President Biden’s decisive action to promote competition in the U.S. reflects a decreasing public approval of Big Tech.
This episode is sponsored by NYDIG.
On this episode of “The Breakdown,” NLW analyzes President Joe Biden’s “Factsheet: Executive Order on Promoting Competition in the American Economy,” including:
- The shift in public sentiment against Big Tech
- The order’s implications to the tech and finance sectors
- Crypto’s decentralized nature as intrinsically anti-monopolist
For a period of time, tech companies enjoyed the highest public opinion among large corporations. However, the rise of ad-focused platforms and the advent of social media (with all its demons) encouraged increased scrutiny. Privacy concerns only add to the distaste toward companies including Amazon, Google, and Facebook.
With public opinion souring, governments are similarly implementing various regulation schemes as they become wary of the threat of monopolization. Take Europe, for example, which created the General Data Protection Regulation system, and China’s more aggressive actions against social media. The U.S. has dabbled in tightening its reins on big tech with an assortment of antitrust lawsuits, but President Biden’s recent executive order takes the mentality to a new level.
The public mindset and regulatory shift places crypto as the potential solution to concerns of monopolization. Crypto’s decentralization – its lack of CEOs and corporate power structures – make it an attractive path away from monopolies in the American economy.
Image credit: Tom Brenner/Bloomberg/Getty Images, modified by CoinDesk
What's going on guys, it is Friday, July 9, and today we are talking about Biden's new executive order that targets, among other things, Big Tech. And I have to acknowledge before I start that this has been something of a "think-boy" week here on "The Breakdown," I haven't had the normal briefs, I haven't had a lot of guests. And for whatever reason, it's just seemed like a week to, instead of digging deep on specific news, to really explore some bigger picture things. I don't know if that's just because it's the summer and this is a slightly slower news cycle, or just because we've had a bunch of small pieces of news that are reflective of much larger, bigger, more important trends. But, either way, I promise every week won't be so high level and meta, but hopefully you're enjoying it for now as something a little bit different.
Let's talk about Biden's executive order and moreover, a reminder that decentralized technologies are anti-monopolist. One of the major trends in American public life over the last five-ish years is a falling out of love with big tech. There was a fairly long period during which tech companies enjoyed the highest public opinion among large corporations. There are many reasons for this one, simply put, we use it to interact with technology so much that I think we have an active sense of how those tools have impacted our lives. Can you, for example, imagine the world pre-Amazon Prime? Second, there was a perception of technology companies as the underdogs for a very long time. This goes back, I think, to the 1990s and battles like Napster versus the record labels, and in that mental paradigm, who wants to root for Goliath over David? This was reified by countless media pieces for decades.
But then, things started to shift. First, the sheer size of these companies made it harder and harder to view them in those upstart terms. What's more, many of the platforms weren't young anymore, they had decades under their belts and had undeniably become the incumbents. Second, frankly, many people just didn't like the personalities behind these companies. No one wanted to root for Zuckerberg. Third, many started to ask questions about whether their lives were really better off because of these platforms, particularly social media platforms. And they didn't necessarily love the answers they came back with. Fourth, at some point regulators on both sides of the aisle started to turn away. For the right, this was mostly driven by former President Trump's incessant insistence that the major tech platforms were suppressing conservative voices, more notably his voice. And for the left, that started as a hyper reaction to the idea that Russian bots on Facebook stole the election from Hillary.
In both cases, histrionics and hysterics inside, the real question underneath was power. These platforms represented a fundamentally new force that broke old paradigms and divides between politics, civil society and business by recreating the global public commons in a way that included billions of voices but, which prioritized engagement for the sake of advertising revenue, they had unleashed an undeniably society shaping force. One set of reactions to this that is growing as regulatory. This is taking different flavors in different parts of the world. Europe has tried to regulate around data, creating a labyrinthian morass and the General Data Protection Regulation, or GDPR system, that has ended up unintentionally further concentrating power in the hands of Google and Facebook, as they're pretty much the only advertisers who can afford to pay for compliance. This is an overstatement, but not by much. China, meanwhile, has taken on a much more aggressive tactic. We've spent a ton of time on this over the last eight months or so especially. Hold the side of strict regulation around social media. The last year has seen the Chinese government focus especially on curbing the power of private mobile money apps like Alipay and WeChat pay. While those apps had started as simple mobile payment solutions, they had increasingly taken on more bank-like activities and that was not something the Chinese government was interested in letting happen. The most dramatic turning point moment came late last year when the government halted Ant Financial's IPO which was at the time anticipated to be the biggest in history. Jack Ma, founder of Ant parent Alibaba was taken off the public scene for a couple months around the same time, when Ma and the company resurfaced Ant had been voluntarily air quotes "restructured" into a financial holding company, overseen by one of China's state control banks. The U.S. too has seen a growing focus on Big Tech. In particular, after a couple of dormant decades, antitrust action is back on the menu. Elizabeth Warren made antitrust one of the centerpieces of her campaign and while she didn't win, the sentiment clearly reflected, or infiltrated, the democratic D.C. establishment. The last year has seen a number of high profile antitrust cases brought against companies like Google and Facebook. Although late last month, the Federal Court ruled in favor of Facebook and an antitrust lawsuit brought by the Federal Trade Commission. Today, however, the focus on big tech ratcheted up.
Last night, Politico published an article called "Biden Launches Assault on Monopolies." and here's their summary: "The sweeping executive order takes aim at concentrated markets and industries including agriculture, airlines, broadband and banking and includes efforts to lower drug prices and protect privacy." This morning, we got a Whitehouse overview of an extremely sweeping executive order. It's called "Factsheet: Executive Order on Promoting Competition in the American Economy" and just to get a sense of how they are thinking about and presenting their case of the public, let's read a couple of paragraphs. "For decades, corporate consolidation has been accelerating. In over 75% of U.S. industries, a smaller number of large companies now control more of the business than they did 20 years ago. This is true across healthcare, financial services, agriculture and more. That lack of competition drives up prices for consumers, as fewer large players have controlled more of the market, markups, charges over cost have tripled. Families are paying higher prices for necessities, things like prescription drugs, hearing aids and internet service. Barriers to competition are also driving down wages for workers. When there are only a few employers in town, workers have less opportunity to bargain for a higher wage and to demand dignity and respect in the workplace. In fact, research shows that industry consolidation is decreasing advertised wages by as much as 17%. Tens of millions of Americans, including those working in construction and retail, are required to sign non compete agreements as a condition of getting a job, which makes it harder for them to switch to better paying options. In total, higher prices and lower wages caused by a lack of competition are now estimated to cost the American household $5,000 per year. Inadequate competition holds back economic growth and innovation. The rate of new business formation has fallen by almost 50% since the 1970s as large businesses make it harder for Americans with good ideas to break into markets. There are fewer opportunities for existing small and independent businesses to access markets and earn a fair return. Economists find that as competition declines, productivity growth slows, business investment in innovation decline and income, wealth and racial inequality widen. Today, President Biden is taking decisive action to reduce the trend of corporate consolidation, increased competition and deliver concrete benefits to America's consumers, workers, farmers and small businesses. Today's historic executive action established a whole of government effort to promote competition in the American economy. The order includes 72 initiatives by more than a dozen federal agencies to promptly tackle some of the most pressing competition problems across our economy."
So I'll be clear right here that the point of today's show is not to dig into their political philosophy and to the mechanism of markets, and do all of that sort of stuff. I think there's really fascinating, important conversations to be had there. Instead, as you'll see, what I want to focus on is the idea that the crypto industry is inherently anti monopolist. But before we get there, I do want to check to see what others, particularly those in the progressive sector, are saying about the White House's efforts. I think a good progressive barometer comes from Zephyr Teachout who tweeted: "The competition executive order Biden is putting out today is fire emoji, fire emoji, fire emoji, it holds up FDR's eightfold increase in actions as the model, directs reconsidering prior mergers, directs focus on labor markets, directs rules making a non-competes, right to repair and 50 plus other area. Waiting on full text, but it wholly embraces the understanding that concentration of power and market dominance is a central reason for massive inequality. That, in itself, is a 180 from every prior president in the last 40 years. This is not your Robert Bork or Bill Clinton executive order. I don't remember when a president took enforcement of antitrust laws seriously because I'm only 49. Glad to see Biden's going to give me that chance. Going to be a battle, not a cakewalk. But Lord knows we need it ASAP. It's going to take enforcement and legislation. But throwing down 70+ directives to over 12 agencies to get their corporate consolidation ship right is a hell of a start."
Now, a couple of specific notes on the tech and finance side of this executive order. And as Zephyr said, we don't have the full order. We only have this note from the White House. But, on tech, the note highlights greater scrutiny of mergers, rules on surveillance and the accumulation of data, rules barring unfair methods of competition on internet marketplaces, we'll come back to that one in just a second, and anti-competitive restrictions on repair shops for tech, which is random but there you go. On finance, it discusses updated guidelines on banking, mergers and more scrutiny around them, and discusses rules allowing customers to download their banking data.
Now this one that I mentioned, rules barring unfair methods of competition on internet marketplaces, I find really interesting. For all of the bluster about Facebook and Google, Amazon, to me is clearly the most egregious monopolist in America right now. This White House overview gives the exact reason why: "The large platform's power gives them unfair opportunities to get a leg up on the small businesses that rely on them to reach customers. For example, companies that run dominant online retail marketplaces can see how small business products sell, and then use the data to launch their own competing products. Because they run the platform, they can also display their own copycat products more prominently than the small businesses' products." For the last two or three years, it has become very clear that Amazon's model is to suck in a huge amount of data about what people buy, and then do Amazon versions of those things, prioritized in their platform. Even without getting into the morality of ethics of this, it's not hard to see why if you were a small business who had been courted into using Amazon's platform that this would be a little frustrating. I also think we should be asking questions about whether we want to live in a world where Amazon makes everything, where everything in your house is an Amazon Basics version, and at best, there are tiny boutiques innovating with things that Amazon will ultimately copy. But ultimately, this is not an anti-Amazon screed or anything like that.
What I want to talk about and what I want to close this out on is connecting the dots with this action and Bitcoin in the larger crypto movement. I would argue that the impulse behind these moves to remove concentrations of corporate power, is shared by many in government on both sides of the aisle, and by, broadly speaking, bitcoiners in the crypto industry. What's different is theories of change. Monopoly is ultimately about a concentration of power, decentralized technologies stand in stark opposition to that very concentration of power. The very point built into their design is to decentralize and distribute power. Indeed, when designed well, it is to create safeguards that programmatically, economically and socially prohibit the concentration of power over time. While Americans in the world at large might have spent the last decade falling out of love with big tech, people in Bitcoin in the crypto sphere, we're starting to model and build the alternative designs of a totally different system. And I think that word system matters.
When it comes to shaping the future, disagreements arise not only in the future that people want, but the mechanism that they believe is the best to get them there. The theory of change, in other words can be as fracturing as a difference in desired outcome. Politicians who are seeking to regulate and create barriers around the power of Big Tech as corporate entities, are essentially still trying to perpetuate the overall power landscape of today's system, just rejiggering it to give them, and by extension in their imaginations, the public constituencies they represent; more power, and Big Tech less. Crypto networks offer a vision of an entirely different organization of the system. It has often been remarked how remarkable it is that the biggest startup of the last decade and Bitcoin has no CEO, no marketing department, no head of engineering, no anything that resembles a traditional corporate structure. I honestly still don't think we fully appreciate just how ahistorical that is. It is unbelievably rare to see such a clean break from the past embodied in a single organization movement, whatever you want to call it. But there is no doubt that what Bitcoin ushered in through its success so far, is an era in which decentralized networks run peer-to-peer with a vast network of contributors who self organize and have self identified incentives, competing with corporations as the dominant form of business organization.
Still, so far, the early crypto experiments outside of Bitcoin in this sort of competition have been found a bit wanting. Andreessen Horowitz's Chris Dixon wrote an essay in 2018 called "Why Decentralization Matters." In it, he argued that modern social networks had reached an inflection point where they no longer shared the same incentives as their users. Early in the network's life, they have the same incentives, both users and the company get more value as the network expands in breadth. At some point, though, the rate of available horizontal expansion contracts and the network, based on fiduciary responsibility to financial stakeholders and owners, a separate class than users, has to extract more from the network participants that are already there. Think increasing the price of Prime to stick with that same example. Crypto based networks, tokenized networks, he argued, obliterated the distinction between exogamous owner and user, all users were owners. And so, this solved this inevitable extraction imperative.
I've always thought Chris's analysis of the problem was super, super interesting. And I do agree that networks inevitably hit this point of extraction. The first wave of tokenized networks did not, however, demonstrate the ability to overcome the bootstrap problem of social networks, which is that at the beginning, they're simply not that valuable because there's so few people there. There have been an array of social networks whose main hook is to pay you for the content you create, usually in a native token, but sometimes even in Bitcoin. They haven't worked so far, because the value of contributing content to a network is almost entirely about the distribution channel and the size of the total available audience it gives you. Even paying to supplement a smaller audience isn't sufficient. New networks that do emerge on the scene and do get successful almost always have a new content format that becomes sticky.
TikTok is arguably the latest to break through and it really was something different than other networks offered, basically inventing audio visual memes. Clubhouse also experimented with the new content format, drop-in audio. It captured people's attention for a time but recently has had a lot of the wind sucked out of its sails by Twitter Spaces, which was able to bring an approximate experience and embed it in an app that a vastly larger audience has access to. Now Facebook is also experimenting with this type of drop-in audio and you have to imagine that Spotify will as well. As a content creator, even if I liked Clubhouse's native experience much better than any of these big alternatives. The ability to not have to go invest in rebuilding another following in another network is worth a huge amount. The point is that existing social networks have huge inertia, disrupting them is going to be enormously difficult. I don't believe crypto tokens will be sufficient. I think it will require new types of social and content experiences that people can't get elsewhere in the context of a decentralized-by-default experience.
What I mean is the designers of the new networks designing to build their networks decentralized from the get-go, without necessarily prioritizing that as the hook and reason for users to come over. And interestingly, this is where I can actually see convergence in two very distinct anti-monopolist anti-concentration of power strands of thinking. In point of practice, new regulatory pressure and an increase in antitrust action makes being a centralized internet company more expensive, it's more burdensome, more time consuming, more friction filled and ultimately more costly. Meanwhile, the centralized network builders are experimenting with an alternative infrastructure, which has the function, potentially, of reducing or removing those costs. At what point does it become more economical, more viable to organize in a decentralized fashion where, for example, users own their data by default, because the cost of compliance to ensure that data is mobile as per mandate from the government is so expensive, that it screws up the economics of a centrally owned network? It seems crazy now that these corporations are so, so lucrative.
But it's not hard to game theory this out and imagine that the people that found the next TikToks and Instagrams and Facebook decide that all that just isn't worth the hassle, and they're going to build their vision entirely as a decentralized, network-owned affair. Even the possibility of this is why we're likely to see so much experimentation in DAOs and decentralized organizational approaches. And also, by the way, why watching how regulators handle some of those new organizational forms will be significant. The point is that I think anti-monopoly and pro-competition position should not be stuck on one side of the aisle. I also think that even progressives who have been conditioned to see opponents in the world of Bitcoin and crypto should reconsider that position, as this is the cohort of people who are actually trying to build an alternative vision in which there isn't monopoly ownership because the entire nature of ownership has changed. Now, those regulators may find a lot of the thinking of those builders naïve but that doesn't mean that they won't make good allies. Anyways guys, like I said, it is clearly "think boy" week on "The Breakdown" and I appreciate you listening to it. So until tomorrow, guys, be safe and take care of each other, peace!