Berkeley, Calif. — CONSERVATIVES and liberals interminably
debate the merits of “the free market” versus “the government.” Which one you
trust more delineates the main ideological divide in America.
In reality, they aren’t two separate things. There can’t be
a market without government. Legislators, agency heads and judges decide the
rules of the game. And, over time, they change the rules. The important
question, too rarely discussed, is who has the most influence over these
decisions and in that way wins the game.
Two centuries ago slaves were among the nation’s most
valuable assets, and after the Civil War, perhaps land was. Then factories,
machines, railroads and oil transformed America. By the 1920s most working
Americans were employees, and the most contested property issue was their
freedom to organize into unions.
Now information and ideas are the most valuable forms of
property. Most of the cost of producing it goes into discovering it or making
the first copy. After that, the additional production cost is often zero. Such
“intellectual property” is the key building block of the new economy. Without
government decisions over what it is, and who can own it and on what terms, the
new economy could not exist.
But as has happened before with other forms of property, the
most politically influential owners of the new property are doing their utmost
to increase their profits by creating monopolies that must eventually be broken
up.
The most valuable intellectual properties are platforms so
widely used that everyone else has to use them, too. Think of standard
operating systems like Microsoft’s Windows or Google’s Android; Google’s search
engine; Amazon’s shopping system; and Facebook’s communication network. Google
runs two-thirds of all searches in the United States. Amazon sells more than 40
percent of new books. Facebook has nearly 1.5 billion active monthly users
worldwide. This is where the money is.
Despite an explosion in the number of websites over the last
decade, page views are becoming more concentrated. While in 2001, the top 10
websites accounted for 31 percent of all page views in America, by 2010 the top
10 accounted for 75 percent. Google and Facebook are now the first stops for
many Americans seeking news — while Internet traffic to much of the nation’s
newspapers, network television and other news gathering agencies has fallen
well below 50 percent of all traffic. Meanwhile, Amazon is now the first stop
for almost a third of all American consumers seeking to buy anything. Talk
about power.
Whenever markets become concentrated, consumers end up
paying more than they otherwise would, and innovations are squelched. Sure, big
platforms let creators showcase and introduce new apps, songs, books, videos
and other content. But almost all of the profits go to the platforms’ owners,
who have all of the bargaining power.
Contrary to the conventional view of an American economy
bubbling with innovative small companies, the reality is quite different. The
rate at which new businesses have formed in the United States has slowed
markedly since the late 1970s. Big Tech’s sweeping patents, standard platforms,
fleets of lawyers to litigate against potential rivals and armies of lobbyists
have created formidable barriers to new entrants.
The patent system is crucial to innovation. The law gives 20
years of patent protection to inventions that are “new and useful,” as decided
by the Patent and Trademark Office. But the winners are big enough to game the
system. They make small improvements warranting new patents, effectively making
their intellectual property semi permanent. They also lay claim to whole
terrains of potential innovation including ideas barely on drawing boards and
flood the system with so many applications that lone inventors have to wait
years. The White House intellectual property adviser Colleen V. Chien noted in
2012 that Google and Apple were spending more money acquiring patents (not to
mention litigating them) than on doing research and development.
Antitrust laws used to fight this sort of market power. In
the 1990s, the federal government accused Microsoft of illegally bundling its
popular Windows operating system with its Internet Explorer browser to create
an industry standard that stifled competition. Microsoft settled the case by
agreeing to share its programming interfaces with other companies. But since
then Big Tech has been almost immune to serious antitrust scrutiny, even though
the largest tech companies have more market power than ever. Maybe that’s
because they’ve accumulated so much political power.
In 2012, the staff of the Federal Trade Commission’s Bureau
of Competition submitted to the commissioners a 160-page analysis of Google’s
dominance in the search and related advertising markets, and recommended suing
Google for conduct that “has resulted — and will result — in real harm to
consumers and to innovation.” But the commissioners chose not to pursue a case.
Investigators also found evidence that Google was pushing its products ahead of
competitors’ on search results; though no legal action was recommended on this
point.
It’s unusual for commissioners not to accept staff
recommendations, and they didn’t give a full explanation. The F.T.C. noted a
competing internal report that recommended against legal action, but another
plausible reason has to do with Google’s political clout. Google is now among
the largest corporate lobbyists in the United States. Around the time of the
investigation the company poured money into influencing both the commissioners and
the commission’s congressional overseers.
GOOGLE is heading into a major fight with antitrust
officials in the European Union for some of the same reasons the F.T.C. staff
went after it. Not incidentally, Europe is also investigating Amazon for allegedly
stifling competition in e-books, and Apple for doing the same in music. While
many on this side of the Atlantic believe Europe is taking on these tech giants
because they’re American, another possible explanation is that Google, Amazon
and Apple lack as much political clout in Europe as they have here.
Economic and political power can’t be separated because
dominant corporations gain political influence over how markets are maintained
and enforced, which enlarges their economic power further. One of the original
goals of antitrust law was to prevent this.
“The enterprises of the country are aggregating vast
corporate combinations of unexampled capital, boldly marching, not for
economical conquests only, but for political power,” warned Edward G. Ryan, the
chief justice of Wisconsin’s Supreme Court, in 1873. Antitrust law was viewed
as a means of breaking this link. “If we will not endure a king as a political
power,” Senator John Sherman of Ohio thundered, “we should not endure a king
over the production, transportation and sale” of what the nation produced.
Sherman’s Antitrust Act easily passed Congress and was
signed into law by President Benjamin Harrison on July 2, 1890. Twelve years
later, President Teddy Roosevelt used it against the Northern Securities
Company, which dominated rail transportation in the Northwest. In 1911,
President William Howard Taft broke up the Standard Oil empire.
The underlying issue has little to do with whether one
prefers the “free market” or government. The real question is how government
organizes the market, and who has the most influence over its decisions. We are
now in a new gilded age similar to the first Gilded Age, when the nation’s
antitrust laws were enacted. As then, those with great power and resources are
making the “free market” function on their behalf. Big Tech — along with the
drug, insurance, agriculture and financial giants — dominates both our economy
and our politics.
Yet as long as we remain obsessed by the debate over the
relative merits of the “free market” and “government,” we have little hope of
seeing what’s occurring and taking the action that’s needed to make our economy
work for the many, not the few.
Robert B. Reich is a professor of public policy at the University of
California, Berkeley, and the author of the forthcoming book “Saving
Capitalism: For the Many, Not the Few,” from which this essay is adapted.
#robertreich #markandrewgroup #markandrewz #markiez #economy
#technology
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