Is it Enough to Focus on Anti-trust?
This is the second part of the two-part report that examines the approach of the United States House Antitrust Subcommittee in its investigations of digital platform giants – Apple, Amazon, Google and Facebook. The investigations focused on the adverse impact of predatory practices of tech giants on entrepreneurship, job opportunities and small businesses in the United States (US). The concerns of the Committee in these investigations included – 1) monopolisation of digital economy by Apple, Amazon, Google and Facebook; 2) their control over data of sellers and consumers; and 3) adequacy of existing anti-trust laws in regulation of the online platform economy.
The Committee released its report on October 6, 2020.
The first part discussed the anti-competitive practices of the big four companies that have come up as a result of the investigations. This part discusses the principles that guided the Committee in its investigations. It also explores the structural factors that propelled monopolisation by few in the digital economy.
Decline of Anti-trust policies in US
The Committee repeatedly asserted that “the most conducive environment for innovation and new product availability is a competitive market.” The report notes that a ‘free competitive economy’ is an important American value embedded in the American economy and society by the Sherman Act of 1890, “the peculiarly American charter of economic freedom.” It was argued that in absence of competition, firms lack incentives to invest in research and development and this slows down the rate of innovation across the industry. This also leads to venture capitalists losing interest in investing in small and new enterprises.
The main focus of the Committee was to examine whether the existing framework of anti-trust laws is adequate to regulate the online platform economy that has emerged in the last two decades. But the Committee undertook this examination without giving any consideration to the historical and political economy factors that led to a decline in the anti-trust movement in the US in 1970s. This was the time when, influenced by the Chicago School of Economics, the Reagan administration enforced neoliberal policies of deregulation and liberalisation.
The systemic endorsement of the Chicago School of Economics over Keynesian Economics by the administration translated into the government rarely challenging mergers among competitors. The central tenet of Keynesian Economics was that government intervention could stabilise the economy. As opposed to this, the Chicago School of Economics stressed on ‘freedom of markets’ over ‘government intervention.’
This decline in anti-trust enforcement by state agencies has been noted by the Committee in the report. The report says, “In the overwhelming number of cases, the anti-trust agencies did not request additional information and documentary material under their pre-merger review authority in the Clayton Act, to examine whether the proposed acquisition may substantially lessen competition or tend to create a monopoly if allowed to proceed as proposed. For example, of Facebook’s nearly 100 acquisitions, the Federal Trade Commission engaged in an extensive investigation of just one acquisition: Facebook’s purchase of Instagram in 2012. During the investigation, Subcommittee staff found evidence of monopolisation and monopoly power.”
But the Committee did not inquire into the reasons behind this decline. It did not comment on the political and economic trends that unfolded in parallel. This inquiry takes us back to the rapid changes taking place in the economic landscape of US in the 1980s with the advent of the Information Technology industry.
Rise of Information Technology and Intellectual Property Regime
The rise of the new monopolies since the 1980s has a close relationship with the institutionalisation of the regime of Intellectual Property Rights (IPR) advocated by the US. Amit Sengupta argues that the US made a transition from ‘pirate’ to ‘police’ over a period of 100 years. Strong advocacy for intellectual property protection by the US has been the motivating force behind the inclusion of IPR in the General Agreement on Tariffs and Trade (GATT), the United States-Canada Free Trade Agreement, North American Free Trade Agreement (NAFTA) and other treaties, Sengupta highlights. As the industrial competitiveness of the US began to fade in mid 1980s, it started searching for new areas to maintain its position in the international markets.
This was the same time when the Information Technology industry got a boost in the USA. Other industries dependent on intellectual property – entertainment industry and pharmaceutical industry – also began to contribute significantly to the economy in USA. As a result of these institutional changes, the two decades between 1980 and 2000 saw a startling rise in registration of patents. The number of patents granted by the United States Patent and Trademark Office (USPTO) were 76,748 in 1985, 107,748 in 1991 and 221,437 in 2002.
With a strong IPR regime falling in place, the emerging companies dealing in software and hardware products – operating systems, memory chips, disk drives, videotapes, spreadsheets, word processing, databases, etc. - became lucrative. In his book ‘Goliath’, Matt Stoller argues, “Software and computer companies sold shares on the frothy stock market; by the mid-1980s there were so many millionaires in Silicon Valley that there were shortages of high-end housing.”
The market for personal computers exploded, giving way to an increasing demand for hardware and software products. The first set of companies – Microsoft and Apple – that emerged in the late 70s as a result of boom in Information Technology became big in the 80s and are still among the top ten companies today. Both of these based on intellectual property – Apple on hardware and Microsoft on software.
The Internet and Digital Platform Monopolies
In the 1990s, the internet was commercialised. Born as a military experiment during the Cold War, the era of military involvement in the operation of internet ended in February 1990. The internet was designed to carry data packets from one end to another, agnostic about the contents or the purposes of these packets by its designers in university spaces at a time when these spaces were brimming with students inspired by the New Social Movements of the 1970s. The free software movement of the 1980s was inspired by the philosophy of rejecting proprietary software and making cyberspace open for everyone. As the internet was commercialised and opened for private companies, a platform created for ‘permissionless innovation’ was now utilised for predatory profit making by these corporations.
The proliferation of internet since early 2000s has given rise to what has been called as the ‘new economy’ or the ‘digital platform economy’. Over the last 15 years, platform companies such as Facebook, Amazon, Google, Airbnb, Uber, Lyft (and the list goes on) have come to dominate and mediate our day-to-day transactions. These digital platforms use the internet to connect dispersed networks of individuals to facilitate digital transactions between the two sides – demand and supply. While the traditional business models create value through creating products and services which are sold to customers, platform-based business models create value by connecting its users – consumers and producers, businesses and individuals – through their online platforms.
Just like in the 1990s, the significant developments that led to the rise of information technology and also tech giants such as Apple and Microsoft, the new platform economy has brought to fore its own giants, namely Amazon, Facebook and Google. These digital platforms thrive on ‘network effects.’ Network effects play out when more and more users become a part of a network, the more it becomes attractive for more users to join in. This leads to an increase in the value of the network because the usefulness of the network goes up with the number of users. Their business model is based on advertising, selling their users to advertisers and using data-surveillance to smother competitors, exploiting consumers and extracting surplus.
Role of Venture Capitalism
The report of the House Antitrust Subcommittee notes that the dominance of few digital firms in the market had created a situation often referred to as ‘kill zones’ for new and small enterprises. The Committee received reports from venture capitalists that “they avoid funding entrepreneurs and other companies that compete directly with dominant firms in the digital economy.” Venture capitalists no more saw new entrants as good investments.
At the same time, the Committee registered evidence suggesting that venture capital industry had played an active role in increasing market consolidation by encouraging start-ups to exit via sale to an incumbent dominant firm. The report notes, “As initial public offerings (IPOs) have become more expensive and time consuming in recent decades, venture capitalists have shown a preference for realising their investments through acquisitions rather than through public markets.”
However, further evidence available in public domain suggests that the role of venture funds is not limited to encouraging acquisition of small firms. Many of the new platform monopolies of the last decade have been created with the help of venture/finance capital. This is evidenced from the example of Softbank, a Japanese conglomerate and investment firm that has invested in companies such as WeWork and Uber. The core investment philosophy of Softbank is to create monopolies. In an interview with CNBC, a former SoftBank executive Nikesh Arora said, “There is evidence that if you throw enough money at a company in the consumer space at the outset, it could, in theory, outgrow all its competition and leave it in the dust.”
Prabir Purkayastha writes, “To believe that digital monopolies have been built on a different model of capitalism misses the point that capital will use whatever it needs to create monopoly and extract surplus, not just directly from labour, but also as monopoly rent from others.” The economic model evolving in the US since the 1970s has done exactly this. It has incentivised monopolisation by creating a regime that creates monopolies in the name of ‘rights’ and normalises monopoly-rent seeking. This economic model does not only overlook monopolisation by few, but actively invests in creation and proliferation of monopolies through investments, as in the case of Softbank.
These factors are at the root of the takeover of the digital economy of US by monopolies – Facebook, Amazon, Apple and Google. An omission of these factors by the House Antitrust Subcommittee in its investigation is not surprising. Momentarily startled by the overwhelming power and control of the products of its neoliberal policies, the Committee has no interest in dismantling the structure that culminated into extreme market consolidation in few hands in the sphere of digital economy.
The writer is an author and a researcher with Tricontinental: Institute of Social Research. The views are personal. She can be reached on Twitter @ShinzaniJain.
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