Jul 24, 2016

Free-rider Google starves our creative talent of cash

Monopolies are the mortal enemy of free markets.

They undermine faith in capitalism, destroy choice, suffocate innovation and allow the few to extract egregious returns at the expense of the many.

Unfortunately there is a new breed of monopolist that has been able to avoid the best efforts of the competition authorities. It is described in Modern Monopolies, by Alex Moazed and Nicholas L Johnson, an informative new book whose subtitle is What It Takes to Dominate the 21st-Century Economy. The book depicts the rise of so-called platform businesses such as Amazon, Uber, Alibaba and eBay. These corporations don’t own production or linear supply chains; instead they harness and control networks of users and resources, enabling communities to interact and transact.

The authors think this phenomenon largely benign because it can offer consumers improved value and convenience. I disagree: I think these companies — and others in niche channels, such as Rightmove — gauge various players thanks to Winner Takes All economics.

Monopolies “disperse pain” and act to stifle innovation and denude economic growth. Britain’s creative industries are being starved of investment thanks to parasitic free-riders such as Google and Facebook. These behemoths invest negligible sums in content, and mine advertising from media organisations that actually invest in music, writing, film and suchlike.

One of the main cheerleaders for this generation of monopolists is Peter Thiel, a co-founder of PayPal. He praises platform monopolies and has been quoted as saying “monopolies are great companies” and that “capitalism and competition are opposites”. Thiel is also a prominent supporter of Donald Trump and spent about $10m on a lawsuit to try to shut down a gossip website that wrote about his sexuality, despite saying he believes in freedom of speech.

The arm of British government charged with investigating abuse of markets is the Competition and Markets Authority. Unfortunately it appears to spend too much of its resources on policing small, obscure markets, such as the supply of products to the furniture industry, and not enough trying to understand the implications of dominant platform companies. It needs to extend its frontiers to newer sectors, such as online search, and stop wasting time on mature, niche industries with negligible impacts on consumers.

The authority certainly has the resources: its annual budget is almost £66m and it levied £46m of fines last year. Yet it spends too much time on minor mergers and not enough on big-picture issues that have more far-reaching economic effects. Its remit is probably outdated: legislation invariably lags behind the development of new technologies. This is one area where the EU has been impressive — the competition commissioner has, for example, accused Google of distorting internet search results. If we do leave the EU we must beef up the powers of our antitrust regulators and have them concentrate on significant battles, not trivial ones.

The problems with 21st-century digital monopolies don’t just extend to profiteering and lack of choice. These companies frequently exploit consumers’ privacy, monetising their personal data. Moreover, regulators don’t take into account other impacts. The tech giants tend to pursue aggressive tax-avoidance policies and employ relatively few people, for example. At the same time they are ferociously active lobbyists, perpetuating myths such as the “sharing economy” in order to make their rapacious market-share grabs appear cuddly.

Make no mistake, these sleek operators are just as much crony capitalists as were unrelenting 19th-century robber barons such as John D Rockefeller in oil or Andrew Carnegie in steel.

Supporters of the platform monopolists insist their control of markets is likely to be temporary, so state intervention is unnecessary. They claim new technologies and rivals will emerge to disrupt the current incumbents.

Of course, upstart entrants are typically bought up by the monopolists to prevent any such threat: Facebook bought Instagram and WhatsApp; Google bought YouTube. The antitrust authorities were too slow to understand the implications of these deals, and waved them through.

One solution is for digital co-operatives to emerge. Easily the best online success of this type is Wikipedia, a free exchange of knowledge without any toll on users or providers. As Douglas Rushkoff postulates in his book Throwing Rocks at the Google Bus, informed collaborations should be able to undercut the tech titans and destroy their usurious monopolies. And citizens have to hope that, thanks to easy consumer switching and negligible loyalty, new technology will usurp the digital incumbents. The internet economy is only two decades old and will surely keep evolving — offering endless opportunities for entrepreneurial newcomers.