Pethokoukis: "Should Washington break up Big Tech?"

From the AEI:

Video and transcript: Should Washington break up Big Tech?

On Monday this week I hosted a panel conversation to discuss America’s major technology firms — Amazon, Apple, Facebook, Google, and Microsoft — and whether the federal government should regulate or break them up. You can watch the full conversation below, and find the transcript of our conversation here.

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PANEL DISCUSSION
Participants: 
Ryan Hagemann, Niskanen Center
Andrew McAfee, Massachusetts Institute of Technology
Michael R. Strain, AEI
Luigi Zingales, George J. Stigler Center for the Study of the Economy and the State at the University of Chicago

JAMES PETHOKOUKIS:

Welcome.

Thanks for coming here on the first working day after Thanksgiving.

Of course, I had a great fear nobody would show up, being the first working day after Thanksgiving, so I’m especially grateful everyone made it here for our panel, which we have a great panel here who I’ll introduce in a moment. 

A decade ago, the world’s five largest companies by market value were Microsoft, Exxon Mobile, General Electric, Citigroup and Shell Oil.

Today, Microsoft is still there, but the rest are all tech firms: Apple, Alphabet (the parent company of Google), Amazon, and Facebook, though, on some days, I think Facebook swaps with Alibaba.

So those are now the top five.

And combined, they have a market value of $3.5 trillion. 

They have powered the market’s rally this year, leaving some to wonder if owning these stocks is all you really need to do when investing.

But it’s not just their size and market performance that’s been impressive.

It’s also their market dominance.

Google has 76 percent of the search ad market; 80 percent of total searches worldwide are done through Google.

Facebook and its subsidiaries own 77 percent of mobile social traffic.

Amazon has three-quarters share of the e-book market. 

And when some people look at those statistics, as well as the overall size of these companies, they think that, well, if America has a corporate concentration problem or a monopoly problem, then these super platforms look like the most obvious and serious examples of that concentration issue.

And there’s criticism—perhaps it started on the left, but certainly is now coming from the left and the right.

And there have been calls for various sorts of regulation and antitrust actions with maybe the extreme being to turn some of these firms into public utilities or break them up in some fashion.

Yet these remain very popular companies along with the services and products. They’re a source of innovation, high-paying jobs. 

And with perhaps the exception of the shale revolution, it’s just about the only bright spot in the US

economy over the past decade. 

And, again, public opinion surveys, so they are—you know, well, if Congress only had these kind of ratings that that these tech firms have. 

You know, 80 percent favorability rating, 77 percent for Amazon, the most widely admired companies by young Americans.

And even over the past year, in which there have been a lot of rough headlines, whether it’s the Russians using Facebook to try influence the election or free speech issues at Google or sexism at Uber, yet these remain very popular companies.

So what’s going on and why do some people have such a problem with these big mega-platforms?

To discuss whether the rise of the tech giants has become problematic in some way that requires a policy solution, as I said, we’ve assembled a really excellent panel.

I’m going to do them in alphabetical order.

We have Ryan Hagemann, who is director of technology policy at the Niskanen Center, where he specialized in issues at the intersection of sociology, economics, and technology. 

Right next to me is Andrew McAfee, principal research scientist at MIT, where he studies how digital technologies are changing business, the economy, and society.

He’s also coauthor of the recent book“Machine, Platform, Crowd: Harnessing Our Digital Future” with his compatriot, Erik Brynjolfsson. 

At the far end is Michael Strain, director of economic policy studies here at AEI. His research focuses on labor economics, public finance, and social policy. 

And last but not least, Luigi Zingales, director of the George J. Stigler Center for the Study of the Economy at the University of Chicago.

His research focuses on regulatory capture, crony capitalism, and the various forms of subversive competition by special interest groups. 

Again, everyone, thanks for coming. 

And I want to start with Professor Zingales, who earlier this year hosted a conferenceat the University of Chicago titled “Is there a concentration problem in America?”

And I watched a good chunk of that conference over my Thanksgiving weekend, sitting there for those hour-and-a-half-long panels.

MICHAEL STRAIN:

Giving thanks forthe American economy.

MR. PETHOKOUKIS:

Yes.

Yes.

Yes.

Giving thanks.

Well, I was not doing that. 

And during that conference, a good bit of it focused on the tech industry, which, again, maybe to at least some people the most obvious examples.

If you believe there is a concentration monopoly problem, I guess it would be hard to talk about this issue without talking about the tech industry.

So I want to start with you to sort of give me what the theory of the case is that these big platforms, super platforms, whatever you want to call them, that they’re —I mean, my bias is to see these companies as, gee, they’re, you know, as something that’s gone right with America, great national assets, remain (popular ?). 

What is the case that they’re problematic in some way, their size and scope and influence?

LUIGI ZINGALES: 

OK. So, first of all, I want to make sure that at least we have one common ground, which is we believe that for free markets to work well, we need to have an antitrust authority. We need to have some government intervention. 

We’re not in a laissez faire butopia,but at least we are a more —(inaudible) —society where antitrust plays a role. 

And then the question is what role and when. And, of course, the question of cost and benefits. 

This said, I think that—and I would like to set aside, even if it’s a big issue, but I would like to discuss later, this platform as media industry. Because I think when you talk about media, we need to talk—there is another set of concerns that plays a role. 

But even if we did not consider them media, and I don’t know why we shouldn’t consider media, but imagine for a second we don’t consider them media, I think that especially when I think of Google and Facebook, the issue about network externalities comes big. And I think it’s sort of something that deviates from our standard notion of markets and also our standard notion of antitrust.

If I sell my main product at price zero, what it means to have a market share,
OK?
That’s a pretty basic thing, but it’s quite important.
And so the question is then, however, if we have a sort of market share—(inaudible)—
I offer a glass a wine to whoever uses Bing that does not use Google.
And I generally go around, and I make this offer and never pay any price because nobody, unless you are in China, where you are prohibited from using Google, everybody in the United States, uses Google.
So in terms of market share of searches that represent in the United States is above 90 percent....

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Transcript (22 page PDF)