Antitrust Resurgence Could Transform Tech Innovators into Lumbering Public Utilities

Regulation in the technology sector (beyond the absolute minimum necessary) is worse than government merely picking winners and losers—not just because government picks only losers, but because it fosters stagnation in the entire tech ecosystem.

Antitrust in particular (the original “regulatory dark matter”) arbitrarily cherry picks among business models as such, imposes rigid frameworks, invites cronyism, and bestows protectionist favors. Protectionism happens even at the global level, as Microsoft and Google discovered when record fines were imposed upon them via antirust models those nations learned from the U.S.

That antitrust operates as a longstanding form of corporate welfare is the root of its irresistibility. Antitrust regulation asserts political monopoly control over economic sectors, but is always marketed as the opposite.

The never-ending creativity of the regulator class has brought forth a prominent lurch in antitrust, in the form of mounting calls to break up tech giants like Google, Amazon, and Facebook.

Yet these and companies compete with one another in many ways. The real antitrust paradox is that if government takes action against one, the others can sit back and relax.

Greg Ip, chief economics commentator for The Wall Street Journal, recently weighed in with the provocative column “The Antitrust Case Against Facebook, Google and Amazon,” complete with frightening illustrations of market shares of tech companies, but stopped short of the immediate call for intervention hinted in the clickbait title.

Most assuredly, it isn’t just the left-of-center academic and policy world whose successive generations perpetually rediscover “new” forms of predatory or abusive behavior for Washington to police. Conservatives, too, are widely pro-antitrust, with the Daily Caller, among others, grousing about the very real leftist worldview of the current crop of tech companies. Quartz writer Michael J. Coren delcared last year, for example, that “in almost every regard, Silicon Valley is on board (or even to the left) of the Democratic party.” The Sherman Antitrust Act’s Sen. John Sherman was a Republican (and brother of William Tecumseh Sherman), as was trustbuster Theodore Roosevelt. Sen. Mike Lee (R-UT) and President Donald Trump were among the Republicans registering concern over the AT&T-Time Warner merger.

Interestingly, Sen. Lee, in a debate with Fox News Channel’s Tucker (“I used to be a libertarian, until Google”) Carlson, defended Google, making the vital distinction that a private company lacks the ability to impose force, unlike the government. This matters greatly, because whether pushed by left or right, antitrust expands the power of the largest coercive monopoly of all, the federal regulatory apparatus, which holds sway over all economic sectors and activity. The corporate shareholder structure fundamentally democratizes power by comparison.

Indeed, so long as the government doesn’t practice censorship, tech companies cannot monopolize information; and the First Amendment applies to government, not private entities. As I’d said back during the AOL-Time Warner era, even if tech giants combined forces, Wall Street would fund new firms to replace or compete against them if they misbehaved. Venture capitalists and programmers would flee to new enterprises. The mobility of both capital and talent discipline unruly firms.

Despite today’s antitrust backlash against big tech, the most derided “anticompetitive” practices may be central to the competitive give and take process, and beneficial for consumers on their own merits and as competitors react. For more background, see my Cato Institute study “The Antitrust Terrible 10: Why the Most Reviled ‘Anti-competitive’ Business Practices Can Benefit Consumers in the New Economy.”

In contrast, what interventions have in common is the result, intended or not, of protecting competitors in the targeted firm’s sector from having to respond to the alleged anticompetitive behavior. Even after the federal Antitrust Modernization Commission of a decade ago, the default analysis continues to assume a static rather than dynamic world. As CEI’s founder Fred L. Smith Jr. had pointed out in conversation, the policy economics world is mired in static equilibrium terminology such as “information asymmetries, unequal bargaining power, market power, marginal cost pricing” to justify intervention.   

Given such rationalizations for interference, it would be a mistake to think of antitrust, a century after its creation and deployment against smokestack industries, as an end in itself. In the tech era, with a regulatory head of steam behind it, antitrust provides an anchor for other even more aggressive kinds of regulation alongside divestiture and breakup, such as essential facility, public utility, common carriage, and public good models that, once upon a time, ostensibly presumed heavy industries and barriers to entry. Today, these models would allow central control beyond mere discrete antitrust interventions.

These regulatory models ban competition altogether—that’s the opposite of what antitrust claims it protects.  

Antitrust in the modern tech sector can cement rather than end monopoly control. In reality, we (consumers, competitors, suppliers, Wall Street players, media, advertisers) readily respond to companies that misbehave. Governments by contrast really do possess the coercive power Sen. Lee cited. If firms are displeased with, say, Google’s advertising schemes (it is often said by detractors that consumers are not Google’s customers, but the product), the only thing that might stop them from banding together for better terms might be—antitrust. They will otherwise not simply sit there.

Remember when Yahoo! and AltaVista dominated search? Remember the MySpace monopoly? The sizes and sectoral dominance of Amazon, Google, and Facebook are the result of the competitive process, not barriers to it. They can never sit still. My colleague Iain Murray pointed out a paper by David Evans that describes “the fragility of category leadership resulting from the fact that network effects are reversible and entry costs are low,” and found that, “The last two decades of online platform competition demonstrate that category leaders are often toppled, unexpectedly, through some combination of technological change, business model innovations, and cross-platform rivalry.”

Both competitive and governmental institutions continually evolve, but governmental ones remain fundamentally coercive. The latter too often represents the path of least resistance, and the one certain to guarantee praise of supporters from the academy. So it has rebounded.

Unfortunately, President Trump could undermine both his success on regulatory reform and his goals for infrastructure buildout if his administration fosters an antitrust escalation. Even apart from the tech companies, the U.S. will need far larger scale enterprises to finance and build the infrastructure Trump champions, as well as the smart cities of tomorrow that today’s warring tech companies desire. Indeed, antitrust aggravates the already needless, politically contrived (because of the very availability of antitrust as such) war between the content and infrastructure sectors in the digital world—one reason why it is dangerous to flirt with antitrust as an alternative to so-called net neutrality.

Ironically, if antitrust helps derail big, needed projects, planners will then arise to freshly proclaim America needs a national government “infrastructure bank” to fully implement mega-scale infrastructure development. The government default is public utility and the public/private partnership variant of it. If we remain on the regulatory path, public utility status will be proposed not just for Amazon and Google today but for drones and more that are claimed to be “essential facilities” tomorrow.

Some are properly concerned over collaboration between the military/intelligence community and Silicon Valley, and tech giants’ alleged responsiveness to government requests for information or for account deletion. These are concerns beyond the scope of this brief discussion, but even here, it is the politicians who championed the Patriot Act and the surveillance edifice that these companies are now able to partner with. To the extent they matter and comprise the genuine threats to freedom some warn of, antitrust and competition policy detract from addressing these concerns. We want tech companies not to be part of the government nor overly allied with it either economically or from a surveillance standpoint.

Way back in 2003, when some were (incredibly) already calling for Google to be reclassified as a public utility, Adam Thierer and I said, “Today Google may be king of the hill, yet it’s just as easy to imagine a world without it.” The same applies today, as well as for Facebook, Amazon, and Twitter. The market shares and values of these firms are swamped by the rest of the economy arrayed against their potential mischief.

Nothing that happens in private competitive enterprise is monopolistic, compared to central planning or the compulsory common carrier preference of the regulator class. Conservatives, the presumed champions of economic liberty, ought not be legitimizing antitrust, the king of regulation, in today’s world. A Republican Congress and president in particular should articulate principles of competitiveness and laissez-faire. Today’s interventionist schemes, by contrast, replace transitory, in-fact-disciplined market power with actual monopoly. I think it’s time to update my Antitrust Skeptic’s Bibliography.