/   BUSINESS-FINANCE

Breaking Up Big Tech

“It’s about as likely as is Mexico paying for Trump’s wall”, commented an equity researcher in response to Elizabeth Warren’s proposal. Have Google and Facebook become too powerful in our economy, should they be broken up? Are they creating some sort of monopoly in the technology space? All these are questions that have been in our minds for quite some time now. A decade ago, Amazon, Google, Facebook, Apple, and other networking sites were not a part of our lives the way they are today. However, in recent times, the emergence of these e-commerce websites and search engines has immensely increased, with everything, from purchasing groceries to online classes, taking place through these established tech agents. The issue cropped up after the US Senator Elizabeth Warren proposed to break down these companies into smaller units. This is gaining quite some popularity on both sides of the US political divide. Even President Donald Trump has made comments disparaging big tech and called for the government to sue companies like Google and Facebook. Lawmakers back in the US are thinking to disintegrate these companies because they feel that these companies have absolutely dismantled the healthy competitive spirit in their respective domains and have completely violated the antitrust laws of the country. So, let’s start unfolding the various layers of this recently heated debate by getting down to the history of the antitrust laws of the USA.

A Brief History of the Antitrust Laws in the USA

The United States has a history of breaking up large companies. Back then the railroad, oil, steel and sugar industries formed monopolies because of the very few competitors they had. Thus, they became wealthier at the expense of the consumer. The most well-known example is that of Standard Oil which controlled the entire industry of oil due to which they could completely change the price of the product by changing the supply. The oil industry at that time was prone to natural monopolies because of the rarity of the products. At this juncture, the federal government was forced to bust many of these large businesses with the help of the newly created ‘Antitrust Laws’ to protect the interests of the consumers. The first of these was the Sherman Act, passed in 1890 which aimed at preventing mergers between companies that led to unfair competition in the market. Despite this Act’s approval in 1890, the next fifty years saw the formation of many monopolies. Also, the profits of Standard Oil and the generous dividends encouraged investors to invest in monopolistic firms. Succeeding it in 1914, the Federal Trade Commission Act was passed to monitor and track unfair business practices that deter the spirit of competition.

A very well-known example of this Act being used is that of Microsoft which was believed to be the tech giant of its time and aimed at establishing dominance in the area of web browsing but then the federal government intervened and sued it for violating anti-monopoly laws and reached an agreement with it. One school of thought says that the antitrust case on Microsoft that time helped shape a path for big tech giants like Google and Amazon to emerge. However, some analysts are of the view that in today’s times these antitrust laws seem inapplicable to the tech giants because they are already a century old and they were created to protect the interests of the consumers differently, specifically we mean that they were built in an era where financial domination led to the creation of monopolies.

The Role of Big Tech and the Present Debate Related to It

The US economy has been on an upward trend which can to some extent be attributed to the tech sector. Nearly, half of the e-commerce goes through Amazon, more than 70% of all internet referral traffic goes through sites owned and operated by Google and Facebook. Instagram, today, has one billion active monthly users – two-thirds of whom visit the platform on a daily basis. More than two million businesses have bought ads there, many of which are intended to drive users to their websites to buy products. And Senator Elizabeth Warren feels that these companies have too much power over our economy, society and democracy. Presidential candidate Bernie Sanders has also clashed with Amazon on multiple occasions, and criticised Facebook and Google for destroying local media. He said that he will look into breaking up big tech companies. This proposal enjoys support from not just the majority of Democrats but in similar proportions of Republicans and Independents, claiming it to be a bipartisan issue.

In a recent online poll, it has been shown that around 7 in 10 Americans say it’s a good idea to break up big tech companies when the content that they are showing is ranked depending on whether the company is making money or not. On these lines, it is being argued that the current landscape of technology has left consumers with little privacy even as their data is converted into vast corporate profit. These American big tech companies have mainly achieved the level of dominance by using two strategies- using mergers to limit competition and using the proprietary marketplace to limit competition. Take the example of Facebook, which purchased potential competitors such as Instagram and WhatsApp. Amazon used its extreme market power to force smaller competitors such as Diapers.com to sell its products at a discounted rate. Weak antitrust enforcement laws have led to the culminating dominance created by these tech companies in the last few years.

Venture capitalists are also hesitant to fund new tech because they feel that either these start-ups would be purchased by these monopolists or else, they will completely crash. It is also claimed that with fewer tech companies entering the market, these large tech agents don’t have to compete in matters such as protecting our data privacy.

There are two sorts of measures that can be taken to break these monopolies, first by passing legislation that requires large tech platforms to be designated as ‘platform utilities’ (companies with annual global revenue of $25 billion or more that offer to the public an online marketplace, an exchange, or a platform connecting third parties would be termed as ‘platform utilities’) that would be broken apart from any participant on that platform, with them not being allowed to share data with any third parties. Also, they should be required to meet a standard of fair, reasonable and non-discriminatory dealing with third parties. Such measures would also ensure that the sovereignty of America is upheld and no third-country can influence its election results.

Will Breaking Up these Tech Giants Really Fix it Up?

Experts from Wharton have challenged Warren’s proposals and said that breaking them up won’t actually provide a level playing field, but instead in the long term would again route down profits to other successful business ventures. I believe that the reason why this political debate has come up is completely valid but the solution that is being offered is not the most practical, this is because even in the past this has not worked. The breaking up of AT&T into eight companies unleashed competition for a time, lowering prices but as landlines gave way for wireless, the industry reconsolidated. Thus, the enforcement of antitrust laws will not solve the issues of high prices and privacy. For example, removing WhatsApp from Facebook won’t let Facebook collect any lesser data.

The consumers would also be at a loss because, if suppose, we disintegrate Google then we won’t be able to simultaneously use Google Drive and Google Chrome, imagine the number of complexities involved. Also, the Antitrust Doctrine has focused on two things, one is the conduct and the other is the structure. The Federal Trade Commission and Department of Justice should focus on the conduct and behaviour of big tech companies to make sure that they don’t use their market power to become anticompetitive. The size of these companies have enabled them to make big investments in future, if we try to break them up, we’re going to lose that. Also, even if antitrust laws would prevent mergers, we need to understand the chain reaction that would follow, which is when prices are lowered the wages will be lowered too, jobs would be cut, and product quality would also fall discouraging innovation. All of these changes would unknowingly harm the consumers in the long run.

What’s in Store for these Large Tech Giants?

While we can not deny the fact that these large tech giants have created some sort of dominance in the society with their products, lucrative offers and better policies at hand to gain maximum profits and to drive out other competitors from the business, we should not deny the fact that they have always driven the economy on an upward trend, providing better opportunities for employees. We should also realise the fact that disintegrating them based on antitrust laws is not correct because globalisation and the ever-increasing world economy have called out for the retirement of the antitrust laws. Further, ultimately, we as consumers are also to be blamed because, in the end, it’s we who have given them the title of large tech giants.

In the beginning, most of them started on a level playing field and now they have reached their present level due to a lot of effort. Instead of just relying on one individual’s statement and subsequently taking action against these tech giants is not justified, the regulators and politicians should ask the consumers how ‘bad’ they find the tech giants to be at present and then decide. We need to understand that instead of breaking them up, we should think of fixing up issues like data privacy. Moreover, we should look at the fact that even though an investigation can be carried on for years accusing them of many things but ultimately proving them in court with proofs would be another thing because they would also leave no stone unturned to prove themselves not guilty. With some forces standing against them and others supporting it, the future of these big tech companies remains uncertain and largely depends on what shall happen in the courts.

cherry.sharma

Cherry Sharma

I'm a Third-year student of Economics studying at Indraprastha College for Women, University of Delhi. I love to do policy and financial research and prepare reports for them. I am also preparing to pursue Economics at the Post Graduation level.

The Pangean does not condemn or condone any of the views of its contributors. It only gives them the space to think and write without hindrance.