Taming the giants – a call to arms for policymakers and regulators

Alok Prasanna Kumar February 12, 2019

Tim Wu’s The Curse of Bigness is probably the most important book you’ll read this year.

I’m not exaggerating. The future of human freedoms, multi-party liberal democracies, and continued technological innovation may depend on Wu being taken seriously and his warnings acted upon.

Wu is that rare breed of academic who combines bold-thinking and extremely lucid writing — a rare combination — which makes him readable and thought-provoking. The Curse of Bigness also takes its title very seriously and is, therefore, a small book that can be devoured in the course of a long-distance plane ride.

Its length and clarity of thought aside, Wu’s book makes two novel arguments that I want to discuss given their relevance not only to readers in the United States or those interested in tech giants, but also to the average person who is possibly reading this on a Windows PC or Apple device, perhaps using Google Chrome with open Facebook and Amazon tabs.

The political rationale for antitrust law

The so-called Chicago School of economists dismisses the need for competition law and policy (‘antitrust law’), arguing that monopolies are not really bad and the efforts to break them are unnecessary and expensive. Wu takes a wrecking ball to this approach with glee — but backed by solid academic rigour.

Central to Wu’s thesis is the political element of the Sherman Act, 1894, the first antitrust law in the United States. ‘Trust-busting’ was aimed not just at consumer welfare (as the Chicago School economists disingenuously claim) but also at actively attacking the unchecked economic power enjoyed by the likes of John D Rockefeller and JP Morgan. Wu gives us a fascinating glimpse into a period of American history when perhaps the greatest fortune in the history of humanity was made by one man; when monopolies were not only to be tolerated but actively encouraged; and when one man could single-handedly save the US economy on the basis of his personal wealth.

The ‘Gilded Age,’ as it has come to be known, was also when politicians and citizens worried about the political and economic clout wielded by the largest trusts of the day. What Wu does is reframe competition law as a political response to such trusts and whose political roots, unfortunately, have been de-emphasized over the years thanks to the dominance of the Chicago School economists.

The ‘chief villain’ in the piece is Robert Bork. Almost single-handedly, he got lawyers and judges to read the Sherman Act and imagine that legislators were actually concerned with prices and not about promoting competition and breaking up monopolies as an end in itself. Bork’s prescription is deceptive. Instead of getting bogged with the hard question of whether a particular conduct was anti-competitive, all lawyers and judges had to do was answer the relatively simpler (but also incomplete) question of whether it affected consumer welfare or not.

Of course, Wu might be slightly exaggerating Bork’s role as he does not discuss in much detail the increasing acceptance of ‘Reaganomics’ in American society and the enormous influence of corporate money power on the American polity. Nor does Wu call for a wholesale rejection of economic theory in the matter of competition law. It is necessary to identify the relevant product and geographic market, and also to understand the effect of a monopolist’s conduct on the market. He writes that it was not only economics and numbers that drove the argument for antitrust laws but also the political need to check the economic power wielded by the trusts. Wu attacks the intellectual roots of the Chicago School’s ideas and offers an alternative account of the proper role of competition law in modern society.

What does this have to do with tech? Plenty.

The true history of the internet

One of the most interesting parts of this book is a sort of revisionist history of the internet told from the point of view of antitrust actions. Wu argues that the internet and all the business built around it owe a huge debt to three big antitrust cases undertaken by the US Department of Justice. Wu suggests that in breaking up AT&T, pursuing Microsoft over its dominance over the PC market, and attempting to break up IBM, the DOJ (unwittingly) birthed the internet as we know it today.

It is his argument that such big cases (even when they ostensibly go nowhere, as with the IBM one) shake up a stagnant industry and spur innovation and competition. He argues that IBM reined its worst instincts when it came to the software sector for fear of regulatory action; that the end of AT&T’s (government-sanctioned) monopoly allowed people to plug in modems and get on to the internet; and that the forced unbundling of Microsoft’s browser allowed competition from browsers such as Google Chrome, preventing Microsoft from becoming the sole gatekeeper of the internet.

Perhaps it is for historians to definitively confirm or deny Wu’s narrative but it is not possible to deny that the internet as we know it would be very different if none of these major cases had taken place.

One further development in relation to competition and the internet that Wu is silent about is net neutrality. Given his own pioneering coining of the term, it is somewhat surprising that he makes no mention of it. Net neutrality is not just an issue of telecommunications or infrastructure but an effective a priori rule put in place to ensure that monopolies don’t develop when it comes to information. Unfortunately, the US Federal Communications Commission under President Donald Trump doesn’t seem to think so, joining a curious coalition of the unwilling, including Australia and China, while pretty much every other major country does. India’s telecom regulator can be rightly credited with having gotten its approach right in framing one of the toughest net neutrality regulations in the world. (Disclosure: Vidhi Centre for Legal Policy assisted India’s telecom regulator in the drafting of the regulations.)

If antitrust built the internet of today, it’s somewhat disconcerting that we hear little or no regulatory action against the likes of Facebook and Google.

Timothy Wu

The dangers ahead

Facebook just announced that it was going to try and integrate Instagram, WhatsApp and Facebook Messenger in a seamless way. The prospect is truly frightening, not just from a data privacy point of view but from a competition perspective as well. Any potential competitor to WhatsApp will now have to automatically compete with Instagram and Facebook. It also gives Facebook a vast amount of data to build a truly unbreachable moat around itself from future competitors. Provided, of course, it doesn’t just buy any and every moderately successful competitors using all the tactics from the heyday of the Rockefellers and the Morgans. In fact, as Peter Thiel is never shy of repeating, “Competition is for losers.”

What do governments do then? Wu’s book is thin on the specifics but the approaches he suggests have some merit. He calls for a ‘Neo-Brandeisian approach’ — referring to Justice Louis Brandeis, one of the pioneers of competition law — as the need of the hour. Wu cites the example of the European Union as a jurisdiction that gets the importance of taking on tech giants using competition law and policy. The approach is what is commended — that competition is worth preserving in and of itself, whether it leads to lower prices or consumer welfare. The Telecom Regulatory Authority of India (TRAI) took the same approach when it came to net neutrality, and the Competition Commission of India (CCI) has taken some tentative (if somewhat, incoherent) steps towards the same in its order against Google.

Will the two regulators have convergent approaches when it comes to dealing with internet giants? At the moment, they are at loggerheads over jurisdictional issues in respect of Reliance Jio’s complaints against Vodafone-Idea and Airtel over cartelisation. The Supreme Court has, however, called for a temporary truce in the matter, giving the lead to TRAI in respect of telecommunications companies. As it stands, the Supreme Court’s judgement gives TRAI the first bite of the cherry in regulating the telecom sector but does not answer the question as to what happens if the two regulators take contrary approaches. If TRAI, for instance, fails to act on cartelisation among the few telecom operators left in the field, can CCI step in and order their break-up and grant of fresh licences? We will perhaps know for sure in the future but regulatory competition may not be a bad thing either!

One could even argue (as has been done in some quarters) that the Indian government’s foreign direct investment regulations preventing foreign players from selling their own products are aimed at preventing the likes of Amazon from entering and putting an end to competition in downstream industries. However, the fact that this, at the moment, applies only to foreign-owned companies and not to domestic ones makes one question the intent of this policy. Time will tell if it has indeed been successful in preventing the accumulation of market power by e-commerce retailers.

The internet, as we know it, in 2019, is shaped increasingly by a small handful of large, well-funded and powerful companies. If you go solely by the mottos and taglines of these companies, it is easy to believe that they are in this for nothing more than sunshine and laughter. The reality, as we are finding out, is different. One of the hardest problems going forward is being able to understand how to limit the economic power of software giants, built on the back of network effects and a mountain of capital, and seemingly able to swallow their competition with impunity. Unchecked economic power almost translates inevitably into political power with devastating effects for democracy and freedom, as the experience of Nazi Germany showed.

Wu’s book is a call to arms for policymakers and individuals everywhere to confront the dangers facing them.


Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures, Vijay Shekhar Sharma, Jay Vijayan and Girish Mathrubootham among its investors. Accel Partners and Blume Ventures are venture capital firms with investments in several companies. Vijay Shekhar Sharma is the founder of Paytm. Jay Vijayan and Girish Mathrubootham are entrepreneurs and angel investors. None of FactorDaily’s investors has any influence on its reporting about India’s technology and startup ecosystem.