The Curse of Bigness: How Corporate Giants Came to Rule the World, by Ti Wu
Evidence of the power that tech behemoths have come to wield in the world was on display on 7 January 2021, when Google, Facebook, Twitter, Shopify, Snapchat, Discord, and others came together to ban the 45th US President, Donald Trump, from their platforms. It was reminiscent of Stalin’s Great Purge, with a promise of more to come. With even Russian dissident Alexei Navalny and German Chancellor Angel Merkel criticising the ban, back in stark focus are issues of intolerance, accountability, free speech, incitement, and monopoly power.
On 20 October 2020, the US Department of Justice sued internet search giant Google over what it claimed was an unlawfully maintained monopoly. A few weeks later, on 9 December, the Federal Trade Commission and 48 other states and districts sued social media behemoth Facebook, alleging that it had illegally maintained its social networking monopoly through anticompetitive conduct. How companies, especially tech companies, came to wield so much power and become the behemoths they are today is the subject of legal scholar Tim Wu’s short book, The Curse of Bigness.
Monopolies are not new; in fact, have been around for centuries, with the monarchy in England employing what was called the Crown monopoly as political patronage as well as to encourage innovation. The English Parliament banned monopolies in 1624 by enacting the “Statute of Monopolies”, which became the precursor to almost every anti-monopoly law, including the American Sherman Act and the EU’s competition laws. It, however, did not stop the King of England from granting a de-facto monopoly on the sale and export of tea in the British colonies to the British East India Company. This led to what is now known as the Boston Tea Party episode in December 1773, which led to harsh steps taken in retaliation by the British, and eventually sparked the American Revolution.
This anti-monopoly spirit ran deep in some of the founders of the United States, including Thomas Jefferson and James Madison. Jefferson called for a declaration of rights to include a “freedom of commerce against monopolies”. Much of the zeal the American government showed in breaking up what it called “Trusts” of the Gilded Age can probably be attributed to the ideas of American jurist and later justice of the Supreme Court, Louis Brandeis, who came to believe in the dangers of what he called “excessive bigness”. One of the triggers was J.P. Morgan’s attempts to combine more than three-hundred firms into a single entity—the New Haven Railroad, creating a monopoly of the Northeastern transportation infrastructure. Brandeis wrote that “Men are not free if dependent industrially on the arbitrary will of others”. Freedom, in his view, meant freedom not only in a political and individual self, but also freedom from industrial domination and exploitation.
Post World War II Europe was so scarred by the experiences of monopolies, particularly in Nazi Germany, that its anti-monopoly ideology was even stronger than in America and came to be known as Ordoliberalism. Ordoliberals, Wu writes, “wanted a state that was strong enough to break private power, but not so strong as to take over society. They wanted the state to guarantee certain economic securities, but to leave the provisioning of most goods to the market process.”
In 1945, American company Alcoa was broken up, and in the 1960s, anti-monopoly action by the regulators peaked, with the Justice Department going after banks, grocery stores, shoe manufacturers, and others, implementing what it saw as a “broad anti-concentration mandate” given to it by Congress to stop “creeping concentration”.
By 1969, IBM, with annual revenues of $7.2 billion, ranked as the fifth-largest company in America. Only General Motors, Exxon Mobil, Ford Motor, and General Electric were bigger. The same year, it was sued by the Justice Department with “monopoly maintenance”, and the case went to trial in 1975. The trial continued for another six years, and after what many called “a farce of mind-boggling proportions”, the case was dropped shortly after Ronald Reagan became President. The case, however, did result in two major changes. One, even before the case began, IBM made the decision to unbundle its software from its hardware offerings. This effectively birthed the modern software industry as we know it. The other, in 1981, was when IBM entered the personal computer market and chose to make it “open”—with a hard drive from Seagate, printer from Epson, processor from Intel, and the operating system from Microsoft.
Microsoft made the most of IBM’s decision and grew to become the world’s largest software company, pursuing a strategy of bundling applications with its Windows operating system to enter and dominate new markets. This strategy did not go down well with the regulators or competitors and it wound up facing the ire of the government when it was sued by the Justice Department in the 1990s. The case went to trial in 1998 and the government won in both the district court and in appeal, but just when it seemed a breakup of the company was inevitable, regulatory winds changed with the election of a new President in 2000.
The trial did, however, reveal the strong-arm tactics of the company and the ruthlessness of Bill Gates, its co-founder. The after-effects of the trial were to “distract” the company from competing effectively in the booming internet age, with lawyers looking over the executives’ shoulders. This paved the way for companies like Google, Facebook, Amazon, and others to thrive, grow, and grow.
During the George Bush and Obama years, there would be virtually no major anti-trust action by the government. These regulatory shifts in anti-monopoly action over the last four decades can mostly be traced to what Wu calls the victory of “neoliberalism” in American academia. This philosophy argued that the one and only measure of consumer welfare was prices. Lower prices meant that consumers could not be seen as harmed, and therefore, companies could not be penalised for concentrating too much market share and power as long as prices did not go up. Neoliberals were also “opposed to almost all forms of state intervention in the economy”. Aaron Director, “the father of the neo-conservative Chicago School of antitrust,” believed that breaking up larger companies protected weaker companies and reduced efficiency by stopping these larger companies from lowering prices. This thought percolated to the regulators, with the European regulator, in 1997, suggesting the “lowered prices” and “consumer welfare” were its goals.
What have been the consequences of this thinking? The market for glasses and sunglasses, which looks a hotbed of competition with companies such as Armani, Ray-Ban, Tiffany, DKNY, and dozens of others available to choose from. Except it isn’t. All these brands are owned, or exclusively licensed, by just one company—Luxottica. Consumers pay over $200 for a pair of glasses that cost no more than $20 to manufacture. Prescription glasses retail for $400, but cost under $20. Or the beer market, where two companies—InBev and Heineken—own nearly “every single major brewer in the world”. In the technology industry, it allowed Facebook to buy out fast-rising competitor Instagram for $1 billion in 2012, and WhatsApp for $16 billion in 2014. It allowed Google to acquire 270 companies, including competitors like Waze, YouTube, and AdMob. The change in attitudes even in Silicon Valley was captured best by PayPal founder Peter Thiel, who wrote, “only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits”.
Perhaps the most alarming lesson one may draw from the book is how the growth of cartels and monopolies may foreshadow a coming of totalitarianism. In many ways, the last couple of years showed how tech platforms that now control all social media apps have begun to increasingly exercise censorship on content that they determine to be ideologically contrary to their own beliefs.
Wu writes that “extreme concentration of German industry before the war was an aid to Hitler’s rise to power…” This is lesson we simply cannot afford to ignore. Indeed, German companies like United Steel, Krupp, Siemens, IG Farben and others were major beneficiaries as well as contributors to the Nazi military build-up of the 1930s. IG Farben was perhaps the only company to run its own concentration camp as well as operate a rubber plant in the Auschwitz campus. In case the name IG Farben does not ring a bell, the company was broken up into its original six constituent companies, including BASF, Agfa, Hoechst, and Bayer.
While it is too short to do justice to a subject as complex as antitrust enforcement, Tim Wu’s book nonetheless serves as an accessible primer to some of the thinking that has guided authorities in the US and Europe, and what challenges these authorities face in their enforcement battles against companies that have become larger and more powerful than ever before.
Disclaimer: Views expressed are personal.
© 2021, Abhinav Agarwal (अभिनव अग्रवाल). All rights reserved.
