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The Dangers of Google, Alibaba, Amazon, and Facebook during and after the Worldwide Isolation

08.04.2020
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The director of the HSE-Skolkovo Institute for Law and Development and the BRICS Competition Law and Policy Research Centre Alexey Ivanov explained the digital reality and the future from the perspective of the antitrust law in his interview to the leading Russian broadsheet 'KP'.

Crisis to one, an opportunity to another. Quarantines, isolation, the transition to distance learning and online process management all over the world have crippled, and somewhere destroyed, many small, medium and even large companies. But not IT. On the contrary, if the current history has benefited anyone, it's mostly digital and Internet corporations.

Internet giants, such as Google, Alibaba, Amazon and Facebook long before the crisis, overtook the oil
and steel companies. And after the pandemic of the coronavirus, it seems that their capital will become even more substantial.

BigTech buys startups and converts them into businesses. However, not all purchased solutions are implemented, and the recent history suggests that quite oppositely, such behaviour can lead to stagnation. There was a large monopolist in the field of telecommunications - AT&T. After the aforementioned monopolist was divided into seven smaller companies in the 80s, a stream of innovative ideas followed the split, with various decisions being tested and implemented that the monopolist did not allow on the market before. For example, they restrained the development of cellular communications, did not introduce the digitalization of automatic telephone exchanges, and blocked many other innovative things. Not out of harm, but out of purely pragmatic considerations - so as not to harm the existing profitable business, or to avoid massive layoffs of workers when switching to new technologies, or to keep jobs for current corporate executives.

Similarly, today it is likely that with the strengthening of the current IT giants, we will get the conservation of the current model of the economy, and not a new round of development.
This economy, if we are talking about the Internet sector, is based on the control and commercialization of user attention. Commercialization mainly comes through advertising. Control is possible only if you know more about your consumer than he knows about himself. And this is the control of personal data. You are given a bunch of free, at first glance, services. And you 'pay' for it with your data. And based on these data, you get advertising directed to you.

Alexey Ivanov is convinced that in the future, this will lead us to some kind of systemic dead end in development. A person's dependence on digital giants can reach a level where the slightest changes in the work of these companies will seriously affect our lives. The human vulnerability can reach a utopian level.

The digital giants are perhaps the one making the most out of this pandemic. It is unlikely that they deliberately waited for this pandemic, but the fact that they did not fail to use it to transform the market in their favour is a fact.

The growth of the business of digital giants is now also facilitated by the fact that the pandemic has formed an atmosphere of increased confidence in such companies. Digital platforms turned out to be the only window into the world for quarantined people. But in fact, they have an additional tool to deal with medium and small companies - promising competitors.

A particularly severe blow will be inflicted on small and medium-sized digital businesses in Europe, where before the crisis, global American and Chinese companies expected the increase of competitive pressure. And this will strengthen the business of global monopolists without a proportional increase in social obligations and responsibility on their part, without an adequate change in the rules of the game.

The industrial businesses of the 20th century - coal, steel, oil, and the likes of it, also managed to build up enormous market power at one time. But their growth was associated with the introduction of new social obligations. Throughout the 20th century, there was a dialectical struggle between labour and capital, and a particular equilibrium arose, at least in the West in the form of the so-called welfare state. Monopolists had to provide a decent salary, medical treatment, other rights to workers, had to take care of the environment, municipalities, and so on. And they gradually accumulated, on the one hand, market power, but, on the other, these ever-growing social obligations.

BigTech grew up very fast and grew up in very different business logic. This allowed them to break out of the grip of pre-existing social arrangements and obligations that should have come with the market power.

In a conventional economy, if a company becomes a monopoly, a series of obligations are imposed. Everything is spelt out in the law on the protection of competition and in the law on natural monopolies. Russian Railways or Gazprom have to follow such restrictions, and not only in Russia. In Europe, Gazprom's business is very strictly regulated by antitrust laws. Digital companies have managed to escape the watchful antitrust eye and any restrictions, due to a non-traditional business model. Things that were not allowed to the bulls of the industrial world were granted to the beasts of the digital economy.

And the inability to clearly identify these markets of the digital economy is not the only reason why antitrust law has ceased to work effectively concerning these companies.

If you follow Facebook's, Apple's or Google's path of growth, you will see that the enormous amount of solutions that strengthened them are the purchased solutions. Google bought YouTube, Facebook bought WhatsApp and Instagram, killing potential competition.

In a good antitrust system, such deals would be worth blocking, so as not to stifle competition. Imagine: one refinery wants to buy another, being built next door. In the logic of development of a market economy, it is wrong if competition in the gasoline market collapses as a result of such a deal.

WhatsApp, when Facebook bought it, had almost no assets. Although the transaction price was many billions of dollars, there were no tangible assets, like a refinery, but there was another - big data, a network of users. However, antitrust law was written under the "iron" giants of the past - it simply did not notice a transaction with intangible assets.

And now again we are faced with another critical crisis moment, when, using a pandemic, these guys will say - we are going to help you. We have lowered product prices at Amazon. However, what is going on behind the curtains is Amazon dumping, keeping prices low not to satisfy consumers, but to kill competitors. And when Amazon kills them, it will find a way to profit from consumers in the market with no competition.

It seems that now, along with anti-crisis measures that are aimed at supporting people, it is necessary to introduce measures that will help to build the desired configuration of the future.
Concerning the digital giants, restrictive decisions must already be made now - decisions that will allow us to spare the capitalist economy and prevent it from turning completely into Gosplan 2.0 with a handful of digital trusts that manage all economic and social life.

Antitrust law often responds to existing problems and struggles with the effects of market concentration, abuses, and so on. And here there must be a proactive action. We need to restructure the mechanisms for supporting industries, create a situation in which it will be more profitable for users to turn to small players in the digital economy, rather than to monopolies. If you like, you need positive discrimination against the digital giants - a kind of affirmative action. This should help support small services, not let them be killed or bought up.

Now only giants have free financial means and, using a pandemic and a crisis, and they can buy up second-tier and third-tier companies - potential and current competitors cheaply.
The concentration of market power should be limited. There are supporters of the view that giants are very effective, they say they will now collect the entire market for themselves, and then they will build processes and efficiency will increase—unproven thesis. We see much reverse when some business gets inside a large corporation, and either gradually dies or degrades, and while living separately, it developed well.

Since 2018, Russia has been discussing the so-called Fifth Antimonopoly Package. Alexey Ivanov is the initiator of its preparation and co-leader of the FAS Russia working group. This is a digital package that would help overcome the challenges of protecting market competition in a digital economy. Now it needs to be adopted in order to give impetus to the development of the digital environment in the country. It is in the package of anti-crisis measures. And then we can cope with the crisis, and then for decades, we will disentangle the consequences. We need to think a couple of steps forward and now determine the design of the desired world after a pandemic and digital self-isolation.