Should We Regulate Facebook and Google?

Arguments that regulating hi-tech will crater the companies aren’t as compelling as the tech titans will have us believe.

Paypal and LinkedIn founder, Reid Hoffman, fired a warning shot at Donald Trump by suggesting to the Wall Street Journal that it’s okay for a tech company to be a monopolist as long as it does some good: “show you’re having the following improving impact on society. If you’re doing that, we don’t need regulation.”

If only to be a tech titan? Imagine the grunts at IBM, GM, Microsoft, Exxon, and ATT, whose business models were scrubbed and hung out to dry by the government because they were prominent and successful but somehow neglected to be virtuous?

The problem with regulating the tech companies isn’t just their smug satisfaction with how good they are, but our broken antitrust laws, written for an antediluvian era. Today, companies like Facebook and Google operate in a boundariless digital landscape that defies any conventional measure of competition or pricing. Everything is free, and everyone is a click away. How can that be anticompetitive?

Not Free, Not Easy

To answer that question, I turned to Yale’s Lina Khan, an antitrust expert. Khan does not buy the argument that the consumer can switch platforms easily. She told me, “The reality (is) how users experience these platforms and the fact that there are huge advantages once you are accumulating data and much higher entry barriers.” To Khan, in other words, the platform is a roach motel. The more you use them, the better they are at keeping you well fed, digitally speaking. So while reality says you can leave, the more likely response is why bother? It would be like asking for a better post office in the 1800’s. And that is most likely where the tech industry is today, a hydra-headed private enterprise with layers of public scrutiny that falls just short of a breakup of the companies.

The second argument that the platforms are free, according to Khan, is a card trick: “The products are not free. They are just costly in ways that our antitrust analysis has not come to terms with. We’re all paying with our data, and we’re all paying with our attention.” She makes a valid point. In an era of data personalization, telling someone where you shop and what you are looking for is like giving them the key to your wallet. It’s anything but free.

It means today’s digital behemoths are probably looking at a future scenario in which more government intrusion is a likelihood, with the unanswered questions being how, when, and who?

Hoffman dares the government, in effect: okay, go ahead, regulate us. If we slow down Facebook through regulation we are just handing over our monopoly to the Chinese. I’m not sure that plays in Peoria, where they might use Facebook, but aren’t thinking about esoteric business models. The law of large numbers says Facebook may end up as a defacto Chinese company once they are allowed to build out.

Facebook Owes America

The hi-tech industry has benefited tremendously from the power of the American entrepreneurial marketplace. Mark Zuckerberg credits ‘hacker mentality’ for his success, but in reality, he built a platform on top of an enormous machine called the American economy, which enabled him to launch his product into over 2 billion user computers and devices. America made his social network so ubiquitous it has become the defacto media brand for the world. The oldest rule in real estate is that if that if you build on top of someone’s land, you owe something to the rentiers.

There is a real estate tycoon living at 1600 Pennsylvania Avenue NW who knows a thing or two about rents. Donald Trump began as an erstwhile supporter of hi-tech, he even invited them to join the Commerce Department’s Digital Advisory Board. But after his inflammatory comments about the protests in Charlottesville, most departed.

Today, the hi-tech industry and the current administration are bitter ideological enemies. Trump now claims that Google search results and Twitter shadowbanning of conservative voices are equivalent to censorship of free speech. One could easily see an antitrust or regulatory action in the name of political revenge. While the jury is out on the question of whether this is intentional, most conservatives would find the idea acceptable. In what promises to be a perpetual election campaign, this is the worst of all possible scenarios for the hi-tech business. The companies will need to bend over to assure the administration of fairness while bowing to their young, coastal elite employees that they are standing up for egalitarian values.

How To Regulate?

The question remains, just how the US government would start to crack down on Facebook and Google? Regulators aren’t particularly adept at hi-tech. It took the combined skills of David Boies, the government’s lead counsel (who worked the case for five years for $140,000) and the skillful intelligence of Sun’s Scott McNealy and Oracle’s Larry Ellison to deliver the evidence that cratered the company’s case. Today, Yelp and Century 21 are gunning for Google’s monopoly on search results, which they claim is monopolistic. So there is an army of opponents waiting to pounce.

Will it matter to consumers? According to Senator Richard Blumenthal of Connecticut, who will be lined up at the gallows alongside President Trump, “(After the government’s victory over Microsoft) innovation surged in the newly opened markets and the United States continued to spearhead growth in the technological world. The enduring lesson of the Microsoft case was that keeping markets open can require a trustbuster’s courage against even a very popular monopolist.”

The question is not whether hi-tech will come under regulatory scrutiny, but when? Free-marketers will say this invites chaos, and there is truth to that. Regulators are never good at business, as the financial crisis proved. But American industrial policy is nothing if not a constant search for a middle ground. The tech companies have demonstrated total insensitivity to how the country thinks outside of their hermetically sealed coastal headquarters. Mark Zuckerberg’s Senate hearing proved that you can be a wunderkind internet chief executive but an artful dodger the first time at bat in the big leagues. If some adult supervision in the form of scrutiny is prescribed, even reaching into the hi-tech boardrooms where governance is so ineffectual, people will quickly admit it was a good thing.