David Garrity on Big Tech Regulation Risk & Implications
1) Tech – “Big Tech” Breakup Proposals on 2020 U.S. Presidential Election Radar: Legislators’ interest in investigating and potentially regulating the tech sector has been building since the 2016 U.S. general elections. Concrete proposals have been coming forward since Senator Elizabeth Warren (Democrat, MA) on Fri 3/18/19 as part of her 2020 Presidential election bid put forth a proposal that would result in substantial controls and possible break-up being imposed on tech companies with revenues in excess of $25bn with a specific focus on Alphabet, Amazon and Facebook.
In the proposal, Senator Warren picked up on the September 2017 Yale Law Review article by Lina Khan (“Amazon’s Antitrust Paradox”) which argued that “Amazon is amassing structural power that lets it exert increasing control over many parts of the economy.” The concept of “structural power” breaks with more traditional tests of anti-competitive behavior such as the unilateral ability to set prices. “Structural power” goes beyond pricing power to touch on a company’s ability to determine the market access of other companies, much as railroads controlled market access in the last half of the 19th Century. In Khan’s view, “the thousands of retailers and independent businesses that must ride Amazon’s rails to reach market are increasingly dependent on their biggest competitor.”
Senator Warren has moved to translate the concept of “structural power” into an anti-monopoly legislative and regulatory program. Namely, companies with over $25 billion in revenue that offer the public an online marketplace/exchange/platform for connecting third parties would be designated a “platform utility”. Accordingly, such companies would not be able to participate in the platform they operate (e.g. Amazon would have to stop selling its own products on its website). If elected President, Warren would also appoint regulators committed to reviewing and potentially reversing previous acquisitions (e.g. Amazon/Whole Foods, Facebook/Instagram, Google/Waze).
2) Tech – Anti-Monopoly Policy Is Competition Policy Which Needs To Be Set In Global Context: U.S. Anti-monopoly policy was last substantially updated in 1949, a point in time where policy makers were primarily concerned with the domestic U.S. economy as the global economy was only just beginning to recover from the devastation of WWII. Now, with a global economy no longer as dominated by the U.S. and one challenged increasingly by the government-led technology sector’s development in the PRC, policy makers need to think in terms of a larger global stage.
As the PRC’s “Made In China 2025” plan clearly spells out, it is China’s intent in concert with Chinese technology companies (e.g. Alibaba, Baidu, Tencent) to dominate critical emerging technologies such as AI, autonomous vehicles & others. In this sense, anti-monopoly policy if it results in U.S. technology companies not having sufficient economic scale to support their own emerging technology development efforts may have significant national security ramifications. In essence, in the 21st Century context, technology development has become like diplomacy before it, “the continuation of war by other means.” Consequently, Senator Warren’s proposal while a positive development in moving forward the idea of increased regulatory oversight for the technology sector needs to consider the current and likely future realities against which it would be implemented.
3) Tech – Not All Tech Companies Created Equal, Some Names Merit Greater Oversight And Possible Breakup: It is difficult to say that social media technology companies such as Facebook and Twitter are critical to the future national security of the US, especially given the substantial lapse in necessary vigilance around the 2016 Presidential election, but nevertheless should for these very reasons be subject to increased regulatory oversight. To this end it is our view that following a thorough in-depth examination from economic and national security perspectives that current anti-monopoly policy be developed and then applied to the technology sector.