Big Tech Railroad

The internet is the railroad of our times — an essential piece of public infrastructure over which much of the world’s commerce and communication is now conducted. Yet the companies that dominate it are private, profit-seeking entities. And like the rail companies of old, they pose a monopoly problem.

It’s a point that’s worth careful consideration given the warnings in recent days about the power wielded by big technology companies from all over, including the head of the IMF, Christine Lagarde, and the US Department of Justice’s antitrust chief, Makan Delrahim, who referenced early railroad competition violations in a speech last week on the challenges posed by digital “gatekeepers”. The DoJ and the Federal Trade Commission have recently divided up responsibility for investigating tech companies including Google, Amazon, Facebook and Apple.

But I think the real action is in the US House of Representatives judiciary committee, which has announced its own investigation into whether antitrust rules need to evolve to meet the challenge of reining in Big Tech. Over the next 18 months or so, they’ll be holding hearings and, according to insiders, may be interviewing and deposing a variety of high-profile tech leaders as well as competitors who say they’ve been squashed by these companies.

As they consider the issues, they would do well to crack open the short and surprisingly readable 1878 volume Railroads: Their Origins and Problems, by Charles Francis Adams, a former railroad executive and regulator, who lays out the rise of the railways in both Europe and the US, and the struggle to force them to serve the public at large, rather than a handful of 19th-century industrialists.

In a chapter entitled “The Railroad Problem” Adams writes, “as events have developed themselves, it has become apparent that the recognised laws of trade operate but imperfectly at best in regulating the use made of these modern thoroughfares by those who thus both own and monopolise them”.

You could retitle the same chapter “The Internet Problem” and have a good summary of where we are today. Amazon captures more than one-third of all US online retail spending. Google represents 88 per cent of the US search engine market, and 95 per cent of all mobile searches. Two-thirds of all Americans are on Facebook, which having bought Instagram and WhatsApp now owns four of the top eight social media apps.

All of these companies, as well as Apple, the world’s first trillion-dollar company, have come under fire for using their enormous ecosystems to give their own products and services preference, and keep competitors off their networks.

The problem for regulators is that post-1970s, US case law makes it difficult to win an antitrust suit unless you can show that consumer prices have risen due to monopoly power — something that is difficult to prove when dealing with platforms conducting opaque barter transactions (your data for their “free” services). As a result, the digital gatekeepers continue to grow.

But the tide may now be turning. A new paper by Lina Khan, an expert on competition law who works for the House subcommittee on antitrust, commercial and administrative law, makes some sharp comparisons between the railroad problem and the digital gatekeeper problem. She concludes that we need a separation of platforms and commerce in order to create a more equitable and competitive digital landscape.

That idea is also being pushed by others, including Massachusetts senator and Democratic presidential candidate Elizabeth Warren. She has also compared Big Tech to the railroads and believes that companies with more than $25bn in global revenue should not be allowed to own a platform “utility” and also be a participant on that platform.

This evokes the separations imposed on the railroads to prevent them from both creating a marketplace and dominating it. In 1900, for example, six US rail companies owned or controlled 90 per cent of the market for anthracite coal, resulting in high prices for buyers and massive profits for the railroads — which of course made it difficult for the independent coal companies to move product over their lines.

The problem was eventually rectified through a “commodities clause” that separated platforms and commerce. This kind of separation eventually made its way into other areas such as banking, preventing bank holding companies from competing with their own clients in various industries, a principle that was at the heart of the Goldman Sachs aluminium hoarding allegations, which came to light in 2013.

It seems obvious to me that we should apply these same standards to the digital giants of today, though you can be certain that they will throw all their lobbying muscle behind trying to prevent this in the coming months.

As Adams pointed out in the 19th century, “the process of amalgamation” that constituted the railroad problem had gone so far that the time was close at hand “when the railroads would manage the state, if the state did not manage the railroads”.

The struggle to regulate Big Tech will tell us much about whether the industrial titans of our own era already control today’s political system.

rana.foroohar@ft.com

Letter in response to this column:

Rail monopoly gave way to clogged roads / From Ted Gaffney, Waterford, CT, US

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