US attempts first step towards breaking up big tech

The US House Antitrust Subcommittee has formed a bipartisan investigation into competition in digital markets, potentially offering a threat to solid foundation of the technology giants.

While the technology giants have increasingly become political punching bags over the last few years, the industry has been pretty effective at dodging any material impact. Many politicians have taken aim, but few have landed a shot. This approach, taking in voices from both sides of the US political spectrum might offer more of a challenge.

“The growth of monopoly power across our economy is one of the most pressing economic and political challenges we face today,” said Antitrust Subcommittee Chairman David Cicilline. “Market power in digital markets presents a whole new set of dangers.

“After four decades of weak antitrust enforcement and judicial hostility to antitrust cases, it is critical that Congress step in to determine whether existing laws are adequate to tackle abusive conduct by platform gatekeepers or whether we need new legislation to respond to this challenge.”

To date, the technology giants have operated with relative regulatory freedom, though the shackles are being dragged towards Silicon Valley. This is not an unusual situation; embryonic industries are often given room to growth and prosper before being tied back with red tape when the influence starts to become notable.

For the tech space, the calls for regulation have been getting lounder month-on-month. GDPR was one of the first major pieces of legislation, while the constant inability of the industry to demonstrate its ability to self-regulate have been forcing the hand of politicians who often do not like to get involved in things they do not understand.

“Big Tech plays a huge role in our economy and our world,” said Congressman Doug Collins. “As tech has expanded its market share, more and more questions have arisen about whether the market remains competitive.

“Our bipartisan look at competition in the digital markets gives us the chance to answer these questions and, if necessary, to take action. I appreciate the partnership of Chairman Nadler, Subcommittee Chairman Cicilline and Subcommittee Ranking Member Sensenbrenner on these important issues.”

Despite negative connotations, monopolies do offer significant benefits to a country, and it seems the US has traditionally been very effective at judging when it is happy to stand-off and when to step-in.

In 1890, the Sherman Antitrust Act was passed into US law. This act banned trusts and monopolistic combinations that lessened or otherwise hampered interstate and international trade. Although it was not necessarily the most successful of Acts to start with, it soon began to swing into motion.

One of the first monopolies to be attacked by politicians was Standard Oil in 1911. At the time, Standard Oil had cornered 90% of the oil market across the country but was allowed to thrive. It was only broken up, coincidentally, once the firm had finished construction of nationwide train infrastructure, dramatically decreasing the cost of operations. At this point, the Sherman Antitrust Act was used to open up the industry.

There has been a lot more regulation passed in the intervening years since 1890, the Clayton Act was introduced in 1914 to add more clarity to the definition of when a monopoly causes more damage than good, and more industries have been carved up. From sugar and tobacco to meat packaging and, more recently, telecommunications. The trend seems to be the same.

Every time monopolies have been challenged by US politicians there seems to be a watershed moment reached. They might be a few years late with the technology industry, but the same could be said here.

The fact is monopolies offer a concentration of wealth and scale opportunities. A few might be collecting all the riches, but operational efficiencies allow for more rapid growth and expansion. It makes sense to ‘dance with the devil’ for a short period in pursuit of the greater good.

Almost every aspect of the digital economy has now been normalised in the eyes of the mass market, and those areas which haven’t are increasingly becoming standard practice (AI for example). The likes of Facebook, Google, Amazon, Netflix, Uber, AirBnB and Microsoft can largely be thanked for that, but now the mission is complete, consumers are open to a new way of spending and ecosystems have the potential to flourish. It seems the benefits of having tech monopolies has passed and the wealth needs to be spread more evenly.

This is of course not to say the tech giants will disappear, or that the House will be successful in their pursuit of increased competition, diversity and evenly dispersed profits.

What the tech giants have become very good at in recent years is lobbying and challenging legislation. One is the subtle art of influence, a shady practise often conducted over dinner or behind closed doors, the other is the heavy hammer of legal expertise, hitting back at new rules with expensive lawyers, fuelled by the profits of market dominance.

The likes of Facebook and Amazon will not take this challenge lying down. Executives make too much money, investors have too much skin in the game and egos are too great to have empires carved apart. These companies have absorbed the blood, sweat and tears of many of these executives, with countless sleepless nights directed towards the pursuit of billions. These executives are dedicated hunters, and they will not let their prey out of their sights without a bloody fight.

One example of the industry winning is Microsoft. In the 90s, Microsoft was challenged on whether it was abusing its position as essentially a non-coercive monopoly. It might have lost the case and has been the focal point of other antitrust cases since, but the red tapers were not successful in breaking up the behemoth.

Other examples of less successful ventures from the politicians focus on the utilities space. In some regions, monopolies are allowed to exist, though strict pricing regulations prevent any, in theory anyway, market abuses. This has stemmed the prospect of flourishing spreadsheets, which would be just as bad an outcome for the tech giants and investors.

Another factor to consider is that of competence. If the politicians are going to be effective in breaking up big tech, they first have to understand how it works today and what the risks of tomorrow are.

There are two problems here. Firstly, the best talent (engineering, accountancy or legal for example) are drafting into the ranks of the technology giants. And secondly, career politicians are more common than not. These are people that specialise in the celebritised-practice which politics has become, they are not leaders of industry as they were in previous generations. This gulf in competence could prove to be a major problem for the Subcommittee.

Monopolies have their place in the economy, at least for a short period of time, and this investigation from the House  Antitrust Subcommittee will aim to figure out whether this time has been reached. First, the politicians have to prove there is evidence of monopolistic abuses, or serious potential, and then comes the difficult job; squaring up to the technology giants, industry experts and the mountains of cash fuelling them.