Sanders’s plan is important and laudable, but his proposal to use a tax on targeted advertising to fund journalism is dangerous. 

 

 

Bernie Sanders, Photo by Gage Skidmore [CC BY-SA 2.0]

 

Donald Trump is not the only politician obsessed with the press. Politicians that try to lure, buy, bribe, manipulate, delegitimize, punish, or intimidate outlets and journalists have been a fixture in most of the world since there was a news media.

 

It is far less common, however, to see politicians come up with concrete and detailed plans to strengthen the independence, integrity, and diversity of the news ecosystem. That is why Bernie Sanders’s short plan to “save journalism,” published last month in the Columbia Journalism Review, is laudable and important.

 

 

In his CJR piece, Sanders notes that the business model of newspapers in general, and local newspapers in particular, has been decimated. His diagnosis is accurate, and Sanders’s proposed measures to reverse consolidation and concentration in the news business point in the right direction. But Sanders’s diagnosis also misses a very fundamental part of the problem, and because of this, his plan will not solve the long-term structural problem that plagues the news industry. Moreover, it may have some dangerous unintended consequences.

 

Sanders’s basic premise is that we are currently witnessing an “assault on journalism by Wall Street, billionaire businessmen, Silicon Valley, and Donald Trump.” Most of these players, each in their own way, did harm the independence and business of the news media.

 

But characterizing these developments as an “assault” would be wrong. It’s mostly a technological shift that destroyed the profitability of newspapers. Craig Newmark did not want to destroy journalism when he launched Craigslist in 1995, yet the outcome was a collapse of almost $20 billion in newspapers’ revenues due to the loss of their classified ad business. Nor did Larry Page and Sergey Brin have a secret, sinister plan to take down journalism when they launched AdWords and AdSense, providing advertisers with a much more efficient method of advertising than newspapers, TV, and radio were ever able to offer.

 

 

It’s not the “forces of greed,” to use Sanders’s language, that are destroying journalism—it’s the economics of information in the digital age that has decreased newspapers’ capacity and incentives to produce investigative and accountability journalism.

 

The news media has always been captured to some extent by powerful players in politics and the corporate sector. There has always been tension between the independence and integrity of the news media and its sources of funding and revenues, its owners, and its audience. News in general, and investigative news, in particular, is a public good. But in most cases, its producers are unable to monetize the societal value it creates.

 

Sanders’s plan contains four main policy proposals:

 

1. Stop or reverse mergers and reduce consolidation in the news media to create a more diverse and competitive market.

 

2. Strengthen the bargaining power of journalists vis-à-vis their employers and force merging outlets to disclose plans for layoffs before mergers. 

 

3. Explore new ways to empower media organizations to collectively bargain with digital monopolies.

 

4. Tax platforms’ revenues from targeted advertising and use the proceeds to fund non-profit, civic-minded media.

In the past year, a group of seven scholars and experts commissioned by the Stigler Center at the University of Chicago Booth School of Business looked into the same problems and changes facing independent journalism. Below is a brief review of Sanders’s recommendations through the eyes of our report:

 

1. Stopping mergers and cross-ownership of newspapers and television channels is an important step. Our report proposes changing the criteria for merger rules in the news media market, from consumer welfare to citizen welfare. Regulators will have to asses what the merger will do to the plurality of the news market, rather than focus solely on the benefits or harms to the consumers of the merging entities.

 

2. While strengthening the power of journalists is crucial, we believe that without addressing the core problem, the economic model of the news media, this will not help much. In a dying industry, newsrooms will not be able to stand against pressures from politicians and corporations. Our report proposes funding journalism through a competitive voucher system funded by a general budget that will prevent any interference from politicians or advertisers.

 

3. Sanders is not the only one that suggests empowering news outlets in their negotiations with digital platforms and using a tax on targeted advertising to fund journalism. These proposals have been raised by both publishers and politicians in the past few years. Though it looks like an obvious step, we believe this is a dangerous proposition.

 

The marriage between advertising and news has always been fraught, and the incentives to produce quality content have always been distorted. The relationship between targeted advertising and news is even more problematic. Digital monopolies act as curators and news editors de facto, yet they lack the incentives to prioritize quality content and reduce junk or fake news.

 

In his plan, Senator Sanders expresses concern about “clickbait” journalism—visceral, sensational, polarizing, and low-quality information. Yet favorable contacts with platforms that allow publishers to distribute their news through such algorithms would only incentivize “clickbait” dynamics.

 

Funding journalism with proceeds from targeted advertising dollars is even more dangerous. It has the potential to create an unholy alliance between journalists, who should act as the watchdogs of democracy, and tech and data monopolies. In economics jargon, the monopolists that currently threaten open markets and democracy will “share the rents” of their network effects with the news media.

 

This is a bad idea. There should be no direct linkage between the taxes that tech giants pay and the funding of journalism. Funding for journalism should come from the general budget, and any rules and regulations put in place to protect journalism should seek to limit the monopolistic control of tech platforms’ algorithms over the consumption of news.

 

Guy Rolnik is a Clinical Associate Professor for Strategic Management at the University of Chicago Booth School of Business and a ProMarket editorial board member.

 

 

 

The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy