Are Google and Facebook the new monopolies?
Google and Facebook are the new railroads. And the media is a powerless farmer trying to get his vegetables to town.
The problem of monopolies is moving back to the forefront of American politics, as mega-mergers like AT&T and Time Warner or Charter and Time Warner Cable are weathering shouts of outrage from everyone from Sen. Elizabeth Warren (D-Mass.) to President-elect Donald Trump.
But perhaps the biggest monopolies we should be worried about are two Silicon Valley giants: Google and Facebook.
Monopolies are generally thought to be bad because they jack up prices and screw consumers. And that's not wrong. But it leaves out a big part of the story: that monopolies also deny access to the market and exploit other participants in the economy.
Jonathan Taplin recently took this issue on in The New York Times, and his numbers are astonishing. Alphabet, Google's parent company, has market shares in mobile search and operating systems that are two to three times as large as AT&T's in its respective markets. Alphabet's cash on hand dwarfs that of AT&T and Time Warner combined, and Alphabet's level of debt is far lower. Both Alphabet and Facebook are among the top 10 largest companies in the world, and their respective market capitalizations outpace any AT&T-Time Warner combo by hundreds of billions. But most striking is this: "In the first quarter of 2016, 85 cents of every new dollar spent in online advertising will go to Google or Facebook."
American antitrust law, which aims to break up big monopolies, was first created because railroads had been monopolized. Farmers couldn't get their produce to market without the railroads. And so the railroad monopolies charged farmers an arm and a leg just for the opportunity to participate in the economy at all. They did it because they could.
Google and Facebook are the new railroads. And producers of digital media are a bunch of turnip farmers hoping to ship their goods into town.
For better or worse, searching on Google and sharing on Facebook are two of the most dominant ways that media companies get their content consumed. That gives Google and Facebook all the bargaining power, which allows them to extort content producers.
Back in the New Deal era, when anti-trust law really expanded, communications technology was limited to things like radio and telephones and newspapers. But policymakers at the time still grasped that the problem of access applied not just to railways and farmers, but to radio and phones and communications as well. Before reform, rich radio broadcasters would just buy more powerful transmitters, and totally overpower radio stations on nearby frequencies, as Marshall Steinbaum, a senior economist and fellow at the Roosevelt Institute, explained to The Week.
So lawmakers passed the Communications Act of 1934 and created the Federal Communications Commission, to fight monopolies and ensure equal access to all market participants. Companies were prohibited from owning too much of any one form of communication in a geographic area, and from owning more than one form (say, radio and newspapers) in the same geographic area. Particular frequencies were licensed to particular broadcasters, on the assumption that the radio spectrum belongs to the public — which gives everyone a chance to be heard.
Aren't Facebook and Google exactly the sort of communication monopoly that legal framework was designed to prevent? After all, "they have basically monopolized access to information for all of their customers and users in a way that requires you to go through them," Steinbaum said.
Anti-trust law and the Communications Act have been slowly eroded over the decades by a series of court decisions. But the real death blow for the Communications Act came in 1996, with the bipartisan Telecommunications Act. It lifted restrictions on ownership within geography and across different technologies in a geography. "Immediately after that, Clear Channel started buying up every radio station in the country," Steinbaum said.
The logic of the Telecommunications Act of 1996 was that monopolies must be more efficient, since they'd conquered the market, and that they'd pass those savings on to the consumers. There was also an assumption that new technologies would emerge to compete with the monopolies in old technologies. Instead, the old technology monopolies simply bought up the new technologies: Internet providers and cable providers and satellite dish companies and TV broadcasters and media content creators are increasingly all housed under a small number of giant corporate roofs. And atop it all sits Facebook and Google, having taken near total control of the internet's two dominant functions: the social platform and the search engine.
Interestingly, as Steinbaum pointed out in Jacobin, one of the original reasons for the Communications Act of 1934 was the effect of Nazi propaganda. American lawmakers saw how a centralized economic and political power could take over and warp a national conversation, degrading democracy and fanning the flames of bigotry. It's an eerie echo of the sudden explosion of fake news on Facebook, or of worries about political bias in how Facebook cultivates its news feed, or the question of how Google structures its search algorithm.
But so far, the only solutions offered seem to be better algorithms and self-policing from those same companies. That's a good start. But we might want to consider a more fundamental approach: Resurrect the original intent of anti-trust law in American communications. Smash the centralized behemoths whose benevolence and best practices we're relying on to govern all the art, ideas, stories, and civic life that we share.