Facebook Isn’t a “Monopoly” — Let’s Not Make it Into One

Facebook co-founder Chris Hughes, adding his voice to calls to “break up” the social media giant,  calls it a “powerful monopoly, eclipsing all of its rivals and erasing competition.” In recent years, we’ve seen similar claims, and heard demands for similar remedies, aimed at Google, Amazon, and other large companies.

Are these claims true? Are the large “dot-coms” monopolies in any real sense? The short answer is no. Using the “m-word” is a way of avoiding the necessity of making a sound argument for a desired policy outcome.

Whether that avoidance strategy is due to laziness, or to not having a sound argument to make, or some other reason, falls outside the scope of a short op-ed column. But the first step in forcing better arguments is quashing bad ones, so let’s look at what “monopoly” actually means.

According to Oxford Living Dictionaries “monopoly,” as the term is used by the Facebook-breaker-uppers, is “[a] company or group having exclusive control over a commodity or service.”

What commodity or service is Facebook a “monopoly” in?

Certainly not social media. You’ve probably heard of Twitter. You may have also heard of Diaspora, Minds, MeWe, Mastodon, Gab, and a number of other companies, sites, and apps offering the ability to post updates to friends and followers and discuss those updates.

Advertising? Not even close. Does the name Google ring any bells? How about Microsoft? There are plenty of smaller web advertising networks you probably haven’t heard of as well.

Then there’s messaging and chat. Yes, Facebook owns Messenger and WhatsApp. But it doesn’t own Discord or Slack or Signal or Skype or Telegram or any of hundreds of other messaging/chat apps.

Facebook has lots of users. Facebook makes lots of money. But Facebook isn’t a “monopoly” in any of the services it offers. It has loads of competitors, many of them doing quite well, and its users and customers have the option of using those competitors instead of, or in addition to, Facebook any time they like.

More importantly, Facebook has no ability to prevent new competitors from entering the markets it serves. And therein lies a political paradox.

While so far resisting the “breakup” talk, Facebook and its CEO, Mark Zuckerberg, have recently become increasingly receptive to government regulation.

Why? Because Facebook is big enough and rich enough to cheerfully comply with whatever regulations its detractors can come up with, and to hire armies of lobbyists to “capture” and shape that regulation. It can probably even survive and profit from a supposed “breaking up.”

Your brother-in-law’s basement social media or advertising or messaging start-up, on the other hand, probably isn’t well-financed enough to navigate a substantial federal regulatory regime or to successfully fight for its life if the regulators come down on its head even once.

Facebook isn’t a monopoly.

Facebook isn’t close to becoming a monopoly.

But if the people incorrectly calling it a monopoly get their way, they’ll have taken the first giant step toward making it into one.

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Big Business: Recasting the Anti-Hero

Tyler Cowen’s previous book, Stubborn Attachments, is right in general, but wrong on particulars.  His latest book, in contrast, is largely right on both.  The world needed a new book to be pro-market and pro-business at the same time, and Tyler’s Big Business delivers the package.  I’m almost tempted to quote Keynes:

In my opinion it is a grand book … Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement.

Highlights include:

1. A popularization of Bloom and van Reenen’s work on the power of management:

We must take a moment to appreciate the particular character of American business. By global standards, its overall performance is remarkably impressive. Stanford economist Nicholas Bloom and a group of co-authors studied and compared management practices in some of the major economies, including the United States. Their survey assessed how well a workplace uses incentives, the quality of performance measures and reviews, whether top management aims at long-term goals, whether top creators are well rewarded, and whether the firm attracts and retains quality employees, among other relevant metrics…

So at the end of all of these measurements of management quality, which country comes out on top? The United States is a clear first…

Management really matters. Let’s say we take two American plants producing comparable wares, but one of those plants is in the 90th percentile in terms of productivity, while the other is in the 10th percentile. The former plant will have a productivity level four times higher than the latter plant, due to superior management practices. It has been estimated that Chinese firms could increase their productivity by 30–50 percent and Indian firms could do so by 40–60 percent merely by improving their management practices up to an American level of quality.

2. Business practices and promotes good manners and civility.  Despite modern political hysteria…

the world of American business has never been more productive, more tolerant, and more cooperative. It is not just a source of GDP and prosperity; it is a ray of normalcy and predictability in its steady focus on producing what can be profitably sold to customers. Successful businesses grow dynamically, but they also try to create oases of stability and tolerance in which they can perfect their production methods and which help to attract and retain talent…

American big business in particular has led the way toward making America more socially inclusive. McDonald’s, General Electric, Procter & Gamble, and many of the major tech companies, among many others, were defining health and other legal benefits for same-sex partners before the Supreme Court legalized gay marriage… This push for tolerance shouldn’t come as any surprise. Big business has lots of customers and relies on the value of brand names. It doesn’t want any group of those customers to feel put out or discriminated against or to have cause for complaint…

3. Some deliberate (?) understatement on fraud:

Most of all, business is criticized for being fraudulent and ripping us off. While there is plenty of fraud in business, the commercial sector isn’t any more fraudulent than individuals in other capacities, and it may even be somewhat less fraudulent.

I’d say there’s no “may even be somewhat less fraudulent” about it!  Who wouldn’t trust Amazon or Uber or Airbnb over a random American who promised to provide the same product?

4. Business thinks long-term, usually:

It can be very difficult to distinguish between short-termism and an inability to see into the future. The failed Netflix competitors were mainly not venal rip-off artists; rather, most of them genuinely did not see that providing massive amounts of streaming content would prove to be a winning strategy. If half of the time businesses think too short-term and the other half of the

time too long-term, there will be thousands of valid examples and anecdotes about excessive short-term thinking and planning, and they aren’t necessarily related to CEO dishonesty.

And:

Of course, markets also think long-term when it comes to successes, and that long-term mentality is encouraged through CEO pay structures. Consider Amazon, which has a stratospherically high share price, even though the quarterly earnings reports usually fail to show a sizable profit. Whether you think that valuation has been justified or not, it is a clear example of how markets can consider the broader, longer-term picture. Circa 2018, Jeff Bezos ended up as the richest man in the world, and he achieved that status by sticking with some long-run goals.

5. Employment may not be fun, but it’s meaningful and prevents misery:

Another way to think about the non-pay-related benefits of having a job is to consider the well-known and indeed sky-high personal costs of unemployment. Not having a job when you want to be working damages happiness and health well beyond what the lost income alone would account for. For instance, the unemployed are more likely to have mental health problems, are more likely to commit suicide, and are significantly less happy. Sometimes there is a causality problem behind any inference—for instance, do people kill themselves because they are unemployed, or are they unemployed because possible suicidal tendencies make them less well suited to do well in a job interview? Still, as best we can tell, unemployment makes a lot of individual lives much, much worse. In the well-known study by economists Andrew E. Clark and Andrew J. Oswald, involuntary unemployment is worse for individual happiness than is marital divorce or separation.

6. Even much-maligned low-skilled jobs have unsung psychological benefits:

In contemporary American society, poorer individuals are more likely to have problems with divorce, spousal abuse, drug addiction in the family, children dropping out of school, and a variety of other fairly common social problems. These problems plague rich and poor alike, but they are more frequent in poorer families and, furthermore, very often wreak greater devastation on poorer families, which have fewer resources to cope with them. The workplace, however, is a partial equalizer here. At least in this sample, the poorer individuals found relatively greater solace in the workplace than did the richer individuals.

7. Employers’ alleged mistreatment of individual workers is often for the greater good of their whole team:

Along these lines, I hear so many criticisms that companies do not give workers enough personal or intellectual freedom. For instance, many critics have noted that companies have the right to fire workers for their Facebook or other social media postings. Surely that sounds like an unjustified infringement on freedom of speech. But on closer inspection, the stance of the companies is often quite defensible. Unfortunately, a lot of workers put racist, sexist, or otherwise discomforting comments and photos on their Facebook pages, on Twitter, or elsewhere. When employers fire them, very often it is to protect the freedom of the other workers—namely, the ability of those other workers to enjoy the workplace environment free of harassment and threats. It’s not always or even usually a question of the employer versus the workers, or the old story of a struggle between worker and boss struggle. Rather, the boss is trying, sometimes in vain, to adjudicate conflicting notions of workplace freedom among the workers. In other words, the firings are in part an employer attempt to take the overall preferences of the workers into account.

8. Big business is often the cure for monopoly rather than the disease:

[Y]ou can think of Amazon and Walmart as two big reasons a lot of collusive and price-fixing schemes don’t work anymore or don’t have a major impact on consumers. Amazon and Walmart are the two biggest retailers in America, and both compete by keeping prices low—permanently, it seems. Their goal is to become dominant platforms for a wide variety of goods and to use low prices to boost their reputation and their focal status as the place to go shopping. By now both companies are old news, and it is increasingly difficult to argue that their strategies are eventual market domination and then someday super-high monopoly prices. Instead, their strategies seem to be perpetually low prices, followed by taking in insanely large amounts of business and using data collection to outcompete their rivals on the basis of cost and quality service.

My main criticism: Tyler is so pro-business that he often forgets (at least rhetorically) to be pro-market.  He spends minimal time calling for moderate deregulation – and even less calling for radical deregulation.  So while he effectively calls attention to everything business does for us, he barely shows readers how much business could do for us if government got out of the way.  Above all, Tyler mentions the following only in passing – or not at all:

1. The evils of housing regulation.  Business is ready, willing, and able to build mega-cities worth of affordable housing in the most desirable places in the country – the moment land-use regulations permit.

2. The evils of immigration restriction.  Perhaps to broaden his audience, Tyler fails to mention the eagerness of business to provide international workers with the opportunity to use their talents for the enrichment of mankind.  If I were him, I would have highlighted (a) how much business has done to increase immigration, and (b) how much business has engaged in righteous civil disobedience by hiring workers despite our unjust immigration laws.

3. The evils of labor market regulation.  Tyler barely mentions the many awful side effects of much-loved labor market regulations.  This was a mighty missed opportunity to lambast the horrors of European labor market regulationBig Business was also a great opportunity to explain why discrimination is usually bad for profitability, making anti-discrimination regulations superfluous at best.  Indeed, Tyler could have used the ubiquitous employment of illegal immigrants to illustrate these truths.

Fortunately, it’s not too late for Tyler to correct his unfortunate omissions on his blog.  Big business has been miscast as an anti-hero, but populist regulation is a Thanos-level supervillain.

P.S. Exercise for the reader: Name a better book cover than Tyler’s!

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Life By Subscription

Once upon a time some busybody do-gooder paternalists said stuff like, “We need taxpayer money going to support music halls and concerts, because it is important that all citizens have access to good music, not just people with enough money.” (Never mind that most people don’t really care to go to the symphony or listen to NPR.)

Now for free anyone can listen to any music in the world on Spotify. For $10 a month, you can do all kinds of advanced stuff, no ads, special playlists, and hey, even listen to music selected by experts, bureaucrats, and NPR if you want to!

The idea that a monolithic monopoly needs to provide all kinds of services whether we want them or not is stupid. It’s always been stupid. But it’s easier to see the stupid now that our lives are comprised of a growing web of voluntary subscription services and Amazon delivers everything for free.

I look forward to the world of SaaS everything. Governance, dispute resolution, protection, insurances of all kinds, education, infrastructure, and more.

I’d like to pick and choose what services to pay for and at what level. The ability to do so will not only make every individual’s life better and cheaper now, it will create clear signals and incentives for providers to innovate and compete and build new stuff we’ve never imagined, easier, cheaper, better.

Sign me up.

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Governing Least: A Litany of Insight

Dan Moller’s Governing Least is packed with random insights and philosophic wit.  Some highlights:

Why so much political philosophy sounds desperate:

Only those already unsympathetic to utilitarianism are likely to be swayed by Rawls’s brief observations. Those who begin their political philosophy by defending the morality of rights don’t so much preach to the choir as exorcize the elect.

Why so much political philosophy sounds so blind:

The reason France does not require aid is not because some external group took pity on the French, but that they were able to generate exponential economic growth themselves. This makes it puzzling that philosophers write long books about aid without mentioning economic growth, and generally seem to imply that the path to escaping poverty lies through individual altruism. Why ignore the only mechanism that has ever succeeded in lifting millions of people out of poverty when thinking about poverty?

A great explanation of the Theory of the Second-Best:

Suppose that a company enjoys monopoly powers that we cannot immediately remove under the present regulatory regime, but that one of its upstart rivals enjoys a market- distorting state subsidy which we can remove. It is a fallacy to infer that market efficiency will be improved by at least killing the subsidy— the reverse may well be true— just as it is fallacious to reason that if our military lacks both bombs and bombers the second- best solution is at least to build the bombers.

Why predictable outcomes can co-exist with abundant opportunity:

The data on intergenerational mobility or its absence is sobering, to say the least. In the United States, sometimes this leads commentators to call into question the traditional self- conception of America as a “land of opportunity.” It’s hardly a land of opportunity if outcomes are determined at birth, runs the criticism.

Let us consider this reasoning in more detail. The critic seems to reason as follows: If there were anything like equality of opportunity, then we couldn’t predict outcomes at birth, but we can, and so the land of opportunity is a myth. Let us assume the standard to meet here isn’t exact equality of opportunity for every single citizen. Could there still be reasonably high levels of opportunity despite outcomes— including bad ones— being highly predictable from the start? The critic seems to assume the following principle:

Predictability defeats opportunity: if we are able to specify social outcomes with a high degree of accuracy in advance, then the people in question cannot enjoy much opportunity.

Why accept this principle? What is it that connects predictability and opportunity? The obvious answer is that we think we know enough about people to be confident that if they did enjoy opportunities, they wouldn’t exercise them in a way that leads to bad social outcomes. The fact that we know that Smith will end up poor in all likelihood suggests that he is powerless to avoid it, since if he were capable of influencing the outcome, then he would. This amounts to another, deeper principle:

Predictability is evidence of incapacity: the fact that we can predict poor social outcomes is evidence that those who experience them lack a capacity for avoiding them.

Another way of putting the matter is that a fixed proportion of poor outcomes might be bad, but it wouldn’t be bad for reasons of diminished opportunity, since it might be the case that there are going to be winners and losers in anything resembling a free society, and as long as everyone has a fair shot at being a winner, things aren’t so bad. (No doubt more would need to be said about what “losing” amounts to for us to feel reassured.) What is terrible about predictability is that the losers aren’t just random, but never had a chance. Because predictability is evidence of incapacity, we know that those with poor outcomes never had a chance to succeed, and a fortiori they lacked anything like an equal or reasonable opportunity for success.

The problem is that it isn’t true that predictability, in itself, is evidence of incapacity, that outcomes are beyond our control. I don’t want to deny in the end that certain forms of incapacity do play a role in social outcomes, but how much is far from settled, and by opening with the assumption that predictability implies incapacity, we go wrong from the start. The fundamental confusion is between the epistemic question of what we can say about the future and the metaphysical question of what people are able to do at a given time in given circumstances. There are various fancy examples to illustrate this in the free- will literature, but for our purposes we can stick to some everyday examples:

Rope line: at the airport, we predict with great confidence that people will walk along a particular circuitous path— the one laid out by the velvet ropes. Nevertheless, the passengers are free to step over the ropes any time they like. It’s just that hardly anyone does. Predictability here doesn’t imply incapacity, it’s just that the passengers all have reason to exercise their freedom in a certain way.
Victim-blaming is (often) question-begging:
[I]t sounds mean to claim that people generally have a capacity to influence social outcomes when thinking about the poor, a bit like victim-blaming. But such a denial would involve insisting that something like the following claims are generally true (readers are invited to imagine these in the mouths of their own children facing unfavorable social circumstances, such as a lousy school system):
• “I can’t help it that I skipped class.”
• “It wasn’t possible to do my homework.”
• “I had no control over whether I had children.”
• “There was no way I could have worked this past year.”
It is important to acknowledge that for some people, these statements will be true. Mothers have children due to rape, classes go unattended because of gunfire or violence in the school, recessions destroy employment opportunities even for those who are highly qualified and persevering and willing to accept low wages. The point isn’t that all poor social outcomes are blameworthy, but that most (not all) people can exercise an enormous amount of influence over whether they lead a decent life in the developed world, even when ignorance or other internal impediments bar the way.
Governing Least is so packed with insight that I could easily have made this post three times longer.  Read it and see for yourself!
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The Gig Economy is What Yesterday’s Socialists Said They Wanted; Why do Today’s Socialists Hate it?

A February Harris poll finds that 49.6% of Millennial and Generation Z Americans would “prefer living in a socialist country.”

US Senator Bernie Sanders (I-VT) and US Representative Alexandria Ocasio-Cortez (D-NY), among other politicians, proclaim a message of “democratic socialism,” evoking an ideology last ascendant in the early 1900s when Eugene Debs and Norman Thomas moved the needle in US elections.

But the devil is, as always, in the details. The goals of today’s American “democratic socialism,” as laid out in Ocasio-Cortez’s Green New Deal resolution, in Sanders’s “Stop BEZOS Act,” etc. look a lot more like Franklin Delano Roosevelt’s effort to “save capitalism” through welfare statism than like the proposals of socialism’s last rise to prominence.

The essence of socialism as laid out by Proudhon and Marx and promoted by the International Workers of the World, et al., came down to destroying the wage system and building a classless society based on worker ownership of the means of production.

Those earlier socialists would almost certainly have lauded gig economy workers as examples of what socialism sought. Today’s socialists disdain them.

Consider gig economy drivers, once just called “gypsy cabbies.” In recent years many of them have chosen to affiliate with services like Uber and Lyft to get easier connections to people seeking rides.

Gig economy drivers own the means of production (their cars).

Gig economy drivers set their own hours and choose their own workplaces instead of slaving away on  someone else’s terms.

Gig economy drivers can use customer discovery services like Uber/Lyft, or they can go their own ways (many Uber drivers give me their cards, telling me to call them directly next time and cut out the capitalist middleman).

But today’s “democratic socialists” fought tooth and nail to preserve the capitalist “medallion cab” monopoly, and having lost that fight they’ve re-oriented their struggle toward roping the drivers, and the companies they choose to work with, into the old-style capitalist “wage employee” system.

Even the most virulent revolutionary Marxism posited that the state would wither away as workers seized the means of production, got rid of the bosses, and started working for themselves. That didn’t work out — the socialist parties ended up substituting themselves for the old ruling class, operating in the name of, but not as true proxies for, “the workers” — but that was the goal.

In the US, the same kind of substitutism came about “democratically” and incrementally as “progressives” co-opted pieces of socialist-sounding reforms. But just like the Marxist-Leninist parties in the old Soviet orbit, today’s “democratic socialists” are … well, conservative.

They don’t want the wage system to go away. They just want to run it.

They don’t want the workers to own the means of production. They just want to tax and regulate it.

They don’t want a classless society. They just want to be the new ruling class.

US president Donald Trump is already touting the 2020 presidential election as a referendum on “socialism.” Are any real socialists going to show up for that fight?

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Social Media Regulation: Speak of the Devil and in Walks Zuck

In a recent column on the mating dance between Big Government and Big Tech, I noted that “Big Tech wants to be regulated by Big Governments because regulation makes it more difficult and expensive for new competitors to enter the market.”

Two days after I hit “publish” on that column, Facebook CEO Mark Zuckerberg called for government regulation of social media in a Washington Post op-ed.

Zuckerberg offers expansive arguments for regulating four areas of social media content, but those arguments are specious. My own claim as to his real reasons leers visibly over the shoulder of each argument he makes.

Zuckerberg’s first proposed regulatory area is “harmful content.” “Regulation,” he writes, “could set baselines for what’s prohibited and require companies to build systems for keeping harmful content to a bare minimum.”

Who’s best equipped to build such systems? Facebook, with assets of nearly $100 billion and annual revenues of $56 billion? Or a new site started by some middle class guy (or even an affluent Harvard student like Mark Zuckerberg 15 years ago) with a great idea and some spare time?

The second regulatory area is “protecting elections.” Zuckerberg: “Our systems would be more effective if regulation created common standards for verifying political actors. … We believe legislation should be updated to reflect the reality of the threats and set standards for the whole industry.”

Facebook, of course, has already invested billions in developing technology to identify users and advertisers and connect the two types of parties — all in-house.  Most startups don’t have the money to develop their own such systems. They hook into a third party advertising service or a standardized ad sales plug-in. The effect — and the intent — of those “updates” would be to protect Facebook from those startups (and the American political establishment from its own would-be competitors).

“Third, effective privacy and data protection needs a globally harmonized framework. … it should establish a way to hold companies such as Facebook accountable by imposing sanctions when we make mistakes.”

Facebook can easily accommodate “sanctions” that would kill most potential competitors. It already has big bucks in the bank (unlike a new company that may be years away from turning a profit), and that “globally harmonized framework” will almost certainly be built around its own standards and practices.

Finally, “data portability. If you share data with one service, you should be able to move it to another.” What will the “standard data transfer format” Zuckerberg calls for look like? Existing formats for handling user data. Who handles the most user data now? You know who. New competitors will be forced to build systems like Facebook’s, and forbidden to try their own, possibly better, user data handling schemes.

The Internet’s potential is encapsulated in the expropriated Maoism “let a hundred flowers blossom.” Zuckerberg agrees, but only if each of those hundred flowers is cloned from a geranium grown in his proprietary nursery.

Regulation, not competition, is where monopolies come from. Facebook isn’t a monopoly yet, but Zuckerberg clearly wants to make it one.

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