Going After Big Tech Is One Thing Global Leaders Agree On
(Bloomberg Businessweek) -- The U.S. and China don’t agree on much these days. Germany and France share a border and a currency but are frequently at odds. The U.K. and India like to march to their own drum. But there’s one issue on which all these countries see eye to eye: Technology companies are too big, too powerful, and too profitable. And that power is only likely to intensify, leaving governments with no choice but to confront it head-on by taking the companies to court, passing new competition laws, and perhaps even breaking up the tech giants.
China is the latest to implement an antitrust crackdown, unveiling anti-monopoly rules last month that wiped $290 billion off the stock market valuation of China’s biggest companies in two days. The draft rules followed the surprise suspension of a $37 billion stock offering by billionaire Jack Ma’s fintech powerhouse Ant Group Co., making clear that no company can evade the government’s crosshairs. The moves in China coincide with accelerating efforts in the U.S. and Europe to rein in Amazon.com, Apple, Facebook, and Google.
“The bigger get bigger and bigger but without being better,” says Andreas Schwab, a German member of the European Parliament who championed a 2014 resolution to break up Alphabet Inc.’s Google. “Growing economic power, the growing influence on local markets all over the world, and a growing concern of competitors and consumers altogether has made it happen now.”
It’s no coincidence that the antitrust crusades have accelerated during the pandemic. A locked-down world has come to rely on tech companies more than ever, with many racking up gains at the expense of smaller competitors. Chinese food delivery giant Meituan was forced to apologize after a restaurant association accused it of abusing its dominance during the outbreak by requiring merchants to sign exclusive agreements and charging restaurants commissions as high as 26%. The French government postponed Black Friday to Dec. 4 to placate shopkeepers who accused Amazon.com Inc. of stealing their sales during the latest coronavirus lockdown.
The pandemic has “put a big magnifying glass on the competition issues that you all know already existed,” U.S. Senator Amy Klobuchar (D-Minn.) told a gathering of antitrust lawyers in November. “We could emerge from this pandemic with markets that are much more concentrated and less competitive.”
In this new antitrust era, the old focus on pricing power no longer applies, because several of the biggest tech companies have established trillion-dollar monopolies by charging consumers next to nothing. Tech giants are increasingly assuming powerful positions in banking, finance, advertising, retail, and other markets that force smaller businesses to rely on their platforms to reach customers. Merchants both depend on and compete with Amazon. Spotify and other apps appear in Apple Inc.’s app store but also compete with its music service. Google isn’t simply dominant in search and advertising; it preserves its status as gatekeeper to the internet by using exclusionary practices that crush competitors, the U.S. Department of Justice alleged in a lawsuit in October. And in China, Ant funds only 2% of the microloans it originates on its platform, according to the company’s prospectus. The remaining 98% is securitized or underwritten by banking partners that want to leverage Ant’s massive reach.
“At some point these companies get so big that even if you’re the Communist Party you start to think, ‘Who’s holding the reins here?’ ” says Sam Weinstein, an antitrust professor at Benjamin N. Cardozo School of Law. The recent government moves are, he says, “a reminder to these companies, ‘We’re holding the reins. You may be very big and very powerful, but we’re going to remind you who’s boss.’ ”
For years, Europe alone confronted the power of footloose digital giants that chose to squat where local rules and taxes suited them. Governments were alarmed that European companies were failing to match Silicon Valley’s innovations or to stop Google and Facebook Inc. from vacuuming up personal data and, with that, advertising revenue. Led by Margrethe Vestager, the European Union’s competition chief, countries have sought to police the market and encourage fair play. Vestager sniffed out sweetheart tax deals she said unfairly benefited companies like Amazon and Apple and now speaks of leveling the playing field so European companies can compete with Silicon Valley and Beijing in the emerging areas of artificial intelligence, cloud computing, and 5G wireless technology.
In China the crackdown has been driven at least partly by fear that the homegrown tech industry is becoming too powerful. The country has long championed Alibaba Group Holding Ltd. and Tencent Holdings Ltd., but their hoards of data on the Chinese citizenry are a growing concern for a government long accustomed to a monopoly on surveillance.
In late October, Ma, Ant’s founder, dared to call state attempts to control financial risk hopelessly archaic. “We cannot manage the airport the same way as the railway station, and we cannot manage the future with the way of yesterday,” he told the Bund Summit in Shanghai. During the speech he also compared Chinese banks, mostly majority state-owned, to pawnshops. Less than two weeks later regulators shelved his blockbuster initial public offering, and the government released the draft antitrust tech rules.
China and Europe have been cooperating on competition law for 20 years. China modeled its original Anti-Monopoly Law from 2007 on EU statutes, says Anu Bradford, a professor at Columbia Law School who wrote The Brussels Effect, about the EU’s global influence. After visiting China in 2016, Vestager said meetings with Chinese officials provided her with a “firsthand sense of the … urgency of China’s reform.” The government’s move against Ant shows it has more power to curb the dominance of tech companies than do Western democracies.
Indeed, few would argue that Europe’s antitrust efforts have made much of a dent. “There’s an increasing consensus that what the EU has accomplished is likely not enough,” Bradford says. “The high fines imposed on Google have not significantly changed the market dynamics or facilitated new entry.”
EU officials are looking for new tools. The EU hit Amazon with an antitrust complaint alleging that it uses independent seller data to benefit its own retail arm. New “gatekeeper” regulation expected by yearend could head off bad behavior before it happens by threatening fines, or breakups in severe cases, for companies that don’t share customer data with business rivals as well as for operators of marketplaces and search engines that favor their own services.
In the U.S. a new breed of antitrust experts is looking beyond the hoary concept that higher prices are the primary gauge of competitive harm. They say consideration should be given to privacy, control over data, workers’ rights, and the overall impact on smaller companies, more than a fifth of which have closed in the U.S. since the start of the pandemic. And Americans, in general, have grown increasingly skeptical of social media companies: More than 60% say the sector has a negative effect on the country, and almost half want more regulation for social media, according to a 2020 Pew Research Center study.
Top priorities of the incoming Biden administration will include continuing the Justice Department’s monopoly abuse suit already under way against Google. It’s a reversal from a general embrace of tech giants, which rose from the ashes of the dot-com crash and a major antitrust case against Microsoft Corp. 20 years ago.
Representative David Cicilline (D-R.I.) is preparing legislation based on a landmark report he authored alleging wide-ranging antitrust violations by Big Tech. His proposal would invest U.S. competition cops with new powers to safeguard not just consumers but also “workers, entrepreneurs, independent businesses, open markets, a fair economy, and democratic ideals,” according to the report.
China will also keep ramping up its assault on tech companies as President Xi Jinping continues to consolidate power. Not that it will be easy. The country will have to spur competition while managing it, says Andrew Polk, co-founder of Trivium China, a consultant in Beijing. “These tech companies, just like every other company in China, are expected to, at some level, support state policy. And that’s not a conversation anywhere else in the world.”
The Chinese draft rules are subject to change. But they’ll have a material impact on the tech sector, says Scott Yu, an antitrust lawyer at Beijing-based Zhong Lun Law Firm. The new guidance signals that industry leaders seeking further consolidation through acquisitions now face restrictions, as the government could force the companies to first divest assets. “Chinese internet giants will no longer have that luxury to bypass the antitrust rules,” he says. —With Coco Liu, Natalia Drozdiak, Aoife White, Colum Murphy, Gerrit de Vynck, David McLaughlin, and Zheping Huang
Read more: Amazon Works to Avoid Google’s Fate With EU Antitrust Regulators
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