Most of the discussion of the Australian Competition and Consumer Commission’s (ACCC) Digital Platforms inquiry report focuses on what it suggests by way of future regulation for Google and Facebook.
What it also makes clear, though, is how the competition regulatory model failed to respond in the past to the challenge of tech giants. Not so much the Australian regulatory model — we’re trivial players in global markets — as competition regulation in the US and Europe. The Europeans, at least, have been noticeably more aggressive in regulating the tech giants, but as the ACCC report underscores, it was in the US that the basic failure of regulation occurred.
We can focus on how disruptive and innovative social media and search platforms have been, just as the internet has disrupted so many industrial sectors and will continue to do so. But there’s nothing revolutionary about one of the key strategies of Google and Facebook. They have simply bought up competitors and potential rivals to entrench their own position and raise barriers to entry.
“Google has spent substantial sums acquiring other businesses,” the ACCC says. “Some of these acquisitions may have enabled Google to entrench its position in search and search advertising, including through expanding into related markets which may have been a source of possible rivals…”
Google spent $23 billion buying 145 companies in the decade to 2014. Ditto Facebook, which spent $23 billion over 12 years buying 66 companies, the ACCC says, “to entrench its market power.”
The ACCC refers to this as a “killer acquisition strategy” in which rivals are acquired and shut down, or integrated into the acquirer’s platform. Warren Buffett calls it “widening the moat” — entrenching your power against actual and potential competitors.
Investors love it — the more a company can “widen the moat” and ensure other firms can’t compete against it, the readier they’ll be to buy into it. Consumers, workers and other businesses, of course, pay the price: the larger and more dominant a company is, the wider its moat, the more that company can gouge consumers and other businesses and force down the wages of its workers without competitive threat.
As the ACCC notes about “killer acquisitions”, the idea was developed in relation to the pharmaceutical industry, but also applies to tech. In fact, it’s a dominant characteristic of neoliberalism, driven by the deregulation of financial markets that liberated large amounts of capital to fund mergers and acquisitions, and a deregulatory ethos in the US in the 1980s that backed the creation of ever-vaster corporations from that M&A activity.
Funny thing is, neoliberalism should look askance at giant corporations, given their tendency to monopoly behaviour and lack of innovation, but neoliberal economists like George Stigler devoted considerable intellectual effort to justifying monopolies as just another demonstration of the efficiency of the market — and neoliberal “regulators” waved through acquisitions that created giant corporations. This, in turn, gave those corporations ever greater power to lobby regulators and game regulatory systems. There’s not much that Google and Facebook have been doing that the giants of US capitalism didn’t do in the Gilded Age.
While flirting with discussions about “killer acquisition strategies”, however, the ACCC remains unwilling to accept the logic of what it is describing. The strongest of its recommendations is the expansion of the “substantial lessening of competition” test in the Competition and Consumer Act to include acquisitions that “would result in the removal from the market of a potential competitor”.
It also wants large digital platforms to provide advance notice of acquisitions. Thereafter, the recommendations slide into a hazy bureaucratic distance, with more inquiries, codes of conduct and regulatory harmonisations (which traditional media outlets will use to remove regulation and get rid of licence fees).
But as Alan Kohler correctly noted this morning, “Bolted horse, stable door. The only thing worth doing on the M&A front is the reversal of takeovers.”
The damage being inflicted in the economy and on society by the dominance of Facebook and Google can only be addressed by reversing what created it — not their innovation or brilliance at monetising our lemming-like consumer behaviour, but their relentless acquisition of potential rivals to widen the moat.
That was the lesson from the Gilded Age, and the trust-busting power that emerged from it for US regulators to use against monopolies and duopolies. It’s a lesson more and more politicians on both sides of the aisle in the US are discussing.
The ACCC — as its role in the electricity debate, where the Coalition wanted the power to break up companies and the ACCC didn’t, showed — is reluctant to go near a break-up power. But it’s an issue that’s relevant not merely to energy, or big tech, but right across an economy where we’re picking up the pieces in the aftermath of neoliberalism.