21st Century Robber Barons

A current concern is the re-emergence of organised money – the newly dominant, amoral, self-perpetuating financialised establishment. The robber barons emerged late 19C and in US were treated to anti-trust legislation such as the Sherman Act which broke up Standard Oil in 1911 and regulation as a public utility was inflicted on such as AT&T in 1913. Nevertheless the financial sector continued to dominate till the 1929 Wall St Crash, after which the world became, for a while including WW2, more cynical of the sector and its role.

Client experience with the Office of Fair Trading which enforced both consumer protection and competition law, and the Monopolies and Mergers Commission tells an interesting story. In the 1970s they were powerful bodies, which prevented anti-competitive M&A and were empowered to break up anti-competitive corporates. Since the 1980s, and especially since 1986 ‘big bang’ computerisation of capital markets, those regulatory powers have been progressively weakened.

The current generation of robber barons, the creators and controllers of the IT titans such as Apple, Google, Facebook, Amazon etc, are quite different. A year ago the Economist published an article (Taming the Titans, The Economist, 20.1.18) which acknowledged they had become increasingly dominant. Though The Economist was predisposed to defending them, it recognised the dangers they posed and raised the question of how they should best be controlled. Increasingly they not only dominated the market but were the market themselves (as platforms).

Many of their services appear to be free but customers pay for them by giving away their data. The Economist estimated their then current stock market valuations suggested they were expected to “double or even triple in size in the next decade.” Amazon had 40% of on-line shopping in US. Facebook had over 2bn monthly users, holding sway over the media industry. And in some countries, Google processed over 90% of web searches, Google and Facebook controlling over two thirds of online ad revenues.

While things move fast and some new tec giant killing upstart is feasible, the probability is fading as barriers to entry are rising. Facebook owns the world’s largest pool of personal data. Amazon has more pricing info than any other firm and is ever increasing its heft. China’s tec firms have the scale to compete but have yet no access to Western consumers. If trends continue consumers will suffer.

Better use could be made of existing legislation eg preventing anti-competitive takeovers, such as Facebook’s acquiring WhatsApp and Instagram. Also, it should be recognised that personal data has become the currency with which customers pay for products and services. So, just as in 19C, intellectual property was given protection by patent law, so the ownership and exchange of data also needs specific and limited protection laws.

The Economist concluded with the following points:
“If a user so desires, key data should be made available in real time to other firms – as banks in Europe are now required to do with customers’ account information. Regulators could oblige platform firms to make anonymized bulk data available to competitors in return for a fee, a bit like the compulsory licensing of a patent. Such data sharing requirements could be calibrated to firms’ size: the bigger platforms are the more they have to share. These mechanisms would turn data from something titans hoard to suppress competition, into something users share to foster innovation.

None of this will be simple. But it would tame the titans without wrecking the gains they have brought. Users would find it easier to switch between services. Upstart competitors would have access to some of the data that larger firms hold and thus be better equipped to grow to maturity without being gobbled up. And shareholders could no longer assume monopoly profits for decades to come.”

But, no action has been taken and even serious discussion has been limited.

On 15th March 2019 it was reported that Apple had unveiled their strategic push into video, news and finance, boosting its digital media and cloud services and reducing reliance on the iPhone. Apple chief executive Tim Cook unveiled a revamped Apple TV app which includes both original tv plus the ability to subscribe to third-party services, a games subscription service, a credit card in partnership with Goldman Sachs and a digital news and magazine bundle. These initiatives, while not particularly innovative in the Apple tradition, threaten to substantially increase Apple’s market power against the common good. Similar initiatives by the Facebooks, Googles and Amazons of this world, can be anticipated.

The proposal to use current legislation, eg to revitalise the OFT and M&MC in UK, so as to unscramble anti-competitive M&As and prevent them being repeated, seems a sensible start. As does applying patent law principles to big data to require data sharing.
Even the Economist agrees with that, but will it happen?

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