Big Tech’s Success Incites a Backlash

By Michael Collins | More Articles by Michael Collins

Theodore Roosevelt, the 26th US president who was in office from 1901 to 1909, is ranked among the greats. Among his achievements was that he was a ‘trust buster’.

Roosevelt was president of a feeble state during a ‘Gilded Age’ when “the power of big business alarmed public opinion because its leaders behaved as if they were above the law”, according to one biographer. On assuming office after his predecessor was assassinated, Roosevelt challenged the business czars who sat atop trust structures. In 1902, he used the Sherman Antitrust Act of 1890 to prevent J.P. Morgan-controlled Northern Securities from establishing a western railway monopoly, the first time any president confronted a big company. Northern was soon dissolved after a court battle. Moves followed against other ‘bad trusts’ such as the Beef Trust, the Sugar Trust and the giant Standard Oil.

Such steps are recalled today as people ponder the emergence of powerful technology companies; foremost, Alphabet (owner of Google), Amazon, Apple and Facebook.

The critics said the platforms enjoy monopoly powers bestowed by the ‘network effect’ – when each additional user makes something more valuable for other users. They say these companies were allowed to buy, imitate and crush threats. They claim the platforms are conflicted because they act as gatekeeper and competitor to rivals such as other online sellers. The overarching complaint is the internet giants have too much influence in a Gilded Age they created. They want Big Tech’s power reduced, even if that means breaking up these titans.

Amid these calls, US President Joe Biden’s administration is flexing against Big Tech. House Democrats have introduced antitrust bills including the Republican-supported Ending Platform Monopolies Act that seeks to ban takeovers and limit conflicts of interest. Biden has appointed tech foes to head regulatory bodies and advise him. Already under Biden’s watch, the FTC has rescinded a 2015 policy that limited its enforcement abilities and approved procedural changes to capitalise on a 1975 statute that lets it write tougher regulations. Another sign of Biden’s resolve is a far-reaching executive order on July 9 to promote competition across the US economy.

The antitrust push comes after decades when the antitrust focus was based on the tangible goal of protecting consumers. This meant preventing price gouging. Free services such as Facebook and Google are insulated from the charge of rigging prices; so too is Amazon that is celebrated for lowering prices. For Biden’s efforts to succeed Roosevelt-style, regulators need to reframe the antitrust focus to the intangible goal it had in Roosevelt’s day. Back then, regulators sought to curb the political and economic power flowing from market dominance, even though economies of scale were allowing these titans to reduce prices for consumers.

Even without much of a pivot, Biden’s actions will likely help consumers. Regulators will impose fines on platforms for even minor competition breaches and target conflicts of interest. They will take a harsher view of takeovers, especially by Big Tech.

But even if antitrust swivels to focus on intangible threats to society, much won’t change. Breaking up companies is hard because liberal democracies enshrine property rights by limiting government power. Big Tech will thus use the courts as a shield against the antitrust push. Away from the legal system, a polarised Congress won’t toughen antitrust laws too much when unravelling the network effect would result in outsized damage to popular tech services offered free by companies. Big Tech might be crimped here and there but the internet giants will remain as dominant as ever; perhaps even too powerful for society’s good.

To be sure, the internet giants reject accusations they are ‘robber barons’, claiming they have succeeded through ingenuity and effort, not by rigging markets. The antitrust pursuit precedes Biden by years. The issue of monopoly or oligopoly power extends beyond tech. Even the internet giants deserve protection from capricious politicians.

Truth be told, Western politicians and regulators are flummoxed on how to regulate such complex creations as platforms. While that could result in poorly designed regulation, the more likely result is that authorities refrain from mounting an aggressive tilt against the internet titans that would be hard to beat in court anyway. The upshot is that the tech superstars are likely to retain, if not extend, their dominance in coming years. Their critics will keep longing for another Roosevelt for a while yet.

 

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About Michael Collins

Michael Collins is an investment specialist at Magellan. Since 2000, Michael has worked as an investment specialist/commentator for money managers, AMP Capital, IOOF/Perennial, Barclays Global Investors (now BlackRock) and Fidelity International.

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