What Is Antitrust Really Against ⑥: How Have Superpower Companies Changed Over the Past 50 Years?

Perhaps the biggest change is that being "big" is no longer a fault

After a year and four rounds of congressional hearings on whether big tech companies hold too much power and steer the flow of information, the latest hearing turned into a live demonstration that the tech giants are too powerful to be controlled.

The April 9 hearing was titled "Hate Crimes and White Nationalism," and members of Congress once again grilled the representatives Facebook and Google had sent. They suspected the tech giants bore inescapable responsibility for the spread of hateful and far-right speech.

Family members of shooting victims were brought on stage to describe the extreme hate speech they met with after the attacks. Meanwhile, the livestream of a hearing about the spread of extremism became a venue for spreading extremism. The YouTube comment section filled up with supporters of the massacre and of the anti-Semitic movement; some began shouting that "white supremacy isn't a crime, it's a human right." An hour in, Google simply shut the YouTube comment section down and made every voice disappear.

As at every previous hearing, no conclusion was reached about what responsibility social platforms actually bear. The two parties even ended up trading accusations on the floor. Republicans argued that social networks and search engines were suppressing conservative speech, forcing people to accept one-sided information. Democrats argued that the real problem with tech companies was fake news and hate speech.

The farce is more or less a miniature of the whole problem of regulating tech monopolies today — the spread of information and speech is monopolized by a tiny handful of tech companies, but the hand wielding that control isn't necessarily the companies' own. Called to account, the tech companies respond with heavy censorship, making one side's voice vanish from the internet entirely, which creates a new problem of its own.

Big companies can't manage their own power. A month ago, after Democratic presidential candidate Elizabeth Warren proposed breaking up four tech giants, antitrust — sidelined for years — moved back to the center of the political agenda.

The tech companies' own attitude has shifted. On March 30, Mark Zuckerberg published a byline piece in The Washington Post calling loudly for governments and regulators to play a more active role: "People shouldn't have to rely on individual companies addressing these issues by themselves. We need a broader debate about what we want as a society and how regulation can help."

The hearings on where the boundaries of tech companies should lie began a year ago, with Zuckerberg on Capitol Hill defending how Facebook works. Now he too is one of the voices calling for regulation to rein in the tech giants' control.

Twenty years ago people feared Microsoft. But the moment the company used its monopoly power to restrict competition at the dawn of the internet, a single lawsuit nearly broke it up. Bill Gates stepped down as CEO, and Microsoft pulled in its ambitions online.

Twenty years later the war has escalated. As earlier pieces in this series have shown, the new generation of superpower companies faces charges that go beyond using infrastructure to crush business competition; they now extend to controlling speech and the flow of information, and obstructing the most basic workings of democracy.

Tim Wu, the Columbia Law School professor who proposed net neutrality, wrote in The Curse of Bigness, published last year: "Many fear Google, Amazon, and Facebook not merely for their economic power but for their influence over politics, journalism, and personal information. We must recognize that, once again, we face what Justice Louis Brandeis warned of as the 'curse of bigness' — a profound threat to democracy."

That kind of influence rests first of all on size. The biggest few companies really are big enough to frighten people, and that has everything to do with how both the companies and the regulators have changed.

Superpower Companies Are Five Times the Size They Were 50 Years Ago, and Every Industry Is More Concentrated

How big are today's superpower companies?

The five most valuable companies in the world are Apple, Microsoft, Amazon, Google's parent Alphabet, and Facebook. Together they are worth more than $4 trillion.

Compared with 50 years ago, big companies are much bigger. In 1969 the five companies with the largest market value in the world were IBM, AT&T, Kodak, General Motors, and the oil company Exxon Mobil. Even adjusting for inflation, those five combined were not worth as much as any single one of today's top five tech companies.

Look at the top 50 instead, and, according to Forbes's records, the top 50 of 1967 were not only far smaller but far more evenly spread across industries: oil, technology, pharmaceutical, and aerospace companies all ranked near the top.

Today the most valuable companies are all tech companies. For a long stretch now the top five list has been nothing but the five biggest tech firms, and together they account for more than 14% of the total value of the U.S. stock market.

Look at what each of them does, and you find that today's tech companies leave every traditional competitor far behind in every market they enter.

Apple took in more than $260 billion last year, more than every other phone maker combined.

Amazon is worth half again as much as every other retailer in the United States put together.

Google's advertising revenue is twice the advertising revenue of all other U.S. media combined.

It isn't only tech. Nearly every industry has grown more concentrated.

A 2018 New York Times analysis added up the market share of the top two companies in 26 industries. In 15 of them the top two held more than 50% of the market, which means most industries are in the hands of a few firms.

Industry Concentration Today Looks More Like It Did 100 Years Ago, in That "Gilded Age"

Tim Wu describes the fear these big companies inspire as another "Gilded Age" — the era 100 years ago, before Standard Oil monopolized the country's resources, when capital piled up and social problems multiplied alongside it.

Warren, the Democratic candidate calling for the tech companies to be broken up, has also invoked the Gilded Age repeatedly in her writing as evidence that a breakup is inevitable. Standard Oil, which rose during the Gilded Age, was ordered broken up in 1911.

The "Gilded Age" is the stretch of American history from the end of the Civil War to the early 20th century. After the war, carried by the Second Industrial Revolution, American agriculture and industry grew fast: railroads, electric light, the telephone, and the telegraph all advanced by leaps. Between 1865 and 1898 alone, U.S. millet production rose 222%, coal production 800%, and railway mileage 567%.

What followed was a wave of large mergers. Industry after industry fell under the control of a very few companies, which brought a string of social problems — inequality, political corruption — and in the end drew government antitrust regulation.

Measured by the power the largest companies hold, today looks a great deal like 100 years ago. Only the monopolists have changed, from oil to tech.

In 1917, 40% of the 50 most valuable companies came from just three industries: steel, oil, and mining. U.S. Steel stood alone at the top, more than three times the size of the runner-up. And this was already several years after Standard Oil, American Tobacco, and others had been broken up.

Decades of antitrust regulation followed. By 1967 oil was still the most valuable industry in the United States, but its weight among the top 50 companies had fallen to 18%, and it was made up of several competing firms. Because enforcement was strict, the industries represented in the top 50 were also spread more evenly.

Judged purely by company size and the absence of competition within industries, today looks more like a century ago.

The Herfindahl Index measures the size of companies relative to their industry and how much they compete with one another. The U.S. Department of Justice treats any industry with a Herfindahl Index above 2,500 as uncompetitive. Today 264 of the 408 industries in the United States are above 2,500.

Business has grown richer while the number of listed American companies has shrunk. Since 1976 it has fallen by more than half.

Wealth concentrates along with industry. One count from 1896 found that 1% of Americans held more than half the country's wealth, and 12% held 90% of it.

The same thing is happening worldwide today. Figures from the Organisation for Economic Co-operation and Development (OECD) show that millennials in the major developed economies find it harder and harder to reach the middle class. Across 15 countries, 10% of the population holds more than 50% of the wealth, while the bottom 40% of earners hold 3%.

The worry about a return to the Gilded Age keeps coming back, and it isn't only about the wealth gap. It is the worry that companies, having gained enormous economic power, will go looking for social power next.

A 2016 report in The Guardian said Washington had to face the growing power of Silicon Valley's rich. Zuckerberg had not yet met his data-abuse scandal, but his open opposition to Trump's immigration policy, and Tim Cook's fight against the FBI's demand for a data backdoor, had already made people uneasy about the tech giants' involvement in politics. "These CEOs are more powerful than ever before. Today the engine of social change is no longer the government at all," Nasaw, a history professor at the City University of New York, said in the piece.

Big Tech Caught the Rise of Free-Market Theory and the Retreat of the Antitrust Movement

None of the four superpower companies at the center of the antitrust argument have been around long.

• Facebook: 15 years old
• Google: 21 years old
• Amazon: 25 years old
• Apple: 43 years old

They all came along at a good time.

The last time big American companies clustered like this, in the Gilded Age, the government pushed back hard. Theodore Roosevelt took office in 1901 and immediately opened a wave of antitrust investigations. From the Sherman Act of 1890 through the Celler-Kefauver Act of 1950, which restricted corporate mergers across the board, six new laws each tightened the government's grip on companies.

In the end the government overcorrected. In 1962 it sued the shoemaker Brown Shoe under the Clayton Act. Brown Shoe had tried to buy the Kinney shoe-store chain, a deal nowhere near a monopoly of shoe retail: 2% of the market.

But the government argued the merger would lead Brown's stores to stop selling other brands. Chief Justice Earl Warren pushed the case through on an expedited basis and gave Brown Shoe 90 days to spin Kinney off as a separate business. Control had gone as far as the Supreme Court telling a not-very-large private shoe chain which shoes it could sell.

The same thing happened in other industries. In 1966 the Supreme Court blocked the merger of two Los Angeles grocery chains, a deal that would have left the combined company with 7.5% of the market. The ruling gave as its reason that the merger would limit the growth of other small grocery retailers.

A year later the government barred National Foods from selling cheap frozen pies in Utah, on the grounds that it limited competition from local brands.

Ordinary business was blocked again and again because the government feared monopoly. Meanwhile, after the Second World War, Japan and Europe were rebuilding their economies. The American position was no longer unshakeable, and inflation was squeezing it too.

With the economy struggling, people began to ask whether strict government regulation really helped productivity.

The Chicago School, which argued for free markets, began to rise. Its central claim was that market mechanisms should be left to develop freely and that competition, not intervention of any kind, should solve problems.

The theory of that first group of economists at the University of Chicago was carried into antitrust law by Robert Bork, a judge who had studied law at the same university. In 1978 he wrote The Antitrust Paradox, which argued that competition could solve all these monopoly problems by itself.

Take the shoe store. If Brown insisted on stocking only the Kinney brand, it would lose customers because it offered too little choice, and they would go to other shoe stores.

There was no need for the government to intervene so heavily. Antitrust law, Bork proposed, should be judged from the point of view of consumer welfare: does a merger, or a price war, actually hurt consumers?

Robert Bork changed for good how the antitrust movement worked in the country where it began.

Ronald Reagan, who came to power in 1980, was deeply influenced by him and nominated Bork to the Supreme Court, though Congress rejected the nomination — not over his economic arguments, but over his conservative positions on abortion and the civil rights movement.

Across his eight years in office, Reagan deregulated broadly to encourage free competition: he lifted controls on oil prices, loosened regulation of the auto industry, deregulated the price of labor, and increased support for small and medium-sized businesses.

Ferry Eastland, then director of the Justice Department's office of public affairs, summed it up: "Company size shouldn't be the main concern; a company's productive efficiency and consumer welfare are the standard instead. The message coming out of the Antitrust Division is that companies can do things that might once have been regulated or illegal, and that enforcement is focused on price-fixing, bid-rigging and the like — that's the real core of what's illegal."

In other words, so long as consumers weren't harmed in the end, companies could grow as they pleased. After 1979 not one vertical merger in the United States was investigated, until the AT&T–Time Warner deal in 2017.

Against that background a new merger wave began in every industry. Even Standard Oil, the iconic monopoly that had been broken up, was largely reassembled out of the dozens of companies it had been split into.

Under this antitrust standard, the way internet companies operate is unusually safe: most of the behavior that helps them control a market also makes life more convenient for consumers. One reason Microsoft escaped a breakup on appeal is that it was not found to have harmed consumers — a free browser gave users an easier way to get information, and bundling Internet Explorer with Windows made updates easier to ship.

The tech companies that came after went further. Google and Facebook are built entirely on free services.

Amazon, in retail, chases low prices. From its founding until last year it insisted that merchants offer the lowest price available anywhere online. Scraping competitors' prices with web crawlers started with Amazon.

Apple sells expensive hardware, but the App Store — which Spotify recently accused of monopoly — stands for low prices too. Before the App Store, software was expensive because there was no convenient way to buy it and software makers had to handle payment and piracy themselves. The App Store turned software into a business where $0.99, or free, is normal.

Every tech giant accused of monopoly controls its market completely, and consumers have not been harmed.

The monopolies the tech companies formed naturally caught the loosest regulatory environment there has been, the one that began under Reagan. Over 50 years, Google and its peers built today's influence step by step.

Superpower Companies Have Learned the Moves Chinese Companies Take for Granted, and the Machinery Regulating Them Hasn't Kept Up

Once they grew too big to have a challenger, the superpower companies changed how they behave.

A 10,000-word New York Times report in November 2018 revealed how Facebook handled crises internally, including paid smear campaigns. According to the report, Facebook hired a PR firm called Definers Public Affairs in 2017 to write dozens of articles attacking Google and Apple in order to divert public attention, and to accuse George Soros of being the hidden hand behind the anti-Facebook movement.

Responsibility for the smear scandal was finally carried by a single executive. Elliot Schrage, Facebook's vice president for global communications, marketing and public policy, announced in writing that the fault was entirely his and had nothing to do with Zuckerberg or Sandberg.

Sheryl Sandberg, who actually runs Facebook day to day, first said she knew nothing about it, then, faced with evidence, changed her account and said she had seen the relevant reports but hadn't paid attention.

Moves that big Chinese companies take for granted keep showing up at the most influential companies in the world.

Google, likewise, has started accommodating content censorship and speech filtering around the world again. Its Chinese search engine stalled, but similar measures had already happened in Thailand. An internal Google study concluded that only tighter content moderation would please governments around the world and keep its global expansion going. The data also showed it pleased advertisers.

Apple has already made the same compromise, in moving user data to China and Russia. Facebook had a plan to build a similar censorship tool but never carried it out for lack of a partner on the ground.

Or take being referee and player at once. Search for a product on Amazon and Amazon's own brands appear more and more often as ads at the top of the results. Apple takes 30% of every digital good sold while launching products that compete directly with the developers paying it.

These are all things the superpower companies could once refuse to do, and once were willing to refuse.

The internet and the smartphone are ruthlessly efficient, and each of today's superpower companies has already mined its own market close to dry. To hit a growth target that never stops rising, they now do what they once didn't have to.

Consider Sundar Pichai's answer at the Wired conference last September when asked about the special-edition search engine: "Our mission is to provide information to everyone, and mainland China has 20% of the world's population, which matters a great deal to Google." What he didn't say on stage is that as the market approaches saturation, Google's cost of acquiring traffic has been growing faster than its ad revenue, and new markets are essential to keeping that revenue growing.

The influence of superpower companies has changed beyond recognition in 50 years; regulation has not evolved with it. Under a principle of protecting consumers, it is hard to find much wrong with tech companies' products. That is exactly what the FTC's several investigations of Google and Facebook over the past decade have found.

The EU has issued plenty of fines on the grounds of restricting competition, but they amount to a small share of Google's profit. And they all came too late. Google was fined for requiring Android phones to bundle its full suite of services, but today a phone maker that doesn't use Android has no other operating system to turn to. The other fine the EU handed Google this March was for requiring websites carrying its ad network not to connect to other companies' ad networks — but that model has long since faded.

Some problems have even appeared out of the effort to fix problems. Demands that social networks and video sites deal with fake news and the spread of hateful content set off a censorship problem of their own, pushing the big companies to hire thousands of moderators to filter speech and to decide more actively whose information doesn't need to be seen. It started with banning terrorist groups, moved on to far-right speech, and this year has reached the removal of anti-vaccine conspiracy videos.

New remedies keep being proposed, and some are suspect from the start. Singapore and the U.K. each introduced fake-news bills in early April; what they share is giving governments more power to intervene in companies and to decide, faster, what information should disappear. This is happening everywhere.

As earlier pieces in this series have laid out, the harms of power concentrated in a few big tech companies have been pointed out by one party after another. How to oppose the monopoly the tech giants hold today, and make things better, is far less clear.

Cover image from: Wikimedia

Charts by: Feng Xiuxia