Last week, at the Aspen Ideas Festival, I interviewed Tim Wu, a professor at Columbia Law School and author of a new book called The Curse of Bigness. We talked about antitrust and innovation, and he addressed arguments on the topic made by Facebook. An edited transcript follows.
Nicholas Thompson: What I’m going to do here is present the arguments that Mark Zuckerberg gave on antitrust yesterday in the fairest way I can, and then, Tim, I want you to respond. So it’ll be a bit like Tim being on stage yesterday.
Mark made two arguments, and the company often makes a third. Number one, if you break the large platforms into smaller companies, they will not compete on the stuff you want. They won’t compete on making their platform safer, they won’t compete on privacy. They’ll only compete on the stuff you don’t want, which is unadulterated growth. And if you have smaller platforms, they won’t be able to do things like hire 30,000 people to find all the bad stuff on Facebook. That is argument number one.
Argument number two: If you break up the large American tech companies, you will give an advantage to China, because there are certain technologies where you need large companies. For example, many kinds of artificial intelligence require massive data sets and massive compute, which you only have at the large tech companies. And it’s not like China is going after Alibaba. So as we head toward a technological cold war, the US government is kicking the tech platforms in the shins while the Chinese government is helping their large companies. So that’s number two. Mark didn’t make that yesterday, but others at Facebook have.
Number three: Tim, you have very specifically said that the antitrust remedy to Facebook is to split apart Facebook, WhatsApp, and Instagram, to unwind those mergers. You can argue whether they should have been approved or not. But they were approved. You said unwind them. And what Mark said yesterday is, hey, sometimes mergers are bad, no question. But these mergers were not. Instagram had 13 employees when Facebook bought it. It didn’t have an Android app. Without Facebook, Instagram doesn’t become what it is. It has become much more innovative because of Facebook, and the same can be said of WhatsApp.
So if you could take on those three arguments, we’ll go through them.
Tim Wu: Pleased to. Let me make a preface here and talk about my greater mission. I believe that we need to reinvigorate a great American tradition, and that is the tradition of antitrust. I think we have lost some of our pioneering spirit. It’s long been part of the American tradition to believe in competition, to believe in competitive markets, and Americans have always rebelled against concentrated power. A big part of the Constitution is dividing up power to make sure no one has too much. And it’s a big part of what we did in in 1890, in 1914, and again in 1950: pass antitrust laws, the goals of which were to put some controls on private power, and to keep markets competitive and prevent them from just becoming two or three big players. So that’s my big mission. That’s the curse of bigness. And that’s what I’m trying to do. I’m happy to take those arguments on in reverse order.
The first is the easiest. Mark Zuckerberg wrote an email when he was acquiring Instagram that was disclosed in the New York Post, and it suggests he was buying Instagram because he saw it as a competitive threat. Now, it is a felony under US law to buy companies that you believe are competitive threats to you. And so he was actually acting in a way that was illegal when he bought Instagram. The idea that Instagram would be nothing without the infusion of Facebook’s capital is untrue. Instagram already had enormous amounts of venture capital funding; they were kind of rolling in money. Also, and this is more important, what Mark Zuckerberg didn’t mention was that Twitter was trying to buy Instagram, to turn Instagram into a Facebook killer. Instagram was the most dangerous company for Facebook. Facebook had already destroyed a company like it, MySpace, earlier. Instagram was a bigger threat for two reasons: First, it was much stronger on mobile; second, it was better at photo sharing. As a commentator said at the time, Instagram had Facebook’s Achilles heel. The American way is that we believe in competition and that companies should fight it out, not buy each other when there’s serious competition. We established that principle with the Standard Oil Company. So the purchase of Instagram was, in terms of intent and effect, an illegal transaction. Saying it only had 14 people doesn’t answer that when you have Twitter wanting to turn it into a Facebook killer. So I’d submit that argument is wrong.
“I believe that we need to reinvigorate a great American tradition, and that is the tradition of antitrust.”
The second argument is around China. Basically, there, Facebook is asking to become the regulated monopoly of the United States to do battle with our foreign enemies. But this country has always put its faith in competition and innovation instead of national champions. I do not believe America is a country of national champions. It’s actually counter to what we believe in. We faced this problem once before in the 1970s and ’80s, when Japan was the great threat. You know, Japan was going to out-innovate us. They were smarter. The government wasn’t attacking Sony, it knew how to support them. They had the mysteries of the Orient on their side. And so AT&T and IBM, the great American monopolists, said, “Yes, you need to support us in our fight with Japan.”
What did we do? We broke up AT&T. We chased IBM around for its anticompetitive conduct. And out of that battle, it turned out that these companies were holding back a lot. Out of IBM’s carcass came the personal computer, came the software industry, came this ’80s and ’90s boom. Out of AT&T’s carcass—IBM didn’t die, AT&T didn’t die, but they were diminished, their hold over the industry was broken. Out of that, came a new telecom industry, a new internet industry, the ISP industry, and all the industries we’re worrying about today. So there is a lesson: When we break up stifling monopolies, the result is often more growth.
Two places that stuck with the national champions program in the ’70s and ’80s were Europe and Japan, and I haven’t heard from either of them in a long time in the tech markets.
So that is the danger I’m warning against. Don’t follow Japan and Europe. Let’s follow the lessons of the United States. Challenge our greatest tech companies, force them to compete, and the US will continue to be a tech champion in the world.
What was number three again?
NT: Number three was Zuckerberg’s argument that if you break them up, the newly independent companies will compete on the stuff you don’t like, not the stuff you do like. They will compete on growth, they will not compete on privacy, safety, safe elections, all of that.
TW: I think this, again, betrays a lack of faith in competition. Because I’ve written so much about the history, I’ve spent a lot of time with the AT&T monopoly, and that’s the argument they always made. They said, if you break up AT&T, phone calls won’t go through. You know, long distance has to be $1 a minute to be high quality. This whole idea of long distance at 10 cents a minute, that’s going to be terrible. It’s always this fear mongering that if you challenge the power of the biggest companies, they won’t be able to do the things you want them to.
Also, notice in that argument there’s a subtle idea where big tech starts promising it’s going to do government’s work for it: We’re going to provide security, we’re going to fight Russia, and so forth. First of all, I don’t think Facebook has a good track record of protecting this country against foreign attack. So if they’re promising more of the same, I don’t want to hear it. And I also think anyone who studies systems knows that centralized systems are dangerous, because they offer one big, giant target. Most people who have studied the Russian interference in the last election suggest that one of the problems is that you just had a couple of big targets. What would Putin have done 20 years ago in the days of the more chaotic internet? Go put some ads on Craigslist or something to try and manipulate votes? When there are just a few choke points, just a few points of control, that’s when you’re vulnerable to foreign interference. That’s when your security problems rise.
“We did trust Facebook, and they have not proven worthy of the trust.”
And I think it’s a terrible thing that we’ve let the tech sector—which was traditionally the most decentralized, the most innovative part of the economy—become a place where people want to just build companies to get bought by Facebook. That is not the kind of ambition we should have for young engineers in this country. I think it portrays a lack of faith in competition, a lack of faith in the ecosystem, and comes back to an idea of “Trust us, we’re going to do it all.” Well, we did trust Facebook, and they have not proven worthy of the trust. I also have a personal beef on this, because I worked in the government. We put Facebook under order for privacy violations, and they violated that order so many times we can’t even count it. So why should we trust a recidivist company—a company that ignores government orders—to protect privacy, to protect the security of this country? That doesn’t make any sense to me. That’s why I think we need a shake-up in big tech.
NT: Let me ask you one follow-up. You’ve argued very interestingly that some of the most important antitrust action is not going to come from the DOJ or the FTC or from Europe, it’s going to come from the states. Tell me about that. How is that going to shake out, and how could that apply to the tech giants?
TW: Yeah, there’s been a growing tendency, a real change, a return to a kind of a different spirit of American federalism. I think the states have started to see their role as filling in for the federal government when the federal government doesn’t do things. Privacy is a good example. A lot of people are concerned about privacy; Congress has done nothing for a very long time. So California did something. The same way they did with emissions. I worked in the Obama administration, and I worked in antitrust, so I will take some personal blame here, but we have not provided the merger oversight we should have. We have allowed too much consolidation of the economy. And I think it has contributed to a lot of the anger about wealth distribution in this country. So the states are starting to step in.
NT: Is this all Obama’s fault? He approved all these mergers, right? Instagram happened under his watch. You know, all of the decisions that have put us where we are happened under his watch, and he had 40 or so Google employees working for his government. Do you think the Obama administration was captured by big tech?
TW: “Captured” might be too strong. I would say that maybe sometimes we had an overly rosy view. In the early 2000s, you know, there was this honeymoon period where everyone loved tech, and, really, they did build great companies. It’s an American thing to have a lot of faith in the technologies of the future. Thomas Edison, Alexander Graham Bell, so many of our heroes are great inventors. And I think that spirit carried forward. I don’t think anyone in the Obama administration was taking money, but we had this kind of rosy view. And when Mark Zuckerberg came to the Federal Trade Commission saying, “Oh, I’m so sorry about these privacy violations, but like, I’m a young man; I didn’t know what I was doing. We’ll never do it again,” everybody believed it and dropped individual charges against him. But in fact, we were fooled.
I do think it’s time to really take a hard look at how power is allocated. And I say, again, the American tradition, both in tech and in the economy, is that we believe in decentralized ecosystems and innovators going out there to do their own thing. It’s the American frontier. And it is an older tradition. It is, you know, Theodore Roosevelt, Louis Brandeis. That’s what we need to recover, and I think it’s a big part of the answer going forward to some of the dissatisfaction in this country. So antitrust: I’m a believer, and there we go.