While there are real reasons to be concerned about Google’s immense power, this investigation is quite politically motivated, explains former financial regulator Bill Black
Story Transcript
GREG WILPERT: Welcome to The Real News Network. I’m Greg Wilpert in Baltimore.
Fifty Attorney Generals from 48 states, the District of Columbia and Puerto Rico announced on Monday that they are launching an anti-trust investigation into Google. This investigation would be in addition the one that the Justice Department’s already conducting. Here’s what Texas Attorney General Ken Paxton, who’s leading the case, had to say when he made the announcement on Monday.
KEN PAXTON: This is a company that dominates all aspects of advertising on the internet and searching on the internet as they dominate the buyer side, the seller side, the auction side and even the video side with YouTube. And right now, we’re looking at advertising, but the facts will lead to where the facts lead. And even as we speak, been up here about a minute, there’ll be 3.8 million searches and a lot of advertising dollars just made in every minute that one of these people speaks.
GREG WILPERT: Other major tech companies that have come into the crosshairs of various state and federal government agencies for anti-trust investigations are Facebook, Apple and Amazon. According to a New York Times analysis, Google is facing five major investigations, Facebook eleven, and Apple and Amazon are each facing three. Each area of anti-competitive behavior is different, depending on the market that each one of these companies dominates.
Joining me now to discuss the wave of anti-trust investigations against Google and other tech companies is Bill Black. He is a white-collar criminologist, former financial regulator, and Associate Professor of Economics and Law at the University of Missouri, Kansas City. He’s also the author of the book The Best Way to Rob a Bank is to Own One. Thanks for joining us again, Bill.
BILL BLACK: Thank you.
GREG WILPERT: So it’s interesting that a Republican State Attorney General is taking the lead on this, Ken Paxton. And that California isn’t even a part of the case, along with Alabama. What’s going on here? What’s your analysis?
BILL BLACK: Okay, so the reason the state AGs are getting involved in general in lots of different things, and going all the way back to the runup to the great financial crisis, is that the United States Department of Justice has basically abandoned cracking down significantly on elite white-collar crimes in general and anti-trust in particular. Now, there’s an exception— cartels. They actually are moderately vigorous until the Trump administration, but in lots of other areas, not so. And so the states felt that the only way that you could have any effective action was to have the states take the lead. But the states lack the capacity to take the lead.
They just don’t have—All the 50 states plus Puerto Rico and DC together do not have the resources in anti-trust, for example, that the federal government has just in its anti-trust division. And that’s not even mentioning the FBI, which does the real investigations, and which the states have no real counterpart to. And so the only way the states could even try to be effective was to link together. And they did this in the runup to the great financial crisis sufficiently, effectively, that the federal government actually sought to block the states from bringing this action, claiming that it was preempted, so this is continuing that practice.
They weren’t able to get California and they weren’t able to get Alabama. So they weren’t able to get Alabama on the usual conservative grounds of “why should we sue anybody, the powerful?” But they weren’t able to get California of course in part because the state AG is a Democrat, and his leading source of contributions, or among his three leading sources of contributions is Google. And this is one of the real problems with state AGs. They’re statewide races, you have to get elected, and they’re expensive races, so you’re always seeking political contributions and such. That, of course, is something that the US Attorney General doesn’t have to do and allows him or her to be more independent.
Then the next question is the states have to face the question always in these kinds of cases that the federal government doesn’t face. And that’s “who’s going to be in charge?” It’s obviously that the US Attorney General, unless he has to recuse himself, is in charge at the federal level. But the state level, it’s a matter of negotiation. For reasons that pass all understanding, they put Paxton, one of the absolute most notorious state Attorney Generals in the United States, in charge. Paxton is trying to raise political contributions on the basis of this investigation. He sent out an email seeking funds, and I quote “we will continue to fight for your rights and to protect you from monopolistic practices by liberal elites in DC or in Silicon Valley.” Now here’s a hint, Attorney Generals are not supposed to go after liberals or conservatives or moderates.
That is completely antithetical to the idea of justice, but Paxton is not functioning like an independent, honest person. He’s someone who is intensely politically ambitious, who hates anybody who he perceives as even moderate—much less, liberal or progressive and such— and he wants to use this investigation as a weapon to go after his political opponents. And on top of that, get paid off, to get a fine that he can use to tout as a success, and to use that resources to do the same type of thing in going after other folks. So again, I have no idea why the state AGs who are Democrats were willing to allow Paxton to take the lead role because it’s going to discredit the entire investigation.
GREG WILPERT: I think that’s really interesting to see this kind of battle going on, essentially within the elite circles of the United States. It’s really breaking out into the open in this case, if that’s the real motivation behind—Well, he said it himself. His real motivation is to go after the liberal elites, which he sees Google and Facebook as being a part of. But I want to turn to the actual issue of anti-trust and monopolies. Now, clearly Google dominates the search market. There’s no doubt about that. It’s practically the only search engine anyone uses. However, in advertising, Google is not actually a monopoly, at least if one looks at its market share by revenues, where it has a 38% share of digital advertising revenues and Facebook has 22%. Now, give us an idea as to why Google’s dominance in search and advertising should actually perhaps be a concern. Is that concern real? And also, if advertisers can simply go elsewhere if they feel that Google isn’t treating them fairly, why should their practices in this area be of concern?
BILL BLACK: Okay, so one of the things I teach is anti-trust and such. Monopoly is not the same thing as monopoly power. When we use the word “monopoly,” we typically mean one entity that controls nearly everything. There are cases, but they’re rare in life where there is actually a monopoly. Long before you have exclusive control over a market, however, you have some degree of market power. How much is incredibly complex and depends on the inner play. But one of the things is, say, use your numbers, we have somewhere around 30 to 40% of control here. We’ve got a competitor who has 20 and another competitor who has 20. Well then that makes it pretty easy for the three of us to collude. And we can collude implicitly, right? Just don’t rock the boat. Anybody that really tries to undercut on fees, then we rush in and we match that and maybe we even cut a little more to show them how vigorous we’re going to be. So economists have long been concerned anytime a company gets even close to the degree of market domination that you talked about, so it’s not silly in the least that they’re worried about it.
Now here’s the kicker: people may remember Bork and the phrase “to be Borked.” Well one of the reasons he was not approved by the Senate to be a Supreme Court Justice is that he was leading the right-wing movement to say that essentially we should get rid of anti-trust. In the specific context of Silicon Valley and any high tech entity in which numbers matter, penetration matters, the argument from the Right is that there are “network effects.” In other words, when I use my email, it’s much more valuable if I can talk to everybody than if I can just talk to the 10,000 people who have to be subscribers, in the old days, of some particular email service. And those kind of network effects are fairly common within tech, typically because of this desire to communicate and to search, in this case, much more broadly. So that leads to something close to what, in the old days in economics we would refer to as a “natural monopoly.” A natural monopoly just means that there are so many economies of scale, that whoever gets big actually gets cheaper, and they have a competitive advantage over any rivals in those circumstances.
But we want the efficiency of that network and the conservatives are unwilling to do a hybrid, saying, “Okay, we’ll have a network that covers everybody, but we’ll treat it like a common carrier, and we’ll make sure that the private entity doesn’t become the multi-billionaire because of the profit from these things.” So the conservatives want us just to walk away and let some people become extraordinarily rich and then use their market power, if they choose, to say “I actually don’t want those people spreading their views, so I’m going to make life difficult for them.” So there’s also a political rationale, political science rationale, freedom rationale for saying “you shouldn’t let a private company that is not subject at least to the duties of treating everyone fairly have this kind of monopoly power position.”
GREG WILPERT: I want to dig a little bit deeper exactly on that issue actually. In the past, major anti-trust cases simply broke up the monopoly; such as, happened with Standard Oil in 1911 and AT&T in 1982. But is that even an option in cases for Facebook and Google? You’re speaking about the network effects and they’re obviously quite strong in the case of Facebook and Google. That is, do we really want a dozen different search engines or a dozen different baby Facebooks? In other words, wouldn’t turning over the company to its users or to some other—What would a possible alternative look like instead of breaking it up, or is that the only solution?
BILL BLACK: I don’t think it is the only solution, but it’s been the only solution that the Right has been willing to contemplate and to oppose as well, by the way. Again, their position is “we should just allow this network to be created and allow private parties to gain supernormal profits.” In economic jargon, that just means a hell of a lot of money. This is why these people are multi-multi-billionaires, is they control something that has immense monopoly power, and therefore is able to charge more than they should, and that’s inefficient. So the efficiency condition should be, “Yes, you create the network, but you don’t allow a particular party to become immensely rich from it. You run it instead as essentially a regulated public utility.” That says, “No, you can just get a normal return out of all of this. But yes, we’ll allow a fully efficient network to be created,”
When you treat it like a public utility, then it has traditionally at law, doctrines of fairness and such that you can’t discriminate against the use, that you can’t use it as a weapon against your enemies and such, so you have to take all customers on the same terms whether they’re big customers or little customers and such. Of course, that harks back to an earlier dispute and one of the first things that the Trump administration sought to eliminate, was any duty on the part of these private monopolies to treat people fairly. So it’s quite interesting that the Trump administration is now investigating that which it previously blessed. And of course, the Trump administration has announced that it’s going to use the anti-trust laws as a weapon against their political enemies— the car companies, for daring to agree with California to produce fewer greenhouse gases.
GREG WILPERT: Yeah. I just want to return to the issue of this particular case now with Ken Paxton and Google because obviously, or not obviously, but presumably, he would probably favor a decision that would actually weaken the power of Google and Facebook by breaking it up, which I would think the Democratic state Attorney Generals that are behind this case probably wouldn’t necessarily favor. So how are they ever going to come to a resolution in this case, or is this just going to be tied up in the courts forever?
BILL BLACK: So this issue actually cuts across all kinds of ideological dimensions. You have the Texas AG, arguably the most conservative state AG in the country, someone who doesn’t care about anti-trust at all, suddenly becoming the great enforcer of antitrust because it’s his political opponents. You’ve got Democrats who often think that monopoly power has gone too far going, “Okay, I’ll do a deal with the devil— Paxton— on this.”
But now, and I mean just like today, the Koch Brothers Foundation has gotten involved. And it’s sending out this major effort to get the population to turn against their state AGs because of this very investigation and the Facebook investigation as well. The Koch brothers fear that if this precedence gets created, of actually reinvigorating the anti-trust laws, they could be in the sights of particular Attorney Generals as well. I don’t want to say that only conservative or Republican AGs use these laws against their political opponents because there have been a series of scandals involving Democrats as well and it’s not so much political there. It’s fundraisers. Whoever raises money for them, they help out. You draw the money largely from plaintiff’s lawyers and the plaintiff lawyers would really, really, really love it if the state AGs would bring an action against the very folks that they too are suing. That would help their litigation a great deal. So, there are a series of scandals involving Democrats and Republicans in these Attorney General-type suits.
GREG WILPERT: It seems like the real big winners here will be the lawyers, of course. So we’re going to leave it—
BILL BLACK: We can always go with Shakespeare: the first thing we do is kill all the lawyers.
GREG WILPERT: Well, except you. Okay—
BILL BLACK: I’m a recovering lawyer.
GREG WILPERT: We’re going to leave it there for now. I was speaking to Bill Black, Associate Professor of Economics and Law at the University of Missouri, Kansas City. Thanks again, Bill, for having joined us today.
BILL BLACK: Thank you.
GREG WILPERT: And thank you for joining The Real News Network.
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