Is It Time to Break up Big Tech?

Courtesy of Tomorrow Edition.

Written by Chelsea Tang

Unlike telephone service, the internet cannot be controlled in the same way. There is currently  no singular strategy on how to regulate these companies because they operate in uncharted territories.

In the past 10 years, the five largest companies—Microsoft, Exxon Mobil, General Electric, Citigroup, and Shell Oil—have been replaced by Apple, Alphabet, Amazon, Facebook. Google owns 88% of the market in search advertising; Facebook owns 77% of mobile social traffic; and Amazon owns 74% of the e-book market. While there is no defined size for a monopoly, companies greater than a market share of 50% attract the attention of antitrust regulators.

A similar version of history may be repeating itself. In the early 1900s, there were many small phone companies creating inefficiency. AT&T bought smaller operators and grew its market share in phone service. As it gained power, AT&T took advantage of its status as a monopoly by not selling network access to alternative service providers. The company eventually became the sole provider of electronic communication in most of the United States through dominating not just telephones but also telegraphs with its controlling stake in Western Union. AT&T avoided at antitrust suit by leaving the telegraph industry and offering long distance lines to independent phones companies. However, this solution did not last long. The government stepped in with an antitrust lawsuit to break apart one of its subsidiaries, Western Electric because it was overcharging AT&T and thus forcing customers to pay higher rates. At the end of the antitrust case, AT&T broke itself into several pieces and lost its monopoly power.

The big four technology companies have accumulated a considerable amount of economic value and influence, having combined market capitalization of $2.8 trillion. However, they aren’t contributing equally back to the economy as companies of their size could. The American government uses an annual budget of around 21% of the GDP, but big tech does not contribute its fair share. Between 2007 and 2015, Amazon paid only 13% of its profits in taxes, Apple 17%, Google 16%, and Facebook 4%. In contrast, the average tax rate for the S&P 500 was 27%. Furthermore, these four companies have been the culprit behind less jobs in the economy. The advertising business is a low-growth, zero-sum business. Google doesn’t earn money by expanding the market but by taking money and thus jobs from its competitors. Facebook’s market cap per employee is ten times larger than P&G and Intel. Big tech job destruction reinforces the fact that they fair share of taxes. These companies have become more powerful than the government. In the bid for Amazon’s new HQ, Chicago’s state officials let the company keep $1.3 billion in employee payroll taxes to spend as it sees fit. Big tech has impacted the everyday American’s life indirectly by avoiding taxes, limiting the amount of jobs available, and bypassing bureaucracy.

Unlike telephone service, the internet cannot be controlled in the same way. There is currently  no singular strategy on how to regulate these companies because they operate in uncharted territories. Traditionally, antitrust laws  targeted a company’s revenue-generating market, which would be internet search advertising for Google and social networking for Facebook. However, a more focused approach to regulation would be looking into the heart of the problem – tech monopolies feed off of user-generated data. Thus, one way the government can chime in is by placing restricting on how big tech can use the data. Apple, Google, Amazon, and Facebook are growing more powerful every day. Not only do they avoid contributing fairly to the economy, they also collect data on its users. The government must step in on behalf of its citizens and the economy before it is too late.

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