By Dr. Richard Smith
Antitrust law has a long and storied history in the United States. So much so that late 19th century monopolists like John D. Rockefeller (Standard Oil) and J.P. Morgan (U.S. Steel) and the antitrust legal battles that they triggered have become part of our national mythology.
For the past 40 years now, however, antitrust legislation has been more or less dormant. The only truly significant case of the past 4 decades was the Microsoft antitrust case which did not result in a material restructuring of Microsoft.
Does this past 40 years of antitrust complacency mean that the United States has essentially solved all of its monopolistic concerns? Have past legislation and the modern regulatory framework resulted in a marketplace that automatically suppresses monopolistic practices? Or are we on the precipice of entering into a new era of antitrust legislation as we wrestle with the awesome technology-based market power wielded by the likes of Google, Facebook, Amazon and Apple today?
Before addressing this question, we need to first review a very brief history of antitrust legislation in the United States.
Serious antitrust regulation and legislation got started in the United States with the Interstate Commerce Act of 1887 and the Sherman Antitrust Act of 1890. The basis of all regulation by the federal government, however, resides in the Commerce Clause of the Constitution which gives Congress the power to regulate commerce amongst the States.
The Interstate Commerce Act established the Interstate Commerce Commission (ICC) which was originally intended to just regulate railroads but was expanded in 1906 to cover other types of interstate commerce. The ICC was the first ever independent agency of the federal government. The ICC was eventually dissolved in 1996 after its powers were gradually dispersed to an ever expanding alphabet soup of specialized government agencies.
The Sherman Antitrust Act was designed to “protect trade and commerce against unlawful restraints and monopolies.” It’s primary focus was on preventing the artificial raising of prices by the suppression of competition by cartels. The Sherman Act, along with a big assist from popular journalist Ida Tarbell, was eventually successful in facilitating the breakup of Standard Oil by the U.S. Supreme Court in 1911.
Antitrust legislation was then further expanded in 1914 with the passing of the Clayton Antitrust Act which added new types of anti-competitive practices to the list of things that the Department of Justice could use to regulate business in the public interest. It also restricted the ability of the government to apply antitrust legislation to labor unions.
Shortly thereafter, however, antitrust legislation and regulation took a back seat to the needs and demands of World War I and World War II as big business and big government were seen as needing to work together in the public interest. Following the fascist and socialist horrors of World War II, antitrust regulation roared back into the limelight during the Roosevelt administration as a pathway to ensure that the United States would never allow corporate monopolies to take over government as had happened in Germany with the Nazis.
This antitrust fervor carried on for the next 30 years or so until it gradually began to wane in the mid to late 1970’s and early 1980’s under the conservative influence of the Chicago School of Antitrust which was spearheaded by leading scholars in law and economics from the University of Chicago and which produced what is today called the “consumer welfare standard” of antitrust law.
Per a recent critical reassessment of the “Chicago School” by contemporary University of Chicago scholars, “The Chicago School is also generally associated with a conservative approach to antitrust enforcement that espouses faith in efficient markets and suspicion regarding the merits of judicial intervention to correct anticompetitive practices.”
It’s no coincidence that the last big scalp of U.S. antitrust regulators was taken shortly thereafter in 1982 when AT&T was broken up into the Baby Bells. In 1998, the US government used the Sherman Antitrust Act to sue Microsoft for monopolistic practices and focused on its integration of Internet Explorer browser into its Windows operating system. The Department of Justice won some courtroom battles but eventually settled the case without breaking up Microsoft but did manage to extract some concessions from Microsoft in terms of opening up its operating system software to third party developers.
As we look forward to the future of antitrust legislation and regulation, it is essential that we first understand the above history, at least at the level of this highly simplified narrative. Antitrust regulation has been dormant for so long now that most of us are woefully unfamiliar with this history. If we think of antitrust law at all, it is most often accompanied by the caricatured figures of Rockefeller and Morgan.
During these past 40 years of antitrust dormancy, however, massive new corporate powers have evolved and developed and it is only today becoming clear the extent to which these powers have operated behind the scenes and out of sight of regulators. Moreover, there have been deep and problematic trends of regulatory capture where the regulators themselves get captured by the corporations.
Harvard professor Shoshanna Zuboff has extensively documented the intimate collaboration between Google and the national security establishment, for example, following the terrorist attack on the World Trade Center in 2001. The government needed to be able to track the proverbial terrorist needle in a haystack and Google’s nascent technology and data collection prowess promised to aid in that seemingly impossible task. Professor Zuboff has coined a term for this collaboration between corporations and national security – surveillance capitalism.
Fast forward twenty years later today and it’s clear that national security and big tech have continued to become increasingly entangled in ways that few people fully understand. The rise of the one-party communist government in China and its embracing of surveillance technology has put a lot of pressure on the United States to figure out how to respond to this rising power. These are difficult questions that don’t submit to easy answers.
Today the US government is raising concerns about anti-competitive practices of big tech along the following lines. Amazon is being accused of unfairly competing against its independent sellers. Facebook is being accused of monopolizing social media through its ownership of multiple platforms and technologies including Facebook Messenger, WhatsApp and Instagram. Apple is being accused of inflating app prices in its iOS App Store. Google is being accused of monopolizing internet search.
These are all serious concerns, but they are all looking at antitrust legislation through old lenses. What Google is today has very little to do with what Standard Oil was back in the early 1900’s. When Standard Oil was broken up by the Supreme Court in 1911 using the Sherman Antitrust Act, it was divided into 37 different regional businesses including Exxon, Mobil and Chevron. No one reasonably thinks that the likes of Google or Facebook could be divided up into comparable regional businesses today.
The most often mentioned resolutions of antitrust concerns for big tech today consist of things like preventing Amazon from competing with its own online sellers and preventing Apple from offering apps that compete with its app developers.
These proposed solutions miss the real monopolies that these big technology corporations have established. They have established monopolies of data surveillance backed up by massive computing power and machine learning. Google monopolizes surveillance in search. Facebook monopolizes surveillance in social media. Amazon monopolizes surveillance in e-commerce. Apple monopolizes surveillance in iOS.
What exactly is “surveillance” in this case? It’s the ability to collect data on the users of said platforms and then to extract intelligence from that data through massive computing power and machine learning. The inability of the public to truly understand the depth of these surveillance powers is what has allowed this power to grow largely unchecked. The government has failed in its responsibility to uphold the privacy rights of the public because the government has itself needed big technology in multiple different ways that cannot be covered in this short article.
Big tech has been preparing for this antitrust public relations push for some time now. You can see it in the fact that they have been acquiring new real estate for new headquarters outside of Silicon Valley and Seattle. They know what is coming, and frankly, on some levels they welcome it because regulation can have unintended consequences that end up erecting new barriers to entry for smaller market entrants. Yes, regulation, if not carefully considered, could well end up just further expanding the already massive moats of big tech.
Today we have more questions than we have answers when it comes to how big tech might be regulated so as to ensure an ever more dynamic and creative U.S. economy as well as a secure U.S. homeland.
It is difficult in our highly polarized political environment to imagine that lawmakers will come together for real dialogue on these challenging questions, but there is at least a glimmer of hope in some of the bipartisan language coming out of D.C. on this important topic.
It took 21 years from the passing of the Sherman Antitrust Act to the breakup of Standard Oil. Smart big-tech antitrust action need not take another 21 years, but it should be deeply and carefully considered in a bipartisan manner because few topics are more important to the future of the United States of America today. Maybe it is finally an issue that we can all come together on.
Dr. Richard Smith – Berkeley Mathematician and PhD in System Science – is a fintech entrepreneur and the CEO of The Foundation of the Study of Cycles. Dr. Smith has built a reputation as “The Doctor of Uncertainty” amongst his academic peers and has helped government agencies and Fortune 500 companies (including Pfizer and Johnson & Johnson) alike make sense of complex sets of data. With his background in mathematical theories of uncertainty combined with his investing and trading experience, Dr. Smith is an expert in risk management with critical insights that can help empower investors of all levels. Some of Dr. Smith’s findings are stunning – like empirical data-driven proof that even the world’s best investors, from Warren Buffett to Carl Icahn to David Einhorn and many more, could see their results significantly improved through the use of technology that helps course-correct irrational tendencies and cognitive biases. Dr. Smith’s software, backed by proprietary algorithms and Nobel prize winning research, has served more than 25,000 investors and helps steward more than $20 billion in assets. Dr. Smith is a regular speaker and lecturer and particularly enjoys opportunities to share his knowledge and help others gain an edge in the market.