In 1904, Rockefeller’s oil giant Standard Oil controlled 91 percent of oil production and 85 percent of final sales in the United States. Its domination allowed it to abuse competitors, workers, suppliers, consumers, and the public. Regulatory action was pursued for years but Rockefeller and his partners kept incorporating new entities in new state jurisdictions to frustrate regulators. Finally, by 1911, public outrage reached the boiling point and the U.S. Justice Department sued the group under federal anti-trust law and mighty Standard Oil was ordered to divide itself into 34 companies for sale to independent entities. The Supreme Court upheld the ruling against Standard “on the ground that it is a combination in unreasonable restraint of inter-State commerce.”
These regulations, the first in the world, represent America’s most profound economic innovation by outlawing any contract, scheme, deal, or conspiracy that restrained trade. Such reforms were not attacks on success per se, but only on those who prevented others from competing. Markets dominated by gigantic players are destructive, like hockey games without referees where the goons on the ice sideline smaller, more innovative players. Without anti-trust laws, the United States would likely have ended up with impoverished populations, moribund economies, and political systems owned by oligarchs.
But America’s anti-trust infrastructure is long overdue for a “refresh.” The country’s technology mega-giants have grown exponentially in little more than a decade, thanks to business models that are incomprehensible to most and often abusive, unethical, or illegal. As such, Silicon Valley’s biggest players have evolved into latter-day Robber Barons in hoodies.
Ironically, the Europeans have cracked down first. For instance, between 2005 and 2018 the five biggest (Amazon, Apple, Google, Facebook, and Microsoft) spent $582 million lobbying Congress. These efforts—plus untold billions earmarked for political donations to parties and PACs—have muted critics and kept rules at bay.
But in the European Union, Margrethe Vestager, a Danish politician, has been Commissioner for Competition Policy since 2014 and taken tough remedial action against a growing list of tech firms. To date, the Europeans have fined Apple $15 billion for egregious tax evasions; Google $9.3 billion for competitions violations; and Qualcomm $1.2 billion for predatory pricing and other market abuses. This year, Vestager is taking aim at Amazon. Vestager said e-commerce has boosted choice for consumers and reduced prices, but “we need to ensure that large online platforms don’t eliminate these benefits through anti-competitive behavior.”
European laws are also more punishing than their American counterparts. Amazon could face a potential fine of up to 10 percent of its annual global sales which, in Amazon’s case, could net a maximum penalty of $23 billion based on 2018 revenue. By contrast, the U.S. Federal Trade Commission fined Facebook $5 billion for ignoring privacy guidelines the company had agreed to uphold since 2011. The penalty was equivalent to Facebook’s profit for one month and like handing out a speeding ticket to a hit-and-run driver following years of dangerous driving.
Facebook’s misdeeds have been egregious and should have netted it a much larger fine. The company failed to protect user privacy; it sold millions of names to third parties such as Cambridge Analytica, now defunct for questionable election practices; Facebook sold political ads to Russian operatives in contravention of election laws; and it published and broadcasted arguably inciting content on its sites for millions to read or watch.
The scandal surrounding Facebook’s role in last year’s elections, taken alongside Europe’s own crackdowns, has resulted in probes by Congress, the Trade Commission, and the Department of Justice spinning up. And as election season gets going, candidates are finding that investigating the titans makes for good politics. “Today’s big tech companies have too much power—too much power over our economy, our society, and our democracy,” Democratic presidential candidate and Senator Elizabeth Warren warned.“They’ve bulldozed competition, used our private information for profit, and tilted the playing field against everyone else. And in the process, they have hurt small businesses and stifled innovation.”
Warren in particular has made anti-trust a key part of her pitch to voters. She proposes to unwind mergers, designed to eliminate competition, such as Amazon’s acquisition of Whole Foods, Facebook’s acquisition of Instagram and WhatsApp, and Google’s acquisition of DoubleClick, Nest, and Waze. Her reasoning is that these buyouts have created enormous and monopolistic platforms that also own their service providers, not unlike what AT&T did for decades, eventually owning all the local telephone companies it served, thus allowing it to price fix and drive out competitors. AT&T, of course, had its wings clipped famously in 1982, when it was forced to abandon its “Baby Bells” and focus solely on providing long-distance service.
This summer, no less a figure than Rupert Murdoch, the owner of the Wall Street Journal, New York Post, The Times of London, and Fox, weighed in. This summer, his News Corp. asked Australia’s Competition and Consumer Commission to force Google’s parent, Alphabet, to sell off its search business. The U.S. tech giant wields “overwhelming market power” as the “gateway to the Internet and advertising,” Murdoch’s submission read. “Google leverages its market power in both general search services and ad tech services to the detriment of consumers, advertisers and news publishers.”
The statistics against Big Tech clearly demonstrate inordinate concentration of market power overall and in certain segments. In the United States, Google nets 75 percent of all search revenues. 56 percent of mobile device sales, 24 percent of smart speaker sales, and 36 percent of all digital advertising. Amazon’s domination is also massive. Amazon says it only represents 1 percent of the $25 trillion global retail market, and less than 4 percent of retail in the U.S. However, its U.S. online market share is about 38 percent and growing. The next largest competitor is eBay, with only 6 percent.
Besides anti-trust issues, tax avoidance strategies must also be curtailed—notably Big Tech’s “jurisdiction shopping,” or the practice of establishing many “corporate headquarters” in low- or no-tax countries. The strategy enhances growth, making these companies larger than most nation-states, while depriving countries of tax revenue and making it difficult for smaller businesses without recourse to armies of tax attorneys to compete. France is the first to impose a “fair digital tax” of 3 percent on the global revenues of tech companies, and a European-wide revenue tax appears set to soon follow.
The White House is, of course, threatening retaliation against the Europeans’ move. But the validity of upholding the principles of competition is compelling and was best articulated by investigative journalist Ida Tarbell. Over many years, her father and brother—along with countless independent oil producers and businesses—were ruined by Standard Oil’s schemes to gain control of the entire industry. She became Rockefeller’s nemesis, and in her book All in a Day’sWork about Standard Oil, she observed simply that “they had never played fair, and that ruined their greatness for me.”