Facebook, the $800 billion social media powerhouse, stands accused by the Federal Trade Commission (FTC) and 40 states of anti-competitive practices. The lawsuits, filed last week, are another salvo in what appears to be a growing battle between governments, both in the United States and abroad, and Big Tech—Google was sued by the Justice Department in October. Jason Furman, professor of the practice of economics and former chairman of the Council of Economic Advisers under President Obama, served as the head of a panel examining digital competition for the government of the United Kingdom, which led to the creation of a pro-competition regulator. His influential report recognized the value of what Big Tech companies have provided, while trying to find a balance between innovation and consumer protection, urging more supervision of the largest companies while giving space to smaller ones. He spoke with us about the Facebook lawsuits, the limits of litigation, and what a regulated digital economy might look like.
Q: What problems did you attempt to address in your report to the U.K. government, and what approach did you end up suggesting?
I chaired an expert review panel for the U.K. government. We were charged with developing policies to increase competition in the digital sector. We recommended that traditional policy approaches like tougher enforcement of laws on merger and antitrust had an important role to play and that they should be revitalized and improved for the complexity of the digital economy. But we also found that they were not enough and that the government needed to establish a pro-competition digital regulator to establish fair rules of the road that can be specified in advance and enforced.
Q: What can the United States learn from that example? Are there other examples that it could look to?
The United States is home to the major digital giants—Amazon, Apple, Google, Facebook, and Microsoft. The fiercely competitive atmosphere in the 1990s and early 2000s helped produce rapid innovation and major changes, many for the good but others for the bad. The problem is that the digital giants now have more enduring market power with less of the competition that fuels innovation and choice for consumers. It takes much longer to legislate in the United States, which has pros and cons. In this case it means that as we have much to learn from the proposals and experience of the United Kingdom and the European Union.
Q: What are the issues the FTC and the states are trying to address. And why is the approach in the United States litigation and not regulation?
The FTC and the states have brought a case against Facebook arguing that it illegally monopolized the social networking industry by buying its major social media rivals in an effort to extinguish competition and maintain its monopoly. If they win, they could even seek to break off Instagram and WhatsApp from Facebook. I think it makes sense for the government to pursue this case but worry that it will take a long time and may not succeed. As a result, pro-competition regulation will likely still be needed. Moreover, as sweeping as this case is, it still does not address many companies and behaviors that you would want to address through regulation.
“Nothing keeps a company on its toes quite so much as the threat of losing customers.”
Jason Furman
Q: What might a regulated digital economy look like? Who would benefit?
One of the most attractive regulations would be to require more interoperability and data mobility. These changes would make it easier for consumers to use multiple services or to switch from an inferior service to a superior one, like when the FCC made phone numbers portable. This would both be a direct benefit to consumers and also help usher in more choice, competition, and ultimately innovation that would drive better products. Nothing keeps a company on its toes quite so much as the threat of losing customers.
Q: Big tech companies currently stand accused of all sorts of things, all the way up to threatening democracy. What can and cannot be solved by antitrust cases, or by the regulation you suggest?
Pro-competition regulation works well to advance issues that consumers care about. We have more privacy in mobile phones because Apple competes with Google on the basis of its claims about greater privacy protections. We have fewer choices in social networks and thus they do less to serve the consumer’s desires on privacy and the like. Pro-competition regulation is not, however, the way to solve all of the social problems of Big Tech, of which the biggest is the contribution many believe they are making to spreading fake news and reinforcing polarization. Additional approaches are needed to address those issues, and it may not be fully possible to address them in the context of the First Amendment in the United States, which protects freedom of speech.
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Banner photo by Erin Scott; faculty portrait by Martha Stewart