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Why tech industry monopolies could be a ‘curse’ for society

In the early 20th century, Standard Oil was broken up because of its vast power. Today, many think Facebook, Google or Amazon present similar threats, but they proceed unchallenged. In "The Curse of Bigness," law professor Tim Wu argues that America has abandoned antitrust enforcement and left us with an economy dominated by de facto monopolists. Economics correspondent Paul Solman reports.

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  • Judy Woodruff:

    But first: These past couple of years have been a kind of turning point for public attitudes about some tech and social media giants. It's led some to ask broader questions about monopolies, power and competition.

    At his confirmation hearing this week, William Barr, the nominee to be attorney general, told senators — quote — "A lot of people wonder how such huge behemoths that now exist in Silicon Valley have taken shape under the nose of the antitrust enforcers."

    That's part of the focus of tonight's report from our economics correspondent, Paul Solman.

    It's for our regular feature Making Sense.

  • Paul Solman:

    You want to do what to Facebook?

  • Tim Wu:

    Break them up.

  • Paul Solman:

    Break up the company, and thus the Facebook monopoly, law professor Tim Wu was saying, in a trailer we shot for tonight's story.

  • Tim Wu:

    I think that, if you look carefully at Facebook, it is in some ways the poster child for the curse of bigness in our time.

  • Paul Solman:

    "The Curse of Bigness" is Wu's new book. The curse, that America has abandoned antitrust enforcement and left us with an economy dominated by de facto monopolists like Facebook, Google, and Amazon.

    And things used to be different. In 1911, John D. Rockefeller's Standard Oil Trust was broken up because of its vast power. Over a century later, many think Facebook's tolerance for disinformation and its invasion of privacy are similarly sinister.

    But Facebook proceeds unchallenged.

  • Tim Wu:

    The U.S. government allowed them to buy their two main competitors, Instagram and WhatsApp. So there's been no real competition in social networking for the last six years. And so I think they felt in some ways above the law, above competition.

  • Paul Solman:

    But what about Google?

  • Tim Wu:

    Yes. So, you know, Google has proven itself willing to destroy all of its competitors over the last 10 years or so.

  • Narrator:

    Waze, the number one real-time navigation app.

  • Tim Wu:

    Waze was this promising Israeli company that could have been a platform for other competitors. And they just bought them. You know, online maps, that's important to commerce. That's where people often start.

    Google has extinguished many industries that might possibly compete with it vertically by giving its own products preference right when you search.

  • Paul Solman:

    And Amazon?

  • Tim Wu:

    What I'm concerned about with Amazon is the fact that they have become the only real place online where you can sell things.

  • Paul Solman:

    But it's just amazing what Amazon does, right?

  • Tim Wu:

    There's good Amazon. There's bad Amazon.

    The good Amazon, in my view, is the one that has made it easier to get a lot of products relatively easily. But maybe you invent a better mousetrap. They make the Amazon version, and then they own that market.

  • Paul Solman:

    But they're super convenient, right?

  • Tim Wu:

    In our times, the path towards a dangerous fate is paved with convenience, and it's taking us closer to this structure that we had in the Gilded Age, where you had one great monopoly per industry.

  • Paul Solman:

    Or industries dominated by just a few firms, not monopolies, but oligopolies, that still control price and service.

  • Tim Wu:

    People may like Amazon and Google, but ask people how they feel about the airlines, ask people how they feel about their cable company, and ask people how they feel about pharmaceutical bills.

    These are areas where the competition has shrunk. We're left with just a few choices.

  • Paul Solman:

    The classic argument against monopoly that I learned was that the monopolist will be able to charge higher prices because she or he is the only game in town.

  • Tim Wu:

    Yes, that is the classic argument, but I think it's too thin an argument. And it turns out that the damage done by monopolies is, frankly, much greater than just higher prices.

  • Paul Solman:

    First, says Wu, the industry tends to stagnate.

  • Tim Wu:

    A monopolist has no real need to innovate, no real need to improve things. You know, like AT&T, by the 1960s or '70s, their idea of improvement was three-way calling.

  • ACTRESS:

    Want someone else on the line? That's easy too. Flip the switch button, then dial a code number, and the number you want, and presto.

  • Tim Wu:

    They didn't believe in answering machines for regular people. It was against the fax machine, the modem, the Internet, all this kind of stuff. Forget it.

  • Paul Solman:

    So I remember films about General Motors and how they prevented electric cars from coming in and how they wiped out light-rail trams in cities. That was all true?

  • Tim Wu:

    That was all true, and it's just a long line of discussion of where — once a monopoly in a tech industry is there, they tend to want to suppress what's coming next or control it or make sure it doesn't hurt them.

  • Paul Solman:

    I'm thinking about Silicon Alley here in New York or silicon whatever all over the country in various cities.

    And I would have thought the last thing we need to worry about is too little innovation in technology in America.

  • Tim Wu:

    You know, you would think that. But Amazon and Google are the new faces of New York innovation. If you talk to venture capitalists in Silicon Valley, they say, well, if you go anywhere near Facebook or anywhere near Google, you're finished. That's the kill zone.

  • Paul Solman:

    Twenty years ago, as we reported back then, the kill zone was around Microsoft. Silicon Valley antitrust lawyer Gary Reback had represented nearly all of Microsoft's major rivals.

  • Gary Reback:

    They can take any product they want, bundle it into the operating system, and put competition out of business.

  • Paul Solman:

    That's what Microsoft had done with its Internet browser.

  • Christine Varney:

    When you click on that Internet icon, you're going to get what Microsoft considers the best way for you to get to the Internet, which is the Internet explorer that's produced by Microsoft.

  • Paul Solman:

    By bundling Explorer into the Windows operating system for free, Microsoft, according to Netscape, was competing unfairly with Netscape's browser, called Navigator.

  • Tim Wu:

    Microsoft was the power of convenience, 1990s version. And I think there is this courageous moment where the government said, we don't buy it. We think you just want to monopolize this industry. We think you want to control the future of the Internet by controlling the browser.

    And so Microsoft's control was broken. Then you had all these other companies emerge. That's when Google, Amazon, Facebook got their start. So I think it's a cycle. I think you constantly need to keep your eyes on the big guys and break their capacity to control the future.

  • Mark Zuckerberg:

    I know that, when we address these challenges, we will look back and view helping people connect and giving more people a voice as a positive force in the world.

  • Paul Solman:

    Another curse of bigness, you won't be surprised to hear, outsized political influence.

  • Tim Wu:

    The more concentrated an industry and extreme the monopoly is the more easily able to influence government to get what it wants.

  • Paul Solman:

    So, what's an example?

  • Tim Wu:

    2003, you know, debating new prescription drug legislation. The pharmaceutical industry decided that the best thing it could do was to prevent Medicare, which, of course, is the biggest buyer of drugs, from negotiating for lower prices.

    The lobbying effort was over $100 million. But the investment paid off to the tune of $10 billion to $15 billion a year.

  • Paul Solman:

    Now imagine the clout of a Facebook, an Amazon, a Google. But even higher prices, stagnation and political influence, says Tim Wu, don't exhaust the list of bigness downsides. There's also economic inequality.

  • Tim Wu:

    A growing number of economists have recognized that, when you have most industry concentrated to three or four firms, the tendency is towards wage stagnation, towards higher profits for shareholders and executives and certain professionals, but the rest of the population making less.

  • Paul Solman:

    Consider health care, Wu says, the fastest growing sector of the economy.

  • Tim Wu:

    It's very difficult to bargain with a monopoly hospital for a higher wage if you're a nurse. What's your leverage, especially if there's only one hospital in town because they bought all the other hospitals?

  • Paul Solman:

    Finally, Tim Wu cites one more danger, perhaps the most ominous of all.

    You have written about the dangers of the connection between monopoly and authoritarianism.

  • Tim Wu:

    There's a history and a track record of an economy dominated by monopoly flipping into an authoritarian form of government. And I don't think it's crazy to start becoming concerned about possible rise of fascism in our times.

  • Paul Solman:

    But you're not saying Facebook and Amazon and Google are in cahoots with the government in the way that companies were with Hitler in Germany in the '30s?

  • Tim Wu:

    No, I'm not saying anything like that. I think we need to be very careful about making superficial comparisons.

    But I do think we need to be aware of the dangers of a union of private and public power. Imagine Facebook cooperating with an authoritarian regime. They know everything about us. They know what we do. They know how to influence us. If you imagine these two units working together, I think it's a very scary prospect.

  • Paul Solman:

    For the "PBS NewsHour," this is economics correspondent Paul Solman reporting from New York.

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