Last week’s Congressional hearing on Big Tech showed the CEOs of the four largest tech platforms unable to answer basic questions about their own companies. In thinking about how to deal with today’s tech monopolies, Congress would do well to remember the lessons of the failed attempts to rein in Western Union’s monopoly power in the 1800s.
Editor’s note: catch up on our coverage of last week’s Big Tech hearing here.
Apologists for Big Tech lost a crucial battle last week. They have failed to persuade a single member of the Congressional Antitrust Subcommittee that nothing was wrong with the tech goliaths and that legislative intervention was unnecessary.
This failure is all the more spectacular considering the scope of the lobbying endeavor; a long, expensive, and concentrated effort to sway elected representatives that included the emergency circulation of a talking points memo in a last-ditch effort to turn the tide.
It is important to recognize the monumental shift in the public debate surrounding Big Tech. The question presented to our elected officials is no longer whether tech giants are monopolies, or whether these monopolies are harmful, but rather what should Congress do about this significant and harmful market failure.
And although much-deserved attention was given to parsing out any incriminating statements made with respect to particular examples of self-preferencing, monopoly leveraging, and general anticompetitive conduct, the Congressional hearing has been extremely informative in another, less obvious respect: the answers that the four tech CEOs provided in response to the precise and piercing questions volleyed by the members of the subcommittee could now inform Congress in determining the correct course of remedial legislative action.
During his opening statement, Rep. Sensenbrenner (R-WI) remarked that “Being big is not inherently bad. Quite the opposite. In America, you should be rewarded for success.” But if anything, the hearing proved the opposite. It not only cemented the consensus on Capitol Hill that the four major tech platforms are harmful to free markets but also the realization that, due to their gargantuan size, these companies appear to be cobbled amalgamations of various lines of business that are too big to manage as one firm.
This point was demonstrated with resounding clarity when one particular answer was constantly and repeatedly dished out by all four CEOs: “I don’t know about that…” or “Congresswoman, I don’t know.”
That particular phrase was utilized frequently by the grilled executives on multiple occasions. And when the questioning Congressmember insisted on an explanation or clarification for this lack of knowledge, the typical answer was “I wasn’t very involved.”
There is no question that at least some of these answers were motivated by a desire to avoid making incriminating statements, but it is also clear that in some cases the professed lack of knowledge was genuine and sincere.
For example, Rep. Kelly Armstong (R-ND) asked Amazon CEO Jeff Bezos a benign question: “My understanding is that Twitch, a video live streaming service that has nothing to do with Amazon’s other lines of business of cloud computing or e-commerce, allows users to stream music, but does not license the music. Is that correct?” Bezos’ answer was “I’m going to have to ask that I could get back to your office with an answer to that question. I don’t know.” It is doubtful that the CEO of a company that focused exclusively on video streaming would have not known the answer.
In other cases, this lack of knowledge, even if true, was extremely troubling.
For example, Rep. Hank Johnson (D-GA) asked Apple CEO Tim Cook whether some developers are favored over others in Apple’s App Store. Cook first replied, “That is not correct.” Johnson then moved on to provide an example: “Baidu has two App Store employees assigned to help it navigate the App Store bureaucracy. Is that true?” Cook’s reply was “I don’t know about that, sir.”
Similarly, Rep. Mary Gay Scanlon (D-PA) mentioned reports that Amazon continued to ship Amazon-branded products during the pandemic despite the company’s statement that it would only ship essential items, and asked Bezos if this was true. “I don’t know the answer to that question,” Bezos replied.
These examples explain a lot about the corporate culture at these colossal amalgamated firms. It appears that executives push middle management to achieve growth by all means necessary while putting in place policies that are supposed to protect against anticompetitive conduct or abuse but are, in reality, a dead letter frequently trampled on in pursuit of “growth” or “results.”
The hearing exposed the harms that bigness and corporate concentration bring about. The question remains whether a legislative remedy would address this problem. That is, whether Congress will realize that the US is facing not just a” competition breakdown” but also markets plagued by monopolization and corporate concentration.
Congress’ Failure to Curb Western Union’s Monopoly and Today’s Big Tech
Congress has already failed to pass remedial legislation of a similar nature once before, assuming instead that corporate concentration in a broken market was inevitable and that a dominant company—in this case, Western Union—merely lacked competitors.
In his masterful historical monograph Network Nation: Inventing American Telecommunications, Columbia professor Richard R. John has carefully documented Congress’ abortive attempts to fight Western Union’s monopoly power. On two occasions, in 1866 and 1879 Congress passed legislation aimed at propping up rivals that would compete with Western Unions’ dominance. But both attempts failed. In fact, as John demonstrates, they actually helped Robber Baron Jay Gould to take over the company in 1881. After the takeover, the frustration with Western Union on Capitol Hill was unanimous, and a bipartisan agreement emerged among members of Congress that they should, for the third time in 20 years, pass legislation to curtail Western Union’s monopoly over the telegraph business.
This bipartisan agreement greatly resembles today’s rare agreement between Republicans and Democrats that Congress should act to regulate Big Tech. Back then, however, Congress failed.
As John’s work reveals, the prevailing notion among members of Congress throughout the period was that size mattered, and that breaking up the company would greatly harm the telegraph industry. (Although Western Union in the 1880s remained the loosely-structured horizontal combine and was referred to as a collectivity—that is, as “the Western Union,” rather than simply as “Western Union.”).
Since breaking up Western Union was off the table, two alternative proposals were floated on Capitol Hill. The first, a government buyout (which was advocated for since the late 1860s) that would nationalize the telegraph industry and transfer its management to a government-run corporation or the post office. The second: attempt to prop up—for the third time—a large private corporation that could rival Western Union’s size and inject competition into the monopolized market.
These two competing solutions gave rise to competing political factions, each viewing the other’s solution as inadequate and even disastrous. A government buyout angered the proponents of free-markets and private enterprise, while the propping up of private rivals raised real concerns of corruption and nepotism in light of Gould’s past maneuverings. Congress ultimately arrived at a deadlock. It was determined to create competition but was hesitant to break up corporate concentration.
Congress’ legislative stalemate regarding Western Union is even more remarkable given the pace and decisiveness with which State attorneys general moved to break up the monopolies of the time.
Frank William Taussig, a prominent Harvard economist who reflected on the events of that period thirty years later, argued that one of the biggest general fallacies adopted at the close of the century was that “Legislation cannot prevent monopoly, nor can it prevent its concomitant of ever-growing inequality.”
It seems that then, as today, many Big Tech promoters and detractors presupposed that the size of these corporations is an essential feature in the deployment of the innovative technology services they provide. In light of presuppositions, some critics on the left today support the nationalization of Amazon or Facebook, while defenders of the tech platforms insist that even a slight disturbance of the status quo would be disastrous for the digital economy.
These voices are eerily reminiscent of positions held during the feverish efforts of the 1880s to nationalize Western Union. Today, as in the 1880s, the dogma underlying this view is that these firms employ cutting-edge technologies that can only be utilized effectively on a grand scale.
In his 1921 treatise The Financial Policy of Corporations, Arthur Stone Dewing, who was by no means a socialist or even a progressive, reflected that the public antimonopoly debate during the 1880s and 90s was plagued by the false belief that “bigger is better” and that all sectors of the economy are doomed to consolidate in a Darwinian process of brutal corporate natural selection.
Foremost in Dewing’s analysis was the inherent diffusion of responsibility in giant corporations. As he bluntly put it: “There comes a point where the man in the twentieth story of an office building cannot make up, no matter how brilliant he may be, for the waste and shiftlessness of a variety of superintendents in many mills hundreds of miles away in all directions”. Anecdotal evidence shows the same problem plaguing the giant tech corporations of today.
Dewing’s observations can be easily applied to the performance of the Tech CEOs during last week’s hearing. Even if Zuckerberg, Cook, Pichai, and Bezos are truly trying to manage their sprawling digital kingdoms as if they were a single firm, it’s become abundantly clear that the enormous detail involved is too great a burden for a single mind. It was clear that important matters passed unnoticed, and that middle management, using Dewing’s own words “degenerated into automatic parts of a machine, without initiative or power of assuming responsibility.”
Dewing went on to conclude that hard evidence “tends to show that large-scale production is not of itself necessarily economical, and if large-scale production is not necessarily economical, to show that it is inevitable is difficult.”
Dewing’s conclusions, although made 100 years ago about events that took place 40 years before then, are supported by a recent report published by Institute of Local Self Reliance [the author is a Fellow at the ILSR] that found that between 2013 and 2019, the standard rate for storing inventory in Amazon’s warehouses during off-peak months rose 67 percent. And that storage rates for standard-sized items (those under 20 pounds and within certain dimensions) are now 75 cents per cubic foot per month during the first part of the year and $2.40 during the peak season.
Most notably, Amazon’s storage fees are much higher than those of its competitors, according to several sources. A 2019 survey of 600 warehouses across the US and Canada, for example, found an average rate of only 50 cents per cubic foot.
If we assume that Amazon does not charge monopoly rents for these services, which Amazon will argue it doesn’t, the increase in fees must demonstrate that Amazon has become less efficient. That is, Amazon’s growth rendered it less efficient in storing goods, and at this point the prices it charges the consumers of its storage services are much higher than the national average.
Last week, Congress made history when it uniformly took the stance that Big Tech is a threat to American democracy and free markets. But in order to achieve its goal of successfully curbing the monopoly power of the big tech platforms, Congress must first reject the presupposition that bigger is necessarily better and perceive that breakups, which reduce corporate concentration—as opposed to nationalization or the propping up of large competitors—would be the most expedient legislative solution.