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  • Big Trouble for Big Tech

    Without question, America’s political future lies with the Populists on the right and the Progressives on the left. Everyone else is just along for the ride.

    Unfortunately for big tech, they have managed to alienate both of these ascendent forces.

    Historically, Republicans took big business for granted, just as Democrats took blacks, Hispanics and union members for granted. But in recent years, tech oligarchs on the West Coast have proactively undermined their enablers as their support has increasingly shifted toward the left-wing ideology espoused by a large share of their workforce. So, it’s not too surprising that the populist wing of the Republican party has forced reconsideration of the party’s long-time knee-jerk support for big business.

    Worse yet, this behavioral shift by big tech has failed to increase its support among Progressive factions, despite alienating many of those on the right who were once “reliable corporatists.” To understand how this dynamic is evolving, consider the current state-of-play.

    Ignoring big tech’s leftward tilt in behavior, Progressives recently introduced legislation intended to undermine the power and wealth of the Silicon Valley oligarchs.

    Specifically, House Democrats introduced antitrust overhaul legislation which they characterize as “fighting for a fairer internet, less riven by special dealing and conflicts of interest.” These proposals constitute the biggest change to U.S. antitrust law in many decades. And even though the legislation doesn’t mention any companies by name, these changes would almost exclusively target Google, Facebook, Apple, Amazon and, Microsoft. In fact, it’s this narrow focus on the tech giants which makes the House legislation more palatable to Republicans than a more sweeping proposal down on monopolies broadly, which has been introduced in the Senate.

    From a competitive perspective, if this new set of laws can garner 60 votes in the Senate, they would have game-changing consequences for some of the industry’s best-known products, ranging from Amazon Prime to Google’s search results to Apple’s App Store to miscellaneous social media like Instagram and LinkedIn. Even Microsoft Office could feel the bite.

    The five-bill package that Democrat lawmakers announced in mid-June would let the Justice Department and the FTC designate “covered online platforms” for enhanced enforcement, but only if the companies meet certain thresholds. First, the business’ parent company must have a market value of at least $600 billion, a benchmark which only 10 corporations worldwide surpass. And second, the company has to serve at least 50 million U.S. consumers or 100,000 U.S. businesses per month.

    That second threshold would exclude all the mammoth companies other than tech platforms such as Saudi Aramco, Tesla and Warren Buffett’s Berkshire Hathaway.

    For the big tech titans, meanwhile, a range of new restrictions would kick in. They could no longer buy up potential rivals, as Google did this year by purchasing Fitbit, or discriminate against competitors who use their platforms, as critics have accused Apple and Amazon of doing. They would also be forced to make it easier for users or businesses to transfer their data to other platforms. And both the DOJ and FTC would have more options to sue to break up the giants.

    This legislation should surprise no one. The 19th century roots of the Progressive movement grew from a commitment to reining-in the power of “robber barons” who had amassed monopolistic power, which enabled them to run rough-shod over the interests of the general public. Not surprisingly, today’s Progressive leaders, including Elizabeth Warren, Bernie Sanders and AOC, have demanded that Democrats return to those Progressive ideological roots or face the wrath of angry leftists.

    On the other hand, the Republican Party, since its founding, has almost always been a reliable friend of business, both large and small. While Republican policy drifted toward that of the Democrats in the years after World War II, the Reagan administration repositioned the party solidly behind free market orthodoxy. But recently, the rise of Donald Trump and his of America First brand of Populism opened the door to reconsidering this unwavering commitment to business and free markets.

    Furthermore, Big Tech’s perceived betrayal of conservative interests over the past few years, has required a wholesale reappraisal of the party’s allegiances. The result has been a fundamental shift in the Republican Party’s attitude toward “big business.” The net effect is a shift away from the laissez-faire attitude conservatives have usually held and toward open hostility regarding “woke capital’s” most notorious propagators of Progressive values.

    Ironically, Big Tech businesses have no one to blame but themselves for starting this two-front war. While the GOP increasingly flirts with anti-corporatism, the executives at Amazon and its peers do not seem terribly disturbed. Their focus remains on pandering to their natural enemies, even as they alienate their natural allies. As the recent legislative proposals from Democrats show, Big Tech’s repeated concessions to and support of the Left has been less than effective in reducing political pressure on these companies. In short, all the left-wing pandering and censorship peddled by Big Tech, has won them no friends willing to make Big Tech’s case within the Democrat Party. In fact, many of the Democrats participating in the recent interrogations of Silicon Valley CEOs on Capitol Hill evinced a belief that Big Tech is still, despite the last four years, insufficiently censorious.

    More importantly, each new demonstration of loyalty to the Left by Big Tech is met with growing fury on the right, but no equivalent jubilation from the left. For example, “when is the last time you heard an outcry of thanks from Progressives for Amazon’s public service in banning “transphobic” books?” Instead, Amazon’s accommodations have only been rewarded with a growing bipartisan abhorrence for all mega-cap tech companies.

    Why? At its root, the Left loathes Amazon because it is a hugely successful multinational corporation led by a fantastically wealthy man, and they will continue to do so as long as they oppose corporate power and the rich; that will be for as long as the Left is the Left. But now, the Right is ready to oppose Amazon and the other Big Tech firms because those firms are openly hostile to the cultural values held by everyone not on the Left.

    What’s the bottom line? The Progressives will never embrace Big Tech. The mob cannot be bought off. In the eyes of the radicals, no number of banned books or censored conservatives will atone for Big Tech’s “original sin” of being a successful corporation. That’s why the Left is no more fond of these firms today than it was when Donald Trump was on all the platforms and “transphobic” books were on Amazon.

    But until recently, all these tech giants had a natural defender in conservatism, a movement that has historically been oriented toward defending all businesses, including the mega-caps, from interventions by the state. Now they are losing this protection, and there is little reason to believe that the next Republican president or Republican-controlled Congress will forgive the tech giants for years of censorship simply because of an ideological commitment to free markets. From Senators Marco Rubio and Josh Hawley to President Trump to commentator Tucker Carlson, conservatives are increasingly showing an enthusiasm about forgoing their party’s historical inclinations and using government coercion to curtail the Left’s intrusion into the boardroom and big tech’s interference with political dialog.

    This dramatic shift on the right is best illustrated in the rhetoric of Senators Josh Hawley, Ted Cruz, Tom Cotton and Marco Rubio who seem ready and willing to lead “a Republican pogrom against Big Tech,” even if it means allying themselves with their mortal enemies including Senators Sanders, Warren, Markey and Whitehouse.

    And public animosity toward Big Tech will only intensify as state Attorneys General and former President Donald Trump press a wide array of lawsuits against Big Tech. Trump’s lawsuits note that the tech companies rely on protections under Section 230 of the Communications Decency Act, which shields them from lawsuits based on statements posted by users, while allowing them to moderate and restrict content that they deem to be “excessively violent, harassing, or otherwise objectionable,” regardless of whether it would be protected by the First Amendment. Trump said of the Section 230 immunity, “They’re getting the biggest subsidy that any company has ever gotten from a government. They’re immune from so many different things, but they’re not immune from this lawsuit because what they’ve done is such a violation of the Constitution. A violation like we’ve never seen before.”

    In the 19th century, Progressives in the Democrat party had little impact on the monopolies of that era until Republicans under William McKinley decided to join them; that combination made all the difference. The Big Tech oligarchs have become the “robber barons” of the 21st century and they have few if any friends left to protect them from “the mobs armed with pitchforks” which are coming from the right, as well as the left. The question is, “What will emerge from the carnage ahead?”

    Given this Trend, we offer the following forecasts for your consideration.

    First, despite their conflicting ideologies, Democrats and Republicans in Washington will join forces to pass new antitrust legislation aimed almost exclusively at the Big Tech oligarchs. For Progressive politicians this will be a huge ideological victory that will reassure their base that they can deliver. For Populists, it will be a tactical victory on the way to electoral victory in 2024 and it will represent a moral vindication for right-wing activists. Only a small fraction of the population with Libertarian priorities will be troubled by this outcome.

    Second, Facebook will struggle to minimize damage from legislation that focuses on non-discrimination and the seamless transfer of users’ data between two platforms. The non-discrimination bill, authored by House Judiciary antitrust Chairman David Cicilline (D-R.I.), would prohibit a company from giving its own products advantages that it doesn’t make available to others. For example, Facebook has made it easy to cross-post between its main site and its photo-sharing app Instagram. It has also worked to integrate its messaging services on Instagram, Facebook Messenger and WhatsApp. Under the House proposal, the company would need to offer those same tools to rival businesses, so that users could cross-post videos or texts to other social media services or send messages from Facebook to other chat platforms. - Meanwile the so-called “interoperability bill” would force platforms to build tools that allow users and businesses to easily take their data when they leave. That is aimed at making it easier for users to switch between services if their old platform changes its privacy policy or a new one offers cooler features; this will make it easier for a competitor to vie with Facebook for its 2.7-billionmember userbase. The interoperability bill is also key to changing the industry dynamic in which startups avoid competing with the tech giants, instead seeking to be bought out by a Google or a Facebook. That bill, along with a proposed “mergers ban” that would forbid the tech giants from buying up possible rivals, will help encourage investment in alternatives. And it will free up innovators to make a better product or better service. If Congress can cut down on buyouts while promoting switching and competition, it will create a very different social media market from what we have today.

    Third, the interoperability and non-discrimination legislation will take away important competitive advantages from Amazon. Specifically, the interoperability legislation also applies to business information, which means third-party sellers on Amazon will be able to more easily take their listings and reviews to other marketplaces. - Some of the conditions in the non-discrimination legislation appear aimed directly at the e-commerce giant. Under the bill, for example, a dominant online platform would be forbidden from supporting its own products using non-public data from companies it does business with. - Perhaps even more important: The bill would forbid a tech giant from conditioning companies’ use of or placement on its platform on whether that business buys other services. That proviso takes direct aim at how Amazon assigns vendors to its coveted “Buy Box,” the default “add to cart” feature that captures 82 percent of sales by some estimates. Critics argue that Amazon unfairly pushes sellers to use the company’s logistics and delivery operations, including its Prime service, to win the Buy Box - a claim Europe with regulators continues to investigate.

    Fourth, provisions in the non-discrimination bill will prevent Apple from continuing to require developers in its App Store to use its “in-app purchase system,” which charges a 30 percent commission on digital goods and services. The app store is the only place where iPhone and iPad users can download apps; this fact helped drive a recent antitrust trial in which Fortnite-maker, Epic Games, sued Apple. - The non-discrimination legislation would also prohibit platforms from engaging in two other behaviors that developers have raised in complaints about Apple: restrictions on customer communications and use of customer data. Apple’s contracts with developers place certain limits on how they use customer data. For example, developers are prohibited from emailing iPhone users unless they separately obtain the users’ email address. They are also forbidden from telling customers that lower prices are available elsewhere. Both of these policies were at issue in the Epic Games trial. - The Coalition for App Fairness, a group of 55 companies including Spotify, Match and Epic focuses on lowering fees and restrictions on app developers.

    It praised the non-discrimination bill in particular as a needed reform for digital marketplaces. The measure would also prohibit Apple from preventing users from uninstalling its “default apps.” While the iPhone-maker has more recently made it possible to delete some apps that come pre-installed on the phone, a handful of those defaults, including Messages and Find My iPhone, can’t be removed even if a user downloads an alternative. The laws provision on “default apps” would also apply to mobile devices running Google’s Android.

    Fifth, the biggest challenge for Google under the pending legislation will be its impact on the company’s search engine. Right now, Google gives its own services the greatest priority at the top of a search results page; that’s the reason Google Maps and Google reviews appear first on searches for local businesses and YouTube tops searches for music or videos. Google would be blocked from automatically giving preference to its own products under the new law. If Google Maps really is the best, it can be at the top of the page. What we see right now is that Google can put its products at the top simply because they are its products. - The new legislation would also hit Google’s advertising technology business, the key to its fortunes and the reason that the company ranks No. 1 in online display ads. Critics allege that Google’s ad technology platforms which are used to buy and sell the display ads that fund many websites, give each other advantages in the online advertising auctions. The bills would prohibit offering this “leg up.”

    Sixth, Microsoft is also expected to be impacted by the new legislation, but the downside will be less significant than for other tech giants. Microsoft’s LinkedIn social network has about 175 million U.S. users, probably qualifying it as a covered platform under the legislation. If it falls under the purview of the House legislation, it would have to allow rival companies to operate in conjunction with the platform and build tools to let users transfer their profiles to other sites. - More significantly, its ubiquitous Microsoft Office products are used by more than 100,000 U.S. companies and work seamlessly with one another. From the Microsoft Outlook email client, for example, users can start a Microsoft Teams video conference with one click. The legislation might require Microsoft to allow that same one-click functionality with other office-productivity tools, like Slack or Zoom. And,

    Seventh, diminishing the power of today’s tech oligarchs will be good for innovation and political discourse, as well as for consumers and investors. Internet platforms are “natural monopolies” due to network effects and economies of scale in much the same way as telephone, electric and gas utilities. But unlike those enterprises, Big Tech firms are unregulated, permitting them to use their market positions to lock-in users and thwart potential competition. As a result, these firms have amassed power and wealth on an unprecedented scale, creating multi-faceted threats to both the economy and our way of life. Consider just three implications. First, virtually every American has a direct or indirect interest in the stock market; therefore, we cannot tolerate the inherent fragility created when so few firms represent such a large proportion of the market’s capitalization. Second, innovation is inherently stifled when only one firm dominates each of the key niches, preventing new entrants from taking root. And third, acrimony is intensified on the political front, when powerful entities benefiting from a government-protected monopoly takes sides on politically divisive issues and turns their government-enabled power against one segment of the populace. - If passed, the legislation now under consideration will go a long way toward removing these threats to our nation and the world. And just as in the cases of AT&T and Standard Oil, this intervention will inevitably unleash market forces which will enrich investors, entrepreneurs, consumers and employees throughout the economy.

    Resource List:
    1. Bloomberg.com January 25, 2021. Austin Carr. Big Tech Is Getting Bigger, and That’s a Problem Politically.

    2. National Review. April 19, 2021. Jerry Bowyer. Big Tech, You’re Running Out of Friends.

    3. The Daily Beast. June 8, 2021. Joel Kotkin. America’s Overdue to Unfriend Mark Zuckerberg.

    4. Politico.com. June 11, 2021. LEAH NYLEN. House Dems unveil bills to rein in Silicon Valley giants - opening rift among Republicans.

    5. Vox.com. June 18, 2021. Shirin Ghaffary. Big Tech has a battle ahead over antitrust regulation - and it’s going to get messy.

    6. The New York Times. June 29, 2021. Cecilia Kang. Lawmakers, Taking Aim at Big Tech, Push Sweeping Overhaul of Antitrust.

    7. Politico.com. June 11, 2021. LEAH NYLEN. Dems are going after Big Tech. It’ll affect almost everything you do online.

    8. Fox News. July 11, 2021. Talia Kaplan. Trump lawsuit against Big Tech could ‘break new ground’ on First Amendment protections: former interim CEO.

    9. Fox News. July 11, 2021. Ronn Blitzer. Trump on Big Tech: ‘They’re immune from so many different things, but they’re not immune from this lawsuit’.