EconByte

 By Dr Justin Pyvis

Issue 14/2019

Warren the populist

Democratic Presidential candidate Elizabeth Warren last week unveiled her plan to take on 'big tech', with the likes of Amazon, Google and Facebook firmly in the firing line. As Warren stated:

"Today's big tech companies have too much power -- too much power over our economy, our society, and our democracy. They've bulldozed competition, used our private information for profit, and tilted the playing field against everyone else. And in the process, they have hurt small businesses and stifled innovation. That's why my Administration will make big, structural changes to the tech sector to promote more competition—including breaking up Amazon, Facebook, and Google."

The pitchforks are out for big tech and Washington wants its pound of flesh. To be honest, I'm surprised it took this long; I've been writing about their shady business practises for some time and personally no longer patronise Google and Facebook. They're essentially advertising companies masquerading as a social network / search engine, but for various reasons the vast majority of people are happy with that exchange (for the moment).

But back to Warren. Here we have a politician in full campaign mode trying to out-populist her populist opponents. Going after big tech is clearly her gimmick for 2020; she can't take any credit for the abomination that is the "Green New Deal", so why not go after the tech giants that everyone loves to use but no one really likes?

I've already covered how regulating Facebook would likely further entrench its market position (here, here and here), but Warren's plan goes far further than simple regulation. She wants new rules for any social media, search platform or marketplace with $25 billion or more in annual revenue, preventing them from buying/owning companies that also sell services on those marketplaces.

As is often the case with political campaign gimmicks, Warren has not stated anywhere how such a law would make anyone better off. Where she tried to explain how it would not make anyone worse off, she failed. Hard.

For example, for some reason Warren is under the impression that you will still be able to "go on Google and search like you do today", even though she acknowledges that her plan would force Google Search to be spun off from the rest of Google (i.e. advertising). But without AdWords, Google Search may no longer even exist and if it does, won't exist in its present form. The business model of Google Search is literally to drive revenue to Google Ads, something it wouldn't be allowed to do post-Warren; how it would adapt is anyone's guess but it almost certainly wouldn't work as it does today.

But my biggest gripe with Warren's big tech gimmick is that none of the companies targeted by her plan are even monopolies, nor do they have the "power" she thinks they do. Yes, the sector has become more concentrated, but that's not due to a lack of competition; the market is concentrated because of network effects, lock-in and economies of scale.

If anything, the likes of Amazon, Google and Facebook are market drivers forcing others - both existing businesses and potential entrants - to constantly improve to compete, and their place at the top is only ever one innovation away from being toppled. Their size and profitability are simply the result of doing what they do better than anyone else.

Since the mid-1990s, consumer goods prices have increased at a slower rate than average earnings in virtually every year (just ask the Fed), in part thanks to Amazon's disruptive presence. There's also no obvious decline in entrepreneurship as a result of big tech (see Image of the week at the bottom), and the big tech companies spend more on R&D than companies in any other sector. While the crimes Warren ascribes to big tech are certainly applicable to other sectors, she has picked the wrong fight here. Her whole plan reads as if it were written by someone examining a purely static state of affairs, with no concept of the dynamic and rapidly changing world in which these big tech companies actually exist.

I don't expect Warren to get much traction with what amounts to a poor attempt at posturing herself as the "anti-big tech" candidate, and indeed if she sticks with the plan in its current form it may even be enough to cost her the Democratic nomination. Regardless of political beliefs, the majority of the voting population are intelligent enough to realise that no one is forcing them to use Amazon, Facebook or Google, and that there are plenty of alternatives should those companies try to abuse their so-called power.

Enjoy the rest of this week's issue. Cheers,

— Justin

The bits

The "bits" are an assortment of articles that caught my eye this week, categorised by subject, with some brief comments from yours truly.


Mobile devices

Samsung and Huawei's recently announced foldable phones use a plastic polymer for their screens instead of glass. But while more flexible, plastic also scratches from day 1 and will eventually develop a crease in the middle. Just another reason not to buy the first or second generations - Corning and competitors like Japan’s AGC think foldable glass will be ready within a couple of years.

Apparently one of the new foldable phones will be a clamshell-like device, similar to the rumoured Motorola Razr I mentioned last week. I hope that's the direction foldable phones go in.


Huawei

It looks like the Huawei case goes back to 2014, when the US was investigating - and ultimately convicting - ZTE of breaching its Iran sanctions. I don't see anything about Huawei's threat to 5G networks, though.

Huawei won't win, but it may force the US government to finally shed some light on what threat it thinks Huawei actually poses.


Social media

This isn't some benevolent gesture from the Zuck: it was the only way for Facebook to eventually integrate WhatsApp, Instagram and Facebook messaging without removing WhatsApp's end-to-end encryption. The problem is that as with WhatsApp, Facebook will keep a copy of everyone's private keys, making this at best a symbolic gesture to privacy.

Could this be the Zuck's real end-game? "The ultimate vision is something akin to WeChat, the Chinese super-app that people use for everything from messaging to sharing videos to making appointments, reviewing restaurants, and hailing rides. To accomplish that, however, Facebook will have to... pull iPhone users off of iMessage."


Blockchain

Signal, Telegram and Facebook all want to go where Bitcoin failed and create a low-fee, instant cross-country payment mechanism through blockchain technology. The plan is to build it into their respective messaging applications, similar to how WeChat does it in China. I really hope Facebook doesn't win this race and become the industry standard.


Politics

The top nine technology companies spent $77 million lobbying Washington in 2018, with Amazon and Google leading the way at $14.2m and $20m respectively. In light of Warren's recent attack on big tech, it's probably money well spent (and still pales in comparison to big pharma's $280m).


Privacy

Ridding the internet of passwords would go a long way to preventing data theft. The industry has settled on a standard, WebAuthn, allowing public-key authentication of users to web-based applications and services to finally go mainstream.


Streaming

Just as streaming is killing free to air television, podcasts are killing radio (didn't video already do that?). And Spotify wants to be the Netflix of podcasts, announcing plans to spend over $500 million purely on podcasts.


Minimum wage

Vigdor and his colleagues were hired by the city to study Seattle's increase in its minimum wage. One unintended consequence of the policy: "Minimum wage increases force businesses to think up new ways to economize on labor. Once they've thought them up, those business practices filter out into other parts of the country."


Self-driving

I'm not sure which company will master level 4+ self-driving first (see last week's image), but I'm almost certain it won't be Tesla. "Despite [Elon] Musk's bluster over the years, Autopilot is still just a driver-assistance system. And it will continue to be just a driver-assistance system for some time to come."

Image of the week

View source
Percent of population that starts a new business

Elizabeth Warren claims that big tech companies have "hurt small businesses and stifled innovation", but presented only a few selective anecdotes to support her claim. Here's one dataset that shows the opposite.

That's all for now. If you enjoyed this issue, feel free to share it.

Warren the populist was compiled by Dr Justin Pyvis. Feel free to send feedback, suggestions for future issues, ideas, insults, or pretty much anything that crosses your mind to his Keybase chat.