It was hard to recall last week, as Google’s CEO Sundar Pichai answered repeated accusations by a Congressional Antitrust Subcommittee of dubious conduct, that Google once proudly embraced a code of conduct in which “Don’t be evil” and “acting honorably” were front and center. Around April 2018, Google’s code of conduct was changed to reflect a vaguer commitment to “do the right thing” while merely “measuring themselves against the highest possible standards of ethical business conduct,” i.e. in effect, business as usual.
Last week, the House Antitrust Subcommittee had summoned the chief executives of Amazon, Apple, Facebook and Google to grill them on how their companies maintain, enhance and abuse their monopoly power. In the six-hour session, members cross-examined the CEOs on alleged misstep after misstep, often not waiting for an explanation in response to their yes/no questions. In addition to the announced topic of antitrust violations, members also diverged into other issues of abuse of privacy, political bias and Republican conspiracy theories.
A Wake-Up Call For The Four
The session should be a wake-up call for the CEOs of firms that have long bathed in the positive glow from the vast array of benefits that they have showered on users and customers and the unprecedented market capitalization that Wall Street has bestowed on them. They had also benefited from the suggestion that Silicon Valley companies were somehow different from big business with their espousal of “doing no evil.” Yet these four firms are now bigger than big. Together with Microsoft, they are now valued at more than $6 trillion, equivalent to more than a quarter of the entire U.S. economy—far bigger than the industrial giants of the 20th Century.
What was most striking about the hearing was the bipartisan animosity towards the four. Both Democrats and Republicans argued relentlessly that the four—Amazon, Apple, Facebook and Google—are doing bad things. The venom was bipartisan. The hearing showed that these firms are now facing brutal political scrutiny.
The preparedness of the lawmakers was also striking. The members had done their homework and were engaged in a coordinated set of attacks, no holds barred. Each member had selected a particular area to examine and was ready with detailed examples, with question after question, often not staying for a detailed answer, interrupting the CEO’s explanation with a statement, “I will take that to be a yes, and we need to move on.”
By comparison, the CEOs seemed unprepared for the venom. They presented themselves as being unable to recall some of the most famous cases (for example, Amazon and diapers) or recent Wall Street Journal articles about their supposed wrongdoing. They promised to “look into issues” and “get back to the committee.” Tactically, that looked as though they weren’t taking the hearing seriously, and counting on lobbying and the Senate to block any basic change.
The tech titans no doubt sought to avoid appearing contentious. While never actually admitting wrongdoing, Amazon’s Jeff Bezos for instance said that he couldn’t guarantee that wrongdoing had never happened and assured the committee that he was looking into it. By maintaining ignorance, the CEOs at least postponed the day of reckoning.
As noted by technology columnist Geoffrey Fowler, the CEOs also tried to get by with their usual subterfuges, such as “You are in control of your data,” “You have lots of choice,” “We’re not really that big,” “We provide relevant information,” and “We are apolitical,” even as the members continued to poke gaping holes in these half-truths.
Perhaps the CEOs were not expecting the preparedness of the committee members or the virulence of the attacks. They could have been lulled into nonchalance by the extraordinary financial gains that they were to announce the following day. These extraordinary profits and unprecedented market capitalizations reflect the fact that digital technologies have enabled workers to do their jobs from home, students to continue their classes while schools are closed, and people to stay in touch with loved ones and entertain themselves while sheltering in place. Tech companies have been reaping enormous benefits from this shift. In essence, through Agile management and network effects, these firms reliably deliver benefits to customers and customers love the benefits they receive. For example, Bezos noted that trust in Amazon is around 80%, while politely refraining from noting that trust in Congress is less than 20%.
The Failure To Make An Antitrust Case
Despite their preparation, the lawmakers however failed to come to grips with the underlying antitrust issue. Antitrust law is currently based on damage to customers. Few if any of the many examples showed damage to customers. They were almost all about damage to other businesses and possible competitors. So, on a strict legal basis, the case for wrongdoing on current antitrust law was never made.
The Democratic members cited example after example where other businesses being hurt, including for example those businesses that had signed on Amazon’s platform as potential partners. Implicitly the lawmakers were making an argument for changing the antitrust law.
A Change In Antitrust Law
It will however be tricky to come up with a definition of “unfair competition”, given that the very driver of capitalism is competition. What is needed, according to columnist Steven Pearlstein is a major rewrite of the industrial-era antitrust statutes to bring the tech titans to heel.” That’s because “current antitrust doctrines are too limited to adequately protect competition … or stop anticompetitive conduct.” A rewrite is needed to prevent “over-consolidation in virtually every sector of the economy, nowhere more so than in tech, where there is a natural tendency of customers to want use the same software, communicate on the same network or transact business on the same platform as everyone else.”
Google’s purchase of YouTube and Waze, Facebook’s purchase of WhatsApp and Instagram, Amazon’s purchase of Zappos and Ring — all of these were given the green light by the Justice Department and the Federal Trade Commission—were cited as examples of inappropriate attempts by de facto monopolists to neutralize competition.
According to Bill Baer, who headed the Justice Department’s antitrust division during the Obama administration, “We went from an antitrust culture [in the 1970s] where “the government always wins” to one where enforcers almost always lost, or where fear of losing caused the government not to act at all.”
Pearlstein makes the case for a 21st century antitrust law that would “protect and enhance competition not only because it lowers prices, increases choice and improves quality for consumers, but also because it stimulates innovation, reduces income inequality and reduces the concentration of economic and political power.”
“This would not be the first time,” writes Pearlstein, “that Congress has been needed to step in to revive and update the antitrust law — it happened in 1914, 1936, 1950 and 1976.”
The Problem With Big Tech
There is thus a growing political and analytic consensus is that these firms do present a substantive problem. They grew very big because of Agile management and network effects that ended up conferring huge benefits on customers and the firms themselves. Now they are de facto monopolies and like all monopolies they have started doing bad things.
The wrongdoing has taken an aggravated form given that these firms have become so dominant that they have become de facto utilities. There are some behaviors in utilities that would be acceptable if they were just one path among many, but not acceptable when they have become in effect the main public highway.
It is likely government action will happen, particularly if Democrats gain control of the three branches of government. In any event, Europe is already well along this path with GDPR, with substantial fines already levied. The U.S. is now just playing catch-up.
The Options For Big Tech
Big Tech faces two main options. They can go on acting as if nothing is amiss and hope that government action will take a long time to become a reality. Or they can take proactive steps to recognize the legitimacy of the issues and regulate themselves with a commitment to reengage with “acting honorably” and “doing no evil”. The latter course of action will be the smarter and less painful one.
We have seen this movie before. In 2001, an American antitrust law case accused Microsoft of illegally maintaining its monopoly position in the PC market The case was eventually settled but the result was almost the same as if Microsoft had lost. Lawyers started appearing in every internal meeting in Microsoft, raising questions about how any particular statement or decision would look in an antitrust hearing. It took more than a decade for Microsoft to recover its entrepreneurial spirit.
Microsoft was notable for its absence from last week’s Congressional hearing. Microsoft seems to have learned that moderating its own conduct is preferable to attempting to extract the last drop of profit in a world in which they are already swimming in unprecedented profits.
Google had it right the first time, when it proudly embraced a code of conduct in which “don’t be evil” and “acting honorably” were front and center of Google’s code of conduct. The Big Four have grown big by creating great workplaces that end up doing the right thing by customers. Now they need to raise the sights and take a further step: do the right thing by society by not abusing their market power.
Regulation is coming: the only question is whether the big four will do it themselves or have it done to them.
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