several countries, including Burundi and Sierra Leone (US$3 billion each) – in a single day last week. And yet the biggest risk he faces as a result is falling to second place in the global wealth ranking, after another tech founder, Bill Gates.

READ:Commentary: The world's most powerful teenager? Facebook

Meanwhile, some 736 million people still lived in extreme poverty (less than US$1.90 per day) in 2015, and billions more lived on less than US$2.50 per day. 

Many workers worldwide – including low-level employees at tech companies like Amazon and freelancers who use platforms like Uber to find customers – face poor and deteriorating working conditions and stagnant wages. 

As labour’s share of income declines, capital’s share increases – trends that benefit the wealthy above all.

WHAT'S NEEDED: GOVERNMENT INTERVENTION

Given the power of major tech companies to stifle competition, reversing these trends will require government intervention. And, indeed, taming Big Tech has become a major issue ahead of the 2020 presidential election in the United States. 

In particular, Senators Bernie Sanders and Elizabeth Warren – in my view, the two strongest candidates vying for the Democratic Party’s nomination to challenge President Donald Trump – have called for breaking up major tech companies.

READ: Where US presidential candidates stand on breaking up Big Tech

But the solutions being proposed, including by legal scholars like Lina Khan, tend to focus on making better use of antitrust laws. This approach is unlikely to work, because markets have changed dramatically since antitrust laws were conceived.

The plans have been firmly opposed by big US tech firms such as Google and Facebook, as well as
(Photo: AFP/Leon Neal/Loic Venance)

NATURAL MONOPOLIES

In the late 19th century, Léon Walras produced the first models of how competitive markets work, showing how buyers and sellers decide, based on prices, how much to buy and sell. 

Walras visualised an auctioneer responsible for bringing buyers and sellers together and adjusting prices until market equilibrium – when aggregate demand for each good equals aggregate supply – is achieved. 

Subsequent work, such as that by Kenneth Arrow and Gérard Debreu, expanded upon the Walrasian model, but the auctioneer remained in the background.

With the emergence of digital platforms like Alibaba, Amazon, and Uber, however, everything changed. These platforms perform the work of Walras’s imaginary auctioneer, only they are real – and profit-driven. 

READ: Commentary: How Big Tech giants  became gatekeepers of power

READ: Commentary: Big Tech’s growth spurt may be coming to an end

They may even be willing to make large initial losses – as Amazon did for its first seven years in operation, when it accumulated some US$2 billion in debt – in order to maximise later gains. 

They know that they need only reach the point where they can reap the benefits of economies of scale, bringing enough buyers and sellers to the “auction” to make search, information, and transaction costs plummet.

In this sense, digital platforms are natural monopolies. Applying antitrust laws to break them up would thus eliminate their most fundamental advantage and destroy their ability to deliver benefits to economies and consumers.

PROTECTING WORKERS

This dilemma is not altogether new. Some central banks, such as the Reserve Bank of India, were once private organisations. 

But giving a single private agent power over something as consequential as money creation was quickly determined to be too risky. And dividing the responsibility among several authorities would make it impossible for any to serve a transaction-smoothing function, resulting in a costly fragmentation of the monetary system.

It is worth noting one other potential barrier to using antitrust laws to break up Big Tech. In the US, at least, such laws have focused primarily on protecting consumers. 

Recognising that, many digital platforms have avoided hurting consumers, instead gouging the sellers who use their services to connect to buyers. But there is growing research – such as that conducted by Suresh Naidu, Eric Posner, and Glen Weyl – indicating that antitrust law should also be applied to protecting workers.

FILE PHOTO: A delivery person pushes a cart full of Amazon boxes in New York
FILE PHOTO: A delivery person pushes a cart full of Amazon boxes in New York City, U.S., February 14, 2019. REUTERS/Brendan McDermid/File Photo

SHARING PROFITS

Still, given the ways digital platforms have transformed markets, governments must think beyond antitrust. One approach worth considering focuses not on breaking up tech giants, but rather on ensuring that their profits are more widely shared. 

This could be achieved, say, with regulations that require platforms over a certain size to disperse shares to a large number of individuals and also to funds dedicated to providing domestic and global public goods.

For the most influential platforms, governments may consider pushing a gradual shift to non-profit models, akin to public utilities. To be sure, this approach should be used sparingly, to avoid excessive and burdensome state intervention in the economy. 

But it is not in society’s interest to have a single organisation that is integral to the functioning of the entire economy – whether a central bank or digital platform – run by a small coterie of individuals for their own gain.

The precise contours of a strategy for constraining Big Tech will emerge – and evolve – over time. 

But I am hopeful that either Sanders or Warren – two politicians who seem to have the right “moral intention” – would be able to lead that process in a way that serves the interests of consumers, workers, and business owners alike.

Kaushik Basu, former Chief Economist of the World Bank and former Chief Economic Adviser to the Government of India, is Professor of Economics at Cornell University and Nonresident Senior Fellow at the Brookings Institution.

Source: Project Syndicate/ms(sl)

Bookmark