Break them up

Will the history of the Gilded Age repeat itself? When Big Tech has gone from good to evil, voices are raised to break the companies up.

Marshall McLuhan dreamt of a global village already in the 1960s, and boy did he get one. It all started out so well – The Internet was a church of connection, education, and democracy and its priests promised not to be evil. At the pinnacle of optimism, in the early 2010s, social media powered the democratic movement of the Arab Spring and Mark Zuckerberg opened up on primetime TV about his home, his relationship and a USD 100 million donation to charity. Today, the naïvety has been replaced with realism. Strong voices argue that we should Break Them Up, and Mark gives interviews in the Senate instead of at Oprah’s. Somewhere along the way left, right and center agreed that Big Tech was no longer a poster child for good, but a force of evil – a manipulator of elections, a dampener of free speech, and a threat to fair competition. Because competition and choice are good. Monopolies are bad. And if they happen anyways, Sherman will save the day.

Late republican senator John Sherman of Ohio that is, and his landmark federal competition law the Sherman Antitrust Act. A law that was passed by a unanimous House of Representatives in 1890 aiming to limit cartels and monopolies, and still today forms the basis for antitrust litigation by the United States government. Sherman himself said the purpose was to protect consumers:

“To protect the consumers by preventing arrangements designed, or which tend, to advance the cost of goods to the consumer.”
-John Sherman, 1890

The historical backdrop of this competition law was the Gilded Age – gold on the outside and something far less illustrious on the inside. Railroad and Oil barons built vast empires with monopolistic tendencies, and when challenged by lawmakers and politicians many deflected and denied the problem and obfuscated the ownership and governance structure of their empires behind complex layers of trusts. There they lay hidden from public view, but as the story goes the young attorney general David Watson in Ohio happened upon Standard Oil’s original trust deed in a book. The preface of the book read:

“This fragment of the great law of corporations is written to throw light upon a dark subject. During the past twelve months certain mysterious combinations of manufacturers in this country, called “Trusts”, have sprung into prominence. They have increased rapidly, and have excited the alarm of thinking men. Their movements and plan of organization are secret, and are known to but few.”
-William Cook, 1888

David Watson, also a Republican, filed for dissolution of Standard Oil under the Sherman Act, challenging another famous John: Standard Oil owner John D. Rockefeller. During the course of the lawsuit, and a sign of the times of the Gilded age, both Standard Oil operators and Republican party henchmen swung into action trying to stop the young Watson. On several occasions Watson was offered bribes, and in no uncertain terms was he reminded that Rockefeller was a significant Party donor.

Watson did not relent, and in 1892 the Ohio Supreme Court ruled that Standard Oil was controlled by the trusts. Standard Oil, like a hydra, rapidly dissolved the trust in a meeting presided by Rockefeller and reformed as a corporation of New Jersey. It was not until almost two decades later that the Sherman Act case of 1911 – Standard Oil Co. of New Jersey v. United States – truly broke up the company.

Have we now come full circle from Sherman and Rockefeller? Former Secretary of State Robert Reich certainly thinks so and blogged about how the combined wealth of Page, Brin, Facebook’s Mark Zuckerberg, and Amazon’s Jeff Bezos surpasses the bottom half of the American population:

“They are the leaders of a second Gilded Age. In this new Gilded Age, we need to respond to them as forcefully as we did to the monopolies of the first Gilded Age and break them up.”
-Robert Reich, 2019

On the center stage of antitrust and regulation stands presidential candidate and senator Elizabeth Warren, hitting the refrain of how Big Tech is stifling competition over the last few years. In early 2019 she turned the volume up to 11, laying out a regulatory plan to break up Big Tech, including Amazon, Google, Apple, and Facebook. Spreading her message, she turned to Facebook to advertise her plan among voters, because where else do you go these days? And in an astonishing turn of events, Senator Warren was first blocked by Facebook, and then received support by Republican senator Ted Cruz.

“First time I’ve ever retweeted @ewarren. But she’s right – Big Tech has way too much power to silence Free Speech. They shouldn’t be censoring Warren, or anybody else.  A serious threat to our democracy.”
-Ted Cruz, 2019

Big Tech has historically been seen as supporters of the Democratic party, and senator Cruz’s line of attack, that Facebook is a monopoly of free speech, is perhaps not the same argument as senator Warren is making. But in their call to action, they stand united.

The mighty have fallen before: other notable cases filed under the Sherman Act include the breakup of American Tobacco in 1911 and the breakup of AT&T in 1982. Generally, the antitrust actions versus AT&T are seen among the most successful, first the settlement in 1956 allowing IBM to innovate on the transistor – perhaps laying the foundations of Silicon Valley – and later in 1982 in bringing competition to long distance telephony and innovation to mobile communication. The court ordered a breakup of Microsoft, but after an appeal to the Supreme Court the ruling was postponed.

But the first modern tech company under threat of breakup slipped away in United States v. Microsoft Corp. In 2000 the court first ruled that Microsoft’s behavior was indeed monopolistic and that their business conduct unlawfully attempted to squash competition from Apple, Netscape, Lotus Software, Linux and others. Later in 2000, the court ordered a breakup of Microsoft, but after an appeal to the Supreme Court from Microsoft, the ruling was postponed.

The suit was fought both in the courtroom and in the public arena, with many sides weighing in. One famous instance was the open letter from The Independent Institute published in the New York Times saying that:

“Antitrust is supposed to be about protecting consumers against higher prices and other consequences of monopoly power. […] However, consumers did not ask for these antitrust actions — rival business firms did. […] Increasingly, however, some firms have sought to handicap their rivals’ races by turning to government for protection.”
-The Independent Institute, 1999

Nobel economist Milton Friedman, famous for criticizing government intervention in almost all forms, also weighed in. In 1999 he wrote an essay outlining his belief that the antitrust case against Microsoft risked future technological progress. Is it really in the self-interest of Silicon Valley to set the government on Microsoft, Friedman asked himself.

“When I started in this business, as a believer in competition, I was a great supporter of antitrust laws; I thought enforcing them was one of the few desirable things that the government could do to promote more competition. But as I watched what actually happened, I saw that, instead of promoting competition, antitrust laws tended to do exactly the opposite.”
-Milton Friedman, 1999

Friedman worried, in part, that the human energy and money spent on lawsuits would be better spent on innovation and product development. The computer industry was moving so much faster than the legal process. So, who knew what the shape of the industry would be at the end of the suit? In part, Friedman worried that antitrust very quickly becomes regulation.

This line of criticism was not new, and already in 1967 Alan Greenspan, later to become Chairman of the Federal Reserve, was arguing the Sherman Act’s negative impact on innovation.

“No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born.” –
Alan Greenspan, 1967

Despite the publicity disaster for Microsoft executive Bill Gates, the case was famously ended in a settlement without breakup. Ironically, this was partially due to the presiding Judge Jackson himself playing the publicity game and giving interviews.  The settlement was notably against the will of nine states, including the state of California, which thought the settlement but a slap on the wrist.
The case was also famous for using professors as expert witnesses from technology and business schools such as MIT and Stanford University. Does the name Stanford ring a bell? Founded by Gilded Age railroad magnate Leland Stanford in 1885 it played an important role in the growth of Silicon Valley. Stanford is the alma mater of Google founders Larry Page and Sergey Brin, LinkedIn founder Reed Hastings, and Tesla founder Elon Musk, and certainly seems at the epicenter of this wave of technology companies.

So, will Big Tech of today run the same Golgotha as Microsoft once did? Is antitrust and breaking up Big Tech now on the bipartisan agenda? Will we soon see a unanimous House of Congress taking the Sherman Act into the digital age? Unlikely perhaps, but the public opinion is without a doubt changing. Antitrust law professor Rebecca Allensworth at Vanderbilt concluded:

“Ten years ago, it was all about being champions of these companies. Now it’s very fashionable to hate on them.”
-Rebecca Allensworth, 2019

Why is the mood changing? On the side of market dominance, Google’s and Facebook’s capture of 70 percent of digital advertising dollars has raised eyebrows. When, in addition, Google and Amazon were caught or suspected of unfairly promoting their own products on top of search and listings, the surprise turned into a deep frown. On the side of privacy, Facebook has had numerous high profile fallouts such as the Cambridge Analytica scandal. And when Facebook executives were caught or suspected of Gilded age style handling of situation, the frown turned into outright anger. And fear. Fear that was amplified and weaponized on the very same social platforms.

“When Facebook users learned last spring that the company had compromised their privacy in its rush to expand, allowing access to the personal information of tens of millions of people to a political data firm linked to President Trump, Facebook sought to deflect blame and mask the extent of the problem.”
-Delay, Deny and Deflect: How Facebook’s Leaders Fought Through Crisis, New York Times, 2018

It is perhaps no surprise that the populist-in-chief has tweeted out his disdain for Amazon and Jeff Bezos.

When a society feels anxious, the regulatory apparatus kicks in. Both because it might be a highly relevant reaction from civil servants, and also because it is a popular and politically motivated response to how voters are feeling. It is perhaps no surprise that the populist-in-chief has tweeted out his disdain for Amazon and Jeff Bezos.

Futurist Amy Webb’s argues that regulation is more important than ever right now on the global arena, with GDPR in EU and that Senator Warren’s bold statements is part of the US election spin-up. The breakup is perhaps unlikely to go through, Amy Webb predicts in her trend report for 2019, but big tech companies will have to divert attention and funds.

In addition to cadres of lawyers and lobbyists hired by Big Tech, the political critics of antitrust and regulation are rapidly mobilizing. The angles of counterattack are partially along the same lines as Friedman and Greenspan, that regulation hampers innovation. And some commentators are claiming that the technical challenge in breaking out Instagram from Facebook are insurmountable, despite being run by some of the world’s smartest and most well-paid engineers.

There is also a new theme: Geopolitics and Chinese tech’s rise to the forefront. Alibaba, Tencent and Baidu are no longer playing second fiddle. Big Tech of the East will surely take advantage if Facebook, Google, and Apple face restrictions or even breakup. Former Google CEO Eric Schmidt is arguing that regulatory bias hurts American consumers and hands China a competitive advantage. Facebook’s COO Sheryl Sandberg is appealing to emotions on CNBC.

“While people are concerned with the size and power of tech companies, there’s also a concern in the United States with the size and power of Chinese companies, and the realization that these companies are not going to be broken up.”
-Sheryl Sandberg, 2019

Another appeal to basic emotions has come from team Break-Them-Up and Tim Berners-Lee, inventor of the World Wide Web. Without blaming Big Tech and the creators of the large platforms, he is still concluding:

“We demonstrated that the Web had failed instead of served humanity, as it was supposed to have done, and failed in many places. [The Web] has ended up producing—with no deliberate action of the people who designed the platform – a large-scale emergent phenomenon which is anti-human.”
-Tim Berners-Lee, 2018

On September 6th, 14 attorneys general launched a bipartisan antitrust investigation of Facebook, prioritizing the mishandling of personal data. On September 9th attorneys general for 50 states announced an antitrust investigation of Google focusing on its dominance in digital advertising.

In the EU “Google and Facebook Got Some Very Unwelcome News” (Bloomberg) when it was announced that Margrethe “Slayer of Big Tech” Vestager will continue as commissioner for antitrust and adds data protection to her portfolio to boot. Anti-human or not, it is clear that regulation and antitrust are rapidly rising to the top of the corporate agenda.