Foreign Policy: “America has a Resilience Problem”

As in prior moments of contestation, we are starting to hear the argument that America must protect its domestic monopolies to ensure we stay ahead on the global stage. Rather than double down on promoting free and fair competition, this “national champions” argument holds that coddling our dominant firms is the path to maintaining global dominance.

We should be extraordinarily skeptical of this argument and instead recognize that monopoly power in America today is a major threat to America’s national interests and global leadership. History and experience show that lumbering monopolies mired in red tape and bureaucratic inertia cannot deliver the breakthrough technological advancements that hungry start-ups tend to create. It is precisely these breakthroughs that have allowed America to harness cutting-edge technologies and have made our economy the envy of the world. To stay ahead globally, we don’t need to protect our monopolies from innovation—we need to protect innovation from our monopolies. And one of the clearest illustrations of how consolidation threatens our national interests is the risk monopolization poses to our common defense.

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A basic tenet of the American experiment is that real liberty means freedom from economic coercion and from the arbitrary, unaccountable power that comes with economic domination. Our antitrust laws were passed as a way to safeguard against undue concentration of power in our economic sphere, just as the Constitution creates checks and balances to safeguard against concentrated power in our political sphere.

Lina M. Khan

I haven’t been terribly impressed by Lina Khan’s ideas of antitrust at first, but I have to say that she seemed to be doing a good job as FTC chair during the Biden administration – as evidenced by the alarmed reactions of tech CEOs. The example she cites in this speech – Boeing being crowned ‘national champion’ and allowed to eliminate its domestic competition – is quite relevant, given the numerous issues the company has faced recently, which have been linked to decreasing quality and cost cutting through offshoring.

Engadget: “Jon Stewart says Apple asked him not to host FTC Chair Lina Khan”

I wanted to have you on a podcast and Apple asked us not to do it, Stewart told Khan. They literally said, Please don’t talk to her.

In fact, the entire episode appeared to have a “things Apple would let us do” theme. Ahead of the Khan interview, Stewart did a segment on artificial intelligence he called the false promise of AI, effectively debunking altruistic claims of AI leaders and positing that it was strictly designed to replace human employees.

They wouldn’t let us do even that dumb thing we just did in the first act on AI, he told Khan. Like, what is that sensitivity? Why are they so afraid to even have these conversations out in the public sphere?

I think it just shows the danger of what happens when you concentrate so much power and so much decision making in a small number of companies, Khan replied.

Steve Dent

I haven’t been terribly convinced by Lina Khan’s lines of attack against Amazon, but it’s good to have someone actively challenging Big Tech’s relentless accumulation of power nevertheless. That Apple would try to censor her, a government official, is both unsurprising and concerning for the state of American democracy. Naturally – because the tech press is endlessly enamored with Apple and everyone loves to hate on the federal government – this attracted far less attention online than musicians removing their catalogs from Spotify, ostensibly in protest against Joe Rogan’s podcast two years ago.

Politico: “French hit job: How Macron took down an American in Europe”

In a matter of mere days, the selection of U.S. antitrust expert Fiona Scott Morton as the EU’s top competition economist has snowballed into a major geopolitical faux-pas that saw France launch a rearguard action against the EU and challenged the stature of one of Brussels’ highest-profile figures, Competition Commissioner Margrethe Vestager.

On Wednesday, France won. After a week of campaigning, including a blistering public rebuke from President Emmanuel Macron, Scott Morton preemptively resigned.

The climbdown marks a victory for Paris — and a steely reminder of the formidable power France wields within the EU.

It also represents a potentially damaging setback for Vestager. Her ill-fated move to install Scott Morton comes as she is trying to win political support to become head of the European Investment Bank, the EU's lending arm. While France doesn’t have veto power over the job, its support is typically crucial.

Suzanne Lynch & Elisa Braun

I’m not entirely comfortable linking to Politico (more on that in a future post, but the use of ‘hit job’ in this article’s title might offer a hint), but in this case it’s indicative of the biased tone of this debate, which raged on for days on Twitter – one of the few moments when Twitter felt like its old, vibrant self.

The Verge: “Microsoft’s Activision Blizzard acquisition approved by EU regulators”

The European Commission has identified remedies to allow for the deal to go ahead through 10-year licensing deals that Microsoft has offered to competitors. These include a free license to consumers in EU countries that would allow them to stream via any cloud game streaming services of their choice all current and future Activision Blizzard PC and console games that they have a license for. Cloud providers will also be offered a free license to stream these games in EU markets.

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While Activision Blizzard CEO Bobby Kotick welcomed the EU approval and says the company intends to meaningfully expand our investment and workforce throughout the EU, the CMA defended its own position.

The UK, US and European competition authorities are unanimous that this merger would harm competition in cloud gaming, says the CMA in a statement. Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next 10 years. They would replace a free, open and competitive market with one subject to ongoing regulation of the games Microsoft sells, the platforms to which it sells them, and the conditions of sale. This is one of the reasons the CMA’s independent panel group rejected Microsoft’s proposals and prevented this deal. While we recognize and respect that the European Commission is entitled to take a different view, the CMA stands by its decision.

Tom Warren

I haven’t followed this story particularly closely, but this split decision with an approval from the European Commission and a rejection by the UK’s CMA reflects the challenges of regulating mergers and acquisitions when the companies have gone global, but the regulators are still confined to a single country or region. It will be interesting to see how things proceed if, after appeals and the pending trial in the US, the deal will remain only partly approved, with some regulators giving the go-ahead, while others opposing it. The US decision will probably weigh in most heavily, as both companies are based there, but there are precedents where a smaller country has prevented a deal, like Facebook being ordered by the UK competition authority to sell the Giphy website last year.

The Wall Street Journal: “The Secret Talks that could have prevented the Apple vs. Facebook War”

In the years before the change, Apple suggested a series of possible arrangements that would earn the iPhone maker a slice of Facebook’s revenue, according to people who either participated in the meetings or were briefed about them. As one person recalled: Apple officials said they wanted to “build businesses together”.

One idea that was discussed: creating a subscription-based version of Facebook that would be free of ads, according to people familiar with the discussions. Because Apple collects a cut of subscription revenue for apps in its App Store, that product could have generated significant revenue for the Cupertino, Calif., giant.

The companies also haggled over whether Apple was entitled to a piece of Facebook’s sales from so-called boosted posts, said people familiar with the matter. A boost allows a user to pay to increase the number of people that see a post on Facebook or Instagram. Facebook, which considers boosts ads, has always contended that boosts are a form of advertising, in part because they are often used by small businesses to reach a bigger audience, said one of the people.

Apple, which doesn’t take a cut of advertising from developers, argued that Facebook boosts should be considered in-app purchases, according to a person familiar with the matter. Apple’s standard terms would entitle it to take a 30% share of those sales.

Salvador Rodriguez

Additional confirmation for something many people have been saying for a while: Apple’s supposedly privacy-focused changes to tracking on iOS are primarily a means to disadvantage competitors and grow its own ad business. While these secret negotiations with Facebook were not previously reported, pressuring other businesses, large and small, for a cut of their iOS revenues has become common practice for Apple – unless they sign a hefty licensing deal, as is the case with their Google search agreement.

The Guardian: “The financial scandal no one is talking about”

The disappearance of one of the four major firms – for example through the loss of licences following a criminal conviction, as happened to Arthur Andersen & Co in 2002 – presents an unacceptable threat to auditing. So, in what one former big-four partner described to the FT as a “Faustian relationship” between government and the profession, the firms escape official scrutiny even at low points such as the aftermath of the financial crisis. They are too few to fail.

The major accountancy firms also avoid the level of public scrutiny that their importance warrants. Major scandals in which they are implicated invariably come with more colourful villains for the media to spotlight. When, for example, the Paradise Papers hit the headlines in November 2017, the big news was that racing driver Lewis Hamilton had avoided VAT on buying a private jet. The more important fact that one of the world’s largest accountancy firms and a supposed watchdog of capitalism, EY, had designed the scheme for him and others, including several oligarchs, went largely unnoticed.

Richard Brooks

While antitrust has become a hot topic in the tech sector, other branches are profiting from market concentration and oligopolistic arrangements as well. The Big Four auditing companies, despite their overt role of insuring proper reporting standards, have failed at this task numerous times without being held accountable; meanwhile, their consulting arms are helping corporations and rich people shield taxable incomes from authorities through various, albeit legal, loopholes. I would argue that this is a case where society would benefit from tighter government regulations, or even public agencies taking over some of the responsibilities of private auditing companies. Bureaucracy is often frowned upon, but if it improves tax collections and corporate governance, it might be well worth it.

The Wall Street Journal: “Google, Facebook Agreed to Team Up against Possible Antitrust Action, draft lawsuit says”

The redacted lawsuit filed last week makes no mention of Facebook Chief Operating Officer Sheryl Sandberg. According to the draft version, Ms. Sandberg signed the deal with Google. The draft version also cites an email where she told CEO Mark Zuckerberg and other executives: “This is a big deal strategically.”

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The final version of the lawsuit didn’t make public details about the deal’s value. The draft states that starting in the deal’s fourth year, Facebook is locked into spending a minimum of $500 million annually in Google-run ad auctions. “Facebook is to win a fixed percent of those auctions”, the draft version says. The lawsuit says “Facebook is to [REDACTED].”

According to the draft version, an internal Facebook document described the deal as “relatively cheap” when compared with direct competition, while a Google presentation said if the company couldn’t “avoid competing with” Facebook, it would collaborate to “build a moat”. The redacted lawsuit filed last week doesn’t include those quotes.

Ryan Tracy & John D. McKinnon

A classic case of collusion – and a big vulnerability for Google in this lawsuit, because agreements to fix prices can be easier to prove than the states’ other accusations, as the article notes further down the line. At the end of a difficult year, US regulators finally taking action against the market concentration in Big Tech can surely be counted as one of the positive developments of 2020.