Tech Brew Ride Home - (Bonus) Silicon Valley and Monopoly With Matt Stoller

Episode Date: June 29, 2019

Is it really different this time? Is the regulatory hammer about to come down on Silicon Valley? Matt Stoller is a fellow at the Open Markets Institute; he’s writing a book on the history of Monopoly power; and he has direct experience with this stuff. He was a Senior Policy Advisor and Budget Analyst to the Senate Budget Committee. He also worked in the U.S. House of Representatives on financial services policy, including Dodd-Frank, the Federal Reserve, and the foreclosure crisis. How is monopoly power different (or not) in the era of Big Tech? Sponsors: CognitoHQ.com GetKeySmart.com and use the promocode techmeme Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to another weekend bonus episode of the Tech Meme Ride Home. I'm Brian McCullough. For a while now, I've been trying to get someone to come on here to talk to me about big tech and regulation, big tech and antitrust. Well, Matt Stoller is a fellow at the Open Markets Institute. He's writing a book on the history of monopoly power, and he has direct experience with this stuff.

He was a senior policy advisor and budget analyst to the Senate Budget Committee. He also worked in the U.S. House of Representatives on Financial Services Policy, including Dodd-Frank, including the Federal Reserve and the foreclosure crisis. So today we're going to talk to Matt about monopoly power and big tech, how it's different because it's big tech, and regulating big tech. Is it different this time? Is some meaningful monopoly hammer about to come down on Silicon Valley? Quick note, I argue both sides of several arguments in this conversation, but I want to stress, I don't have actually any solid conclusions about any of this myself. That's why I wanted to talk to someone like Matt to help me get my mind

around this stuff. Please enjoy. You have experienced in the government with things like oversight and regulation, I think, you know, with the Senate, with the House of Representatives, on financial services policy, all sorts of stuff like that. But I guess my first question is from you reading your tea leaves, is it really different this time for tech? Do you feel like there's going to be some meaningful action coming down the pike for big tech? Or is this just a lot of hot air that will never amount to anything? Oh, I think there's going to be meaningful action. Yeah. So, and I think it's going to be soon. I think there's going to be a lot of it. And I think you actually already see some of it. Like some of those,

there was that bill, that bipartisan bill that got announced earlier this week? Well, actually, so there's that, there's a bunch of stuff going on in the U.S. I think you're going to see at a state level, like state attorneys general are going to do some, are going to actually launch suits. But you're already seeing some with the Sprint T-Mobile merger, which is not big tech, but is a telecom network. And it's quite easy to move from telecom networks to big tech. and you're seeing a lot of interest among state attorney generals, state state, state attorneys general to deal with big tech, particularly on the Republican states.

But then if you look abroad, like what you're seeing Germany do with Facebook is very important. And I think Australia is going to act. And you're going to see like the European Commission has been, you know, moderately interesting in what they've tried. So, you know, there are investigations in Japan. their investigations in Israel. India has actually forced the structural separation of Amazon from its marketplace from its retail operation. So, you know, there's already things going on. It's just that if you look at a federal level in the United States, that's kind of an anomaly because there's not much

going on. And the other thing, the other place to look is Congress. And in particular, the House antitrust subcommittee where there is a real investigation of big tech happening. And, you know, so what's happening right now is that you've got a lot of companies that are frustrated with Google, Facebook, and Amazon, and Apple, and they're going to the DOJ, they're going to the FTC. They're saying, here's my case, here's the problem. And then they're marching right, you know, right down the street to Congress in saying, here's what I just told the DOJ and FTC. And since they're, you know, the head of that committee, David Cicillini is pretty aggressive. I don't think it's too hard for the enforcers to realize that they now have somebody looking over their shoulder who wants them to act. You know, you've been writing a lot about the history of how this has evolved. And I want to get into that. But actually, let me let me bring it back specifically just to the U.S., maybe because it's easier to frame it that way. What's changed? I was talking to somebody over the weekend, because I remember, like, in the

early 90s, there were these congressional hearings over cable TV prices. And it was like, because it was a win-win politically, like, just you could show voters that politicians could do things that impacted people's daily lives. And so when I see, like, I think I said this on the show, like, when was the last time you could see something that both sides of the political divide could agree on? So is it – what has changed in the sense that, like, this is something that is a winning political issue legislatively, congressionally, that sort of thing? Well, I think you saw it a couple weeks ago, so a number of things. So first of all, a couple weeks ago there was in the House Antitrust Subcommittee. they did a hearing on newspapers in big tech, right? So concentration in advertising markets.

And the witnesses, there was one guy from Big Tech Trade Association, and there was someone from the Atlantic Journal Constitution. There was someone from News Corp. There was someone from open market, which is where I work, and there was someone who runs the newspaper lobby. And pretty much everybody except the guy from the Internet, the Big Tech Giants, was saying, A, we have a concentration problem here.

And both the Democrats and the Republicans that were doing oversight and that were at the hearing were agreed. There is a concentration problem here. So that's the one place that you have Jerry Nadler and Doug Collins, who are, that's the chair and the ranking member of the Judiciary Committee that are at odds over Trump and judiciary and immigration, all these high-profile polarizing issues. Well, they do come together on the antitrust subcommittee. And it isn't just about big tech. So they came together and they passed a bunch of bills out unanimously on pharmaceutical prices in concentration. And the bills were co-sponsored each by a Republican and a Democrat.

So you're seeing it there. And then you saw, you're seeing anger at monopolization among defense contractors. So you saw there was this, there's this one monopoly called Transdine. And there was a hearing relatively recently over how Transdine is gouging the Pentagon over essentially sole source monopoly aerospace parts. And there was a lot of anger from both sides of the island. Transdine voluntarily returns $16 million in overcharges. You're going to probably see, you saw an amendment adopted unanimously to allow Pentagon contracting officials to see cost information. You've seen things in the securities markets.

So the stock exchanges are charging too much money for data. And the SEC recently put a cap on what they could charge or refused to allow them to raise prices. And that was something that both the Republicans and the Democrats voted for. So, you know, there is a lot of partisan, there are a lot of partisan fights over corporate power. But there's also a, there's also like, if you actually are looking behind the heated rhetoric around Trump and around politics, there's only quite a bit of agreement and increasing agreement about the problems that we have in our political economy due to concentration. All right. Well, that makes me want to ask how much of this is game recognizes game? Because you wrote that like monopolies are basically private governments and have governing powers.

So we'll come back to tech specifically in a second. But if this whole move towards against monopolies and the new antitrust, how much of it is just about the power in governments around the world, recognizing that their power is being usurped? Well, I don't think that's really what's happening. I think to some extent you have, so you're talking about sort of bureaucratic jealousy. Yeah.

And I think it's very tempting to see the world that way. But I think that there's a general like philosophical revolution going on about the role of government and the role of business and what being a citizen in a democratic culture means. So really for like the last 40 years, there's been this kind of argument that what we really need to make a good society is we need to make sure that consumers are getting as much as they can inexpensively. And that the way they get it is not that important. So if there's concentrations of power that you're delivering them low prices and lots of stuff, cool, right? Like, I don't care if it's a mom and pop store or if it's Walmart. What

matters is that the stuff is cheap. And that's a philosophy. It's a philosophy about how we see the world and how we relate to one another. And it's a philosophy that overlooks power. And it's also a way of embedding the ability to concentrate power in our laws and our laws and our rules and moving decisions away from politicians and elected officials and business people and towards a very narrow group of economists who can kind of measure things in a sort of quasi in a pseudo-scientific way. And that really dominated until, and this was global too. So you saw, you saw this kind of says, oh, well, you know, China, we want to integrate them into the global system because, you know, they'll get McDonald's and Xboxes and then they won't want to go to war.

And, you know, that's, so that's how we'll turn them into a democracy. We'll get the McDonald's and Xboxes. And what we're really seeing, what we've seen since the financial crisis and is a kind of discrediting of that way of thinking about the world. And big tech is, you know, a very obvious problem. Like, it's very obvious that they're accumulating sovereign power, but really learning to see power again, whether that power is in a pharmaceutical market or an agricultural market or in geopolitics through trading relationships with China, learning to see power again, political power, and learning to see ourselves, not just as consumers, but also as producers and his citizens and as community members and as people who operate

within markets, that's really what's happening. That's the revolution. It's not so much that, like, governments are getting jealous. more that everybody's recognizing, oh, wait a second, the kind of skepticism we had towards government, which is like the basic kind of libertarian way of making sure that, you know, consumers have low prices, that skepticism now should be applied to the concentrations of power that we've allowed to accumulate, which happened to be in the private sector, but are not solely the private sector. I mean, I think China is a concentration of power, and that is a sovereign state. To bring it back specifically to Silicon Valley, you've written about how Silicon Valley, in a way, was actually born out of anti-monopoly, so that in a way, modern text embrace of monopoly is sort of a betrayal of its roots?

That's right. I mean, so for, like, if you look at America, right, it's part of, it was America, American Revolution 1776, same year Adam Smith, the wealth of nations is published. And the wealth of nations is all about markets, but more importantly, how the opponent of markets is and political freedom are monopolies. Right. So there's a ton of stuff in there about how bad the East India company is. And, you know, the American Revolution is set off by a key party rebellion against the East India Company. It is not about taxes. It was about how tax policy was used to monopolies key markets. And so in a very real way, the American experiment was born out of a rebellion against monopoly.

And you see this kind of, you know, there was Thomas Jefferson wanted to put an anti-monopoly provision in the Constitution. There was tremendous fear. There were fights over banking power very early on. The first national bank, Andrew Jackson, the second national bank, there were fights over, you know, the railroads and telegraphs and, you know, steel companies, oil companies. Even the Civil War, you know, there was a tremendous fear of concentration of land in what they called the slave power. And then you roll that forward, the fear of concentrated power. you know, you roll that forward in the automobile, chemical industry, radio, television, and then even into the 60s and 70s with computers.

Yeah, let me interrupt you there, because I want to do this in reverse chronological order, because I've argued before that the reason that, you know, eight of the 10 most valuable companies in the world are tech companies is because there was that Microsoft antitrust that sort of, of hobbled them and allowed the Googles and the Facebooks to rise without being taken out. And then you go again back further, then you have the whole multi-decade IBM antitrust thing. But like literally the birth of the transistor, the semiconductor industry, happened because AT&T was forced to open up like their patent portfolio and things like that.

And so this, I'm sorry, I'm sorry. I'm going to ramble a bit, but I'm getting to a point that I feel like you've made two at some degree. In fact, actually, I'm going to quote you. What worries me is that we're in a state with these tech companies where any halfway good product or feature gets immediately snapped up by major platforms, any company, right? And it's just added to their utility belt of feature sets of these big platforms. Like you wrote about how Google buys like a company a week and then shuts down any product that doesn't get to 100 million users or something you wrote, and I'm quoting now. Surely Google is creating cool technology, but is that technology really being developed, or is it being locked away as patents were in AT&T's 1956 volts before the government stepped in? Just from my perspective, from the Silicon Valley, from the tech perspective, is that something that, is that something that,

needs to be remedied now and can that be remedied? Yes. I mean it's so so really the changeover to a world where you know people try to monopolize happened in 19, roughly 1980, 81 that's when you saw the development of the patenting of or the copywriting of software, the copywriting of genetics, and the and then the change in antitrust priorities and that's when this new digital technology personal computer and the internet was was was monopolized or started to be monopolized and the first one was Microsoft and then Apple and then then it's in the 1990s and 2000s as Microsoft has pushed back you have Amazon Google and Facebook

and these are companies which are competing over markets they're trying to control the market the winner wins the market as opposed to competing within markets and because of that you have you know, the goal is to prevent the emergence of new technologies. Once you own a market, you want to either control the next technology or prevent it from developing. And that's why, you know, the Microsoft case in the 90s was it was about, you know, they were using, they were developing the Internet Explorer browser for free, and they were also developing competition with Sun's Java tools. And both of those were what were called middleware.

So Netscape wanted to be able to basically get around Microsoft's operating system by turning the browser into an operating system, similar to what you see with Chromebooks. But the applicable thing is that, look, Expedia was birthed by Microsoft. If Microsoft was not going through the antitrust stuff in 98, 99, 2000, they would have bought Amazon. Especially after the dot-com bubble burst, there was no one left standing. Amazon was a $5 stock. They totally would have done that.

like, it's sort of like that sort of window where even if they, the actual remedies didn't happen, the actual suit didn't go through and things like that, but they were hobbled and prevented from being, you know, predatory. Right. I mean, they brought a bunch of venture capitalists into a room one day and they said, hey, here are the places that we're going to invest online and here are the places we're not going to invest, you know, make your investments accordingly, right? I mean, it was like, it was nice investment there, you got there, you know, shame if anything should happen to it. And that's eventually when the Fed came in and said, we're going to, you know, litigate, it caused Microsoft

to back off. And then a lot of people could run, you know, could get through Internet Explorer and bring their wares to market as opposed to Microsoft, always having a threat. Like Google right now has a threat. You know, if you want to get to the Internet, you have to get through Google or Facebook and they can just choke you off if they want to right now. And Microsoft, and Microsoft, could have done that and you're right the fact that they didn't they weren't able to do that it's because there was an antitrust suit the same thing with IBM in the 1970s the same thing with a whole bunch of other companies like RCA and Xerox and AT&T the same thing back in the 1880s and 90s with railroads and steel and oil and so it's like and you

know there's a reason it's always the new technology that's the most valuable monopoly in the world because the new technology is what's growing you have pricing power you you you know, the new technology changes all of the old technology. So you're seeing the same things happen again and again and again. And the goal of our anti-monopoly laws is to prevent the creation of wealth by controlling a bottleneck and do encourage the creation of wealth by actually producing better goods and services. So to get rid of bottlenecks to the extent that it's possible. To what degree then is the remedy, and I'm not arguing for this, but I'm saying if, taking the devil's advocate point. So to what degree is the remedy simply

it's almost like there was like a 30-year free free-for-all for tech companies. Like no one scrutinized any acquisitions or anything. So is that the simplest remedy is to, at the very least, stop unfettered, rapacious acquisitions and then maybe even unwind some acquisitions? I think that's right. I think, I mean, there isn't one, there isn't one solution, right, because it's like, The question is, how do you restore markets and democracy? So there are lots of different markets, and they each need to be treated differently

because they have different physical and technical characteristics. But the basic idea is, yeah, if you're a monopoly, you shouldn't be able to acquire other companies to move into other markets or to protect your monopoly, right? And Microsoft, for instance, tried to buy into it, which makes, you know, QuickBooks software in the 1990s. And the DOJ actually stopped, and that was their first antitrust loss. And, you know, so you shouldn't allow Google and Facebook and Amazon and Apple and Microsoft to buy companies, right? Because what that will do is it will force venture capitalists to put money into companies to compete with these guys, instead of putting money into companies that can get bought off, you know, bought out.

Right. Again, like I said, as soon as you have a good idea, you get kneecapped and you never get to find out if that good feature can turn into a good company. Right. And then there's a lot of venture capitalists who are like, well, I think your idea is a good one and can maybe can, maybe can, beat Google at certain things. But if I put money into you, then my other portfolio companies that I'm hoping to sell to Google, I won't be able to sell them to Google, right? So there's a kind of cartel arrangement or quasi-cartel arrangement that's happening, almost like, you know, the gangsterification of American business, but it's a very polite form of gangsterification.

Well, that's the definition of an oligopoly or a cartel. All right, let me, real quick, let me, let me again argue the other side. If software is eating the world, the famous phrase, you know, is, or do we have to redefine what it means? Because like, okay, tech companies are literally right now taking over Hollywood because they have the distribution. Like, Apple might get into self-driving cars. You know what I mean? Like, so if, is the reality that if you're good at software, this magical sort of stack of, you know, the product layer, you, you can deploy your skills into almost, any market. And so is that necessarily wrong? Are you suggesting that we just have to keep

everyone in their own lanes? But is that even possible if it's like, well, but if you can do a better car via software, like, why should we stop you? So you want to talk about Hollywood or you want to talk about cars? You pick. Okay. Well, I'll pick Hollywood then. Okay, so we'll talk about Hollywood, right? Hollywood, you know, and culture and ideas, right? Like, what you want to do with a movie industry is that you want to encourage people to make good art that they can sell as popular, right? And you want to put as few limits on that as possible and allow as much distribution as possible so that you can't have censorship, right? And the way that we've done that historically, and we've done it through regulation of television networks, very important regulations called financial syndication rules in the 70s.

We've also done it through antitrust suits. There's a wave of suits in the 1940s to break the studios. They couldn't own the theaters, right? Right, and they could do block booking and a whole bunch of other things. What we basically does, we separated out production and distribution, right? And so if you distribute, you can't produce and you have to have competitors in distribution. And if you produce, you can't distribute and you have to have competitors in production. And what that does is it creates the maximum amount of freedom for the artist and allows for local control of theaters and local control of distribution.

There's a whole lot of reasons why that's a good thing. But what you're seeing now is increasingly it's the distributors who are concentrating power, whether that's in the hands of life. a very, very small number of companies that own theaters. There's incredible concentration in the theater market. And then you're seeing incredible concentration in distribution markets through things like Netflix and Amazon, neither of which, by the way, actually has to make money, both of whom are losing money to acquire distribution power.

And, you know, the problem with that model is that if you are just good at making movies, you're an artist, it's very hard for you to start a business making movies because you're competing against people who don't have to make money. And that's, so I can't compete against somebody, no matter how good my product is. If I have to make money and somebody else doesn't, they're going to win, right? And so that's the problem. That's why you want to separate.

You don't want to allow the acquisition of market power to be the goal. You want to force the creation of goods and services and distribution networks that are efficient and do a better job to be the goal of competition. You know, I want to ask you about Libra and all that good stuff, but you know what? I feel like I might need to talk to you again. So at the very least, do you want to plug anything? Like, I think you have a book coming out later this year

about monopoly power and democracy and all that good stuff? Yeah, so two things. So one, I have a book coming out. It's called Goliath. the 100-year war between monopoly power and democracy. It's coming out in October, so you have to wait a little bit. It's really good. It's fun.

It's a completely different view of the 20th century, 20th century history, and it's got protests, it's got, you know, political fights. It's got businessy stuff. It's really a fun read. Lots of history. I was very, very exciting for me to discover all of it in the archives. And impeachment is just so fun. And the other thing is I started a,

an email newsletter, I call that, it's called Big, and you can go to MattSolar.com. Big, big, B-I-G. And by the way, I will double plus endorse this newsletter. Oh, thank you. Anyway, I'm trying to email newsletter thing just to try to explain to people like the lost history of anti-monopolism and democracy and innovation. Yeah, and listen, again, we're both short on time, but I feel like there's, would be more to talk about. So hopefully you'll come on again. Thank you so much, Matt. Absolutely. Thanks for having me.