Elizabeth Warren pulled a ninja move to turn tech angst into a crackdown with real teeth, and tech is going to suffer even if she's not president (AMZN, FB, GOOGL)

FILE - In this Saturday, Jan. 5, 2019, file photo, Sen. Elizabeth Warren, D-Mass., speaks during an organizing event at Curate event space in Des Moines, Iowa. (AP Photo/Matthew Putney, File)

  • Elizabeth
    Warren’s
    call for breaking up Amazon,
    Facebook,
    and Alphabet
    represents a real threat to those companies, even if she doesn’t
    become president.
  • Her proposal threatens to put a spotlight on those companies
    and their business practices, one that could expose them to
    reputational harm.
  • Moreover, it represents an attempt to gain support for a
    rethinking of antitrust policy, one in which regulators scrutinize
    the effects of concentrated corporate power on things other than
    just consumer prices.
  • Amazon, Facebook, and Alphabet’s power looks benign if only
    viewed from the lens of consumer prices.
  • Their power looks much worse if its broader effects are taken
    into account.

It’s been a long time since antitrust policy has been a major
topic of a presidential election.

Elizabeth Warren is trying change that — and it’s bad news for
Amazon, Facebook, and Google parent Alphabet.

Warren
declared Friday
that if she’s elected president, one of her
centerpiece policies
will be to break up those three big-tech firms
. She wants to
unwind their past mergers and split up other parts of their
business to rein in their power and increase competition.

Right now, Warren’s still
a long shot
to secure the Democratic Party nomination, much
less win the 2020 election, so the tech firms aren’t in immediate
danger. But Jeff Bezos, Mark Zuckerberg, and Larry Page would be
foolish to dismiss the threat she just unleashed.

Warren is tapping into public angst about tech’s influence on
our lives and channeling it into a legal mechanism that, however
rusted it’s become over the years, has the capacity to subjugate
even the most powerful businesses.

With a two-year election cycle just getting started, the tech
industry is now officially America’s number one corporate villain
— more dangerous than Wall Street bankers or Martin Shkreli —
and the debate is now focused on real reforms centered on
legitimate antitrust policy rather than mere populist rage. 

That’s bad news for Big Tech. Even if she’s not elected
president, Warren’s move has increased the chance that the rulers
of the tech universe are going to draw damaging fire, no matter who
is.

Warren wants to shine a spotlight on the big tech companies

The tech industry has really never faced this kind of scrutiny.
Yes, certain companies in the industry have faced antitrust
actions, including Microsoft in the famous trial at the turn of the
last century. And some of those actions, including the Microsoft
trial and the AT&T breakup of the 1980s drew widespread public
attention.

But discussion over what to do about those companies’ conduct
was generally left up to the courts or federal agencies. It wasn’t
a big topic of debate in a presidential election. In 2000, for
example, George W. Bush said little about the then-ongoing
Microsoft trial, and it was an open question when he took office
how his administration would approach the case. When his Justice
Department agreed to a settlement that stopped short of breaking up
the company, the decision came as something of a surprise.

Warren’s doesn’t want antitrust policy to be ignored this time
around. Instead, she wants antitrust policy to be in the spotlight,
and she wants a public debate about how these big tech companies
should be regulated. If she succeeds, it would be one of the first
times that corporate concentration of power has been a major
election issue since the Progressive Era of the early 1900s.

Part of the danger for the tech companies is what the bright
light that Warren wants to shine on them is going to reveal about
them — and how the public is going to react to what they see.

Neither Facebook nor Microsoft looked good in lights

For Facebook, we already have a good sense of this. The social
networking company spent much of the last two years with a Klieg
light shining on it. The company’s reputation wilted under the
intense lights, which exposed its casual treatment of customers’
private data, its questionable business practices, and the way its
core product, the newsfeed, had been hijacked to spread dangerous
propaganda.

Amid these revelations, Facebook’s user growth has stalled in
the US and Europe, its revenue growth has slowed, and people are
using it less. It’s also facing a major fine from the Federal Trade
Commission, and the exposures have bolstered calls by critics to
impose new restrictions on its business.

A similar thing happened with the Microsoft antitrust trial two
decades ago. When the government first started scrutinizing the
software giant, it was among the most respected and loved companies
with the public at large. But the revelations from the trial about
its ruthless business practices and particularly the sheer
arrogance and disdain that then CEO Bill Gates displayed in his
testimony in the case helped sour public perceptions of the
company.

Bill Gates Windows 98

Arguably, the reputational hit that Microsoft took from the
trial created as much of an opening for its competitors as did the
restrictions the government placed on its business as part of the
settlement that ended the case. In the wake of the trial, consumers
and businesses were much more willing to try rival services such as
Google’s search engine and, later, its suite of productivity
tools.

Meanwhile, other corporations were much more guarded about doing
business with Microsoft, not wanting to put themselves in the same
beholden position as the PC makers in the 90s, where the software
giant dictated all the terms of the relationship.

Amazon and Google could face similar trouble if Warren’s able to
focus the spotlight on them too.

Warren’s trying to fundamentally change antitrust policy

But Warren’s call represents a bigger danger for Amazon,
Facebook, and Google, because she’s trying to fundamentally change
the terms of the debate. Under the influence of conservative
economists from the University of Chicago, the federal government
in the early 1980s completely rethought how it scrutinized
corporate power.

Instead of viewing concentrations of corporate power in a dim
light, federal regulators generally came to view them favorably.
Rather than worrying about the effects of such power on competition
in particular markets or other potential problems of corporate
concentration, they started focusing on just one aspect: price. In
general, they only worried about enforcing antitrust laws if a
company used its market power to raise prices on consumers or was
likely to do so.

Read this:
Facebook, Google, Apple, and Amazon have too much power — so it’s
time for regulators to take on tech’s titans

But in recent years, a growing collection of academic experts on
the left have pushing back against this focus on price. Such a
limited lens ignores the broader harms caused by concentrated
corporate power, they argue. Backed in many cases by extensive
research, they contend that curtailed competition across a broad
range of industries has
kept wages low, discouraged the formation of new companies and new
job growth, hindered innovation, and undermined democratic
government
.

To date, the debate over whether to take a broader view of
antitrust policy has largely been confined to academic circles and
policy wonks. Warren, whose proposals are built on the research and
arguments of the left-wing advocates of renewed robust antitrust
enforcement, is making a bid to take their view of competition
policy mainstream by putting it front-and-center in the
presidential election.

Amazon, Facebook, and Google would prefer to stick with prices

That’s something Amazon, Facebook, and Google — not to mention
other corporate giants that dominate their own markets — really
don’t want.

If antitrust policy continues to focus just on price, Amazon,
Facebook, and Google could easily argue that they don’t pose a
problem. Facebook and Google offer their services for free to
consumers, and Amazon is renowned for the low prices it charges on
its goods.

But if regulators start scrutinizing the broader effects of
their power, and how it’s distorting their respective markets,
they’re much more likely to see the need to crack down on the
big-tech companies.

Google Larry Page map

The European Union, which isn’t fixated on consumer prices, has
already found that Google illegally tried to thwart competition by
rivals and has
fined it billions of dollars
. Publishers have complained for
years that Facebook and Google’s
dominance over the digital advertising business
has left little
room for them to build sustainable businesses.

Read this:
Europe’s competition czar is wrong — it’s long past time to break
up Google

And retailers and goods makers have accused Amazon of
undermining their businesses. In part due to Amazon’s power over
ecommerce, they feel compelled to offer their goods on its site.
But they charge that Amazon uses information it collects about
their sales to identify their most popular products and offer
competitors that undercut them on price.

Google, Facebook, and Amazon would almost certainly rather not
have to defend such practices to regulators or before a court. But
thanks to Warren, they may soon have to.

Warren may never be president, and she may never get a chance to
put in place the policies she proposed Friday. But she’s raised the
chances that Amazon, Google, and Facebook are going to see a
comeuppance whoever takes the White House.

SEE ALSO: ‘We’re
totally absent’: The US lawyer who helped start the EU’s case
against Google that just resulted in a $5 billion fine says more
needs to be done


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Elizabeth Warren pulled a ninja move to turn tech angst into a crackdown with real teeth, and tech is going to suffer even if she's not president (AMZN, FB, GOOGL)