Digital day of reckoning looms, putting US’s lead in danger

Facebook founder Mark Zuckerberg speaks in New York on the weekend. Picture: Getty Images

A reckoning for US technology giants seems to be getting closer. From coast to coast last week, government officials announced that the US might finally follow the EU in seeking to curb their power.

To get a sense of how pervasive and how swift the advance of these companies has been in the past 20 years, consider how the list of the US’s largest companies has changed in that brief time.

In 2000, the four biggest corporations by value were household names whose brands had been staples of American life for generations: General Electric, which has been making lightbulbs and much more since 1892; Exxon Mobil, pumping oil for America’s factories and vehicles since 1911; Pfizer, producing pharmaceuticals since 1849; and Citigroup, a financial services behemoth whose ancestor company started lending money in 1812. Rounding out the top five was Microsoft, an upstart founded in 1975 but whose scale then presaged the transformation to come.

Today, the five largest companies, along with Microsoft, are Apple, Amazon, Alphabet (the parent company of Google) and Tencent, whose business is mostly in China but whose shares are listed in the US. In sixth place is another familiar tech name, Facebook.

Of these companies Apple is the oldest, founded in 1976. The rest were all started after the end of the Cold War: Amazon in 1994 and Google in 1998, the same year as Tencent. Facebook emerged from Mark Zuckerberg’s college dorm room as recently as 2004.

More than two centuries after its founding, America was dominated by businesses that had been around for most of that history. Today, it is dominated by half a dozen companies that didn’t exist when most of today’s Americans were born.

It’s not only the speed of this transformation but its pervasiveness in American life that is so striking. Two-thirds of Americans own an Apple product. Almost a third perform Google searches. Two-fifths buy something on Amazon at least once a month. Almost three-quarters use Facebook, half of them frequently.

There has been nothing like this in US history. What there has been, however, over the past 120 years is periods of similar market domination by large American companies. And on many of those occasions there has been a backlash. From Standard Oil in 1912, to American Telephone and Telegraph in the 1980s, to Microsoft in the 1990s, politicians and competitors have propelled regulators to rein in these big companies, often leading to their break-up.

Last week, at The Wall Street Journal’s technology conference in California, government officials signalled that a break-up of the tech giants was “perfectly on the table”, as the Department of Justice’s antitrust chief, Makan Delrahim, put it.

Delrahim is leading an investigation of Facebook, Google, Amazon and Apple that is gathering evidence of possible anti-competitive behaviour. New York Attorney-General Letitia James also announced that nearly every US state had now joined her state-level antitrust action against Facebook for anti-competitive behaviour.

On the presidential campaign trail, Elizabeth Warren, the bookmakers’ favourite to be next year’s Democratic candidate, has called for a break-up of Facebook and tougher regulation of tech giants in general. Even one of Facebook’s founders has said it should be forced to sell off some of its biggest services such as Whatsapp and Instagram.

Zuckerberg, Facebook’s CEO, faced tough questions from Republican and Democrat members of congress about his plan for a cryptocurrency.

The sheer scale of the tech companies is not reason enough to rein them in. There is nothing intrinsically wrong about dominating a market. As Delrahim acknowledges: “Big is not bad. Big behaving badly is bad.”

But there’s no shortage of accusations of bad behaviour: mishandling consumers’ data in ways that undermine their privacy; failing to police content effectively for hate speech or untruths in political advertising; squeezing out competitors by skewing search or shopping results in favour of the dominant company; even damaging mental health by encouraging addictive behaviour.

There’s no certainty where this will end. Even if the massed government agencies decide to pursue action, they will have to convince a court of law before any sanctions are imposed. Besides, consumers benefit from the scale of these companies and the services they provide; prices are low and innovation is rapid.

There are even bigger considerations. As China makes giant leaps in technology, the risk of damaging US competitive advantage by reining in American companies is significant.

Data is key to the development and utilisation of artificial intelligence. Crudely, the larger a company’s reach, the more data it has access to and the more efficient its AI will be.

If US regulators restrict the data that companies like Google can use and exploit, China, with no similar antitrust or privacy qualms, will have a free run at dominating AI technologies.

US government agencies insist that such concern for “national champions” won’t sway them when it comes to Google, Facebook, Amazon and others. In any case, they argue, there are ways to maximise the development of AI without relying on companies that can be accused of exploiting their dominant position in the market.

Whatever regulators decide, it could have a lasting effect on America’s standing in the world — not just choice for consumers.

The Times