The regulatory noose around tech firms is tightening
PremiumMoves to curtail their influence are afoot across the world even though state motivations seem to differ
US President Joe Biden said in a tweet, “Let me be clear. Capitalism without competition isn’t capitalism. It’s exploitation." This pithy remark summed up the disquiet simmering for long in many sections of American society. Capitalist America has created some giant monopolies, and their conduct is somehow found to be anti-competitive, a charge these corporations vehemently deny. Capitalism is being corroded by an immense concentration of economic power, and also unprecedented levels of inequality. Big Tech, comprising Amazon, Google, Facebook, Netflix and Apple, is in the cross-hairs of new US legislation that seeks to curtail their economic power, or worse, break them up with antitrust action. Biden on 9 July signed an executive order with 72 specific actions and recommendations involving many federal agencies and regulators that will spell out the pro-competition policies of his administration. These measures cover not just Big Tech, but also healthcare, drug pricing, prohibition of non-compete agreements and so on. He has also called for the creation of a White House Competition Council to rein in the power of large corporations. Net neutrality is on its way back. Data collection and user surveillance will be subject to new rules.
The appointment of Lina Khan—a 32-year old law professor with no prior administrative or policy experience—as chairperson of the US Federal Trade Commission was a strong signal of Biden’s intent. Her appointment was confirmed by a comfortable majority, signalling that there are people on both sides of the political aisle who think strong antitrust action is needed. Khan’s views are well known, captured in a 93-page scholarly paper in the Yale Law Journal titled ‘Amazon’s Antitrust Paradox’. She argued persuasively that regulating monopolies simply to ensure that consumers don’t face price gouging is not enough. This ‘consumer welfare’ test was a radical departure in the late 1970s from the turn-of-the-century trust-busting era which broke up the monopoly of large oil companies in 1911 and railroad companies before that. The most abiding influence that solidified the consumer-welfare approach to antitrust was a book, The Antitrust Paradox, written by judge Robert Bork. The crux of it was that antitrust law should be guided by the maximization of consumer welfare alone, and not by market structure or the nature of agreements, even if they were allegedly exclusionary or led to reduced competition. Being big was not inherently bad. Put simply, if Amazon was offering consumers ultra-low prices, why should antitrust officials lose sleep? But Khan’s influential paper says Amazon has an unfair advantage since it owns the platform, collects and uses huge amounts of data of its consumers, and basically undermines its small competitors that depend on the platform to sell their wares. Amazon’s low pricing is predatory, and it will eventually hurt consumers. It has amassed huge structural power, and this influences everyday life. For instance, one charge is that its monopsony-like behaviour in the labour market has caused wages to stay depressed in warehousing and logistics.
Of course, Khan’s views are sharply contested. The rebuttal is that tech companies create value through innovation, and their customers delight in having access to high quality, vast choices at low prices. Further, digital tech by nature produces monopolies due to network effects, and a ‘winner takes all’ economy is the by-product of that.
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As for the tech players themselves, they advocate self-regulation to prevent the abuse of customer data, but lawmakers are not convinced. This battle to cut them to size has just begun in America, and it’s too early to tell how it will end.
In India, and China too, lawmakers are taking a swipe at large e-commerce companies. The Chinese government recently asked app stores to stop offering Didi, China’s largest taxi-ride hailing and food delivery service tech company that just got listed on the New York stock exchange. Beijing is worried about its alleged abuse of customer data and the huge influence such companies have on China’s economy. Similar drastic action led to the abrupt pullback of the world’s largest public offering of Ant Financial, the financial services arm of e-commerce giant Alibaba. The Chinese government is flexing its muscles. In India too, the Centre’s draft e-commerce rules cover all e-commerce companies and not just the giants like Amazon and Flipkart. They prohibit all “unfair trade practices", which is an omnibus provision. More significantly, the rules prohibit flash sales, deep discounts or any “unjustified" price that could deliver an “unreasonable" profit. These terms are left undefined. This suggests an allergy to very low prices, a la Khan’s thesis, because they drive out small businesses that don’t have the deep pockets to withstand prolonged price competition. Never mind that nearly-zero pricing prevailed in India’s telecom sector without attracting the ire of any regulator. India already has laws that prohibit e-commerce platform owners from holding an equity stake in companies selling wares on their sites. But this restriction applies only to foreign investors, not domestic. India’s new draft rules are very detailed, almost intrusive. Unlike in America, where Big Tech is being viewed through a lens of competition policy, India’s rules seem more influenced by such political considerations as protecting small entrepreneurs. As for China, its government wants to send tech billionaires a message on who the boss is. Whatever the motivation, what is unmistakable and inevitable is that stricter regulation is coming.
Ajit Ranade is chief economist at Aditya Birla Group.
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