Why Big Tech and Social Media Desperately Want to be Regulated
By Justin Merritt
Small businesses and chambers of commerce rarely miss a chance to call for less government regulation, and libertarians like those at the Cato Institute have argued that excessive government regulation leads to less economic dynamism, fewer jobs, and lower profits.
So why do Big Tech and Social Media firms (BTSM) so desperately want federal government regulation?
In 2019, Mark Zuckerberg wrote an editorial for the Washington Post arguing for the government (including foreign governments) to regulate speech on the internet, especially political speech. At the World Economic Forum in Davos, IBM Chief Executive Gini Rometty said that the government should, “regulate the use of technology, not the technology itself.” At the same event, Alphabet CEO Sundar Pichai said, “There is no question in my mind that artificial intelligence needs to be regulated.” Facebook COO Sheryl Sandberg said earlier this year, “There is real concern about the size and power of the tech companies. We understand that and we really believe the laws need to be rewritten.”
The mystery deepens when you recall that Silicon Valley used to be a hotbed of small government libertarians, deeply committed to free speech and deregulation only to transform over the last decade into the checkbook for the most statist, progressive candidates.
The short answer is: it was always thus. Small, growing businesses generally clamor for the freedom to innovate and expand, while established titans turn to government regulators to strangle their competitors in the crib.
In The Progressive Era, the economist Murray Rothbard shows how big business is able to capture legislators and regulators to maintain their power and position. He writes, “Railroads were the first Big Business, the first large-scale industry, in America. It is therefore not surprising that railroads were the first industry to receive massive government subsidies, the first to try to form substantial cartels to restrict competition, and the first to be regulated by government.” The early, mostly unregulated days of railroads were a bonanza for both railroad owners and customers. Rothbard quotes Albert Fishlow, who estimates “that, by 1910, ‘real freight rates [had fallen by] more than 80 percent from their 1849 level, and real passenger charges 50 percent.’” However, according to Rothbard, once firms got to a certain size, their priority became suppressing competition rather than engaging in it.
One strategy was simply to buy smaller competitors. Acquiring a smaller railroad expands your holdings and removes a competitor. Facebook was trying the same kind of tactic when it purchased Instagram and WhatsApp. Alphabet had already acquired over 200 hundred companies by 2016. But for railroads as for tech companies, this only led to more competition, since startups saw that they could sell out to larger firms for handsome profits. More buyouts leads to more competition, not less, with Venture Capitalists eager to fund new firms in the hopes of being acquired soon by bigger firms. The next strategy used by the railroads was cartelization. Here the railroads agree not to compete with each other in order to keep profits high. For railroads, this cartelization was a secret agreement not to raise prices. For example, the Iowa Pool of 1870 was an agreement between 3 railroads not to lower prices on their lines. It ended as every private cartel has, with competition reasserting itself in the form of “rebates.”
Railroads finally realized something that every big developed industry realizes, including the BTSM firms today. Huge firms rarely have much to fear from regulators, since they can capture the regulators, fund legislators to write rules that cement their dominance, and rely on the state to monitor cartels that would not hold together in a freer market. Rothbard writes, “By 1879, there was general agreement among railroad pool executives, including Albert Fink, that the federal government would have to step in to cartelize railroad freight, for the pools [cartels] could not succeed without governmental enforcement.” This was begun with the Interstate Commerce Act of 1887 which banned railroad “rebates” (price cutting) and bulk discounts. This was portrayed at the time as a measure to control railroads, but of course it was a boon to railroads, which made it easier to cartelize and harder for upstart competitors to cut prices.
This works differently in different industries, but time and again it is the established players seeking regulation to protect themselves from whom they actually fear: new, hungry upstarts. For example, a titan like Walmart is overjoyed at the idea of a $15/hr minimum wage. After all, they have little to fear from higher-wage competitors like Whole Foods. They fear a regional competitor that breaks out as a lower-cost alternative. Higher minimum wage laws protect Walmart from that lower-cost competitor. Why do they fear such a thing? Because it’s exactly what they did to Kmart and what Kmart did to A&P. Regulators are not going to destroy Walmart, but the next Walmart might, and any regulation is a bigger burden to a smaller firm than a larger firm with more lawyers, a bigger war chest, and more lobbying might.
So how does this play out with BTSM? Price is less an issue in the tech world, where the going rate is often free (for the public), but tech firms are still terrified of startups. All of the BTSM businesses were once the upstarts in a competitive market themselves. Both Alta Vista and Yahoo! turned down the opportunity to acquire the fledgling Google for $1M in 1998 only to be soundly trounced by Google less than 5 years later. Google learned its lesson and bought out Waze that looked like a serious competitor to Google Maps. Facebook overtook MySpace in visitors only four years after its founding.
Perhaps their network effects are so powerful that they will be cemented as the dominant players in their space for another generation. But if they do have a competitor, it will be a minnow that suddenly catches fire (to mix a metaphor).
There may be more minnows than you realize. Video hosting services that compete with YouTube include Rumble (a Canadian service), Odysee (a blockchain-based system), and BitChute. Facebook and Twitter have MeWe, Gab, and Parler nipping at their heels. Many users have left the frilly platforms altogether to congregate on more private messaging platforms like Telegram, Signal, and Discord. Even mighty Google has competitors like DuckDuckGo and Brave Search.
What all of these alternatives have in common is that they are willing to host views and commentary that BTSM players have censored or banned. This is their market advantage: the willingness to host stories, news, analysis, and other content that BTSM will not.
BTSM is at an impasse. Their CEOS, most of their employees, the president, the congress, and the state that they are in and something like half of their customers are highly politically progressive. They are clamoring for BTSM to censor or suppress conservative and heterodox voices. Progressives were delighted when the former president was banned from most BTSM. Banning certain voices is undoubtedly good business for some of BTSM’s clientele.
However, a huge percentage of their customers crave media that goes against the dominant progressive narrative. Conservative and generally heterodox media sources often get remarkably good traction within the BTSM ecosystems. The 100 most downloaded podcasts in June 2021 include Ben Shapiro, Dan Bongino, Jordan Peterson, and Michael Knowles. Dennis Praeger’s PraegerU gets more than a billion YouTube views per year. According to the New York Times, in 2019 Joe Rogan averaged 190M downloads a month. For comparison, the 2021 Super Bowl got 96.4M viewers. 106M people watched the finale of M.A.S.H. According to Deadline, “World News Tonight has 8.86 million viewers, NBC Nightly News had 7.29 million and CBS Evening News had 5.34 million.”
What would happen if half of their customer base of BTSM logged off? Or worse yet, went to a competitor like Rumble, Parler, Telegram, or DuckDuckGo?
What is a conflicted BTSM CEO to do? She might reflect that, like business titans of old, this would all go away if government regulators made it difficult to post content that was “harmful” or “misinformation” or “dangerous.” Suddenly the competitive advantage of the upstart disappears. This brings us to a critical reason why the BTSM giants want speech to be regulated by government on their platforms. Nobody likes to chase away business, even if it’s the business of “those people” that can’t keep their mouths shut about Hunter Biden’s laptop or Ivermectin or whatever taboo subject will get you kicked off of Facebook today. After all, the kinds of sites that traffic in forbidden content get a good deal of engagement. As a wise man once said, “Republicans buy sneakers, too.”
The move to cleanse the internet of troublesome content is well underway. Earlier this year, Facebook gave written testimony to congress arguing that social media platforms should only be given Section 230 immunity only if they follow “best practices” for censoring posts and videos. There is very little ambiguity here. Small competitors must be forced by government to censor content like Facebook.
According to the World Communist Website, Ranking Member Senate Committee on Commerce, Science and Transportation Maria Cantwell, a Democrat from Washington, “demanded to know ‘exactly what they [the BTSM CEOs] have been doing to clamp down on election interference’ and then openly called for online censorship and demanded to know, ‘what kind of hate speech and misinformation that they have taken off the books.’” It also quotes Senator Richard Blumenthal calling “on the companies to take steps to ‘curb misinformation and disinformation.’” Hillary Clinton tweeted, “Facebook’s decision to allow false information in political advertisements is appalling. Voters are being confronted by millions of pieces of misinformation. A world where up is down and down is up is a world where democracy can’t thrive.”
There is very little ambiguity that terms like “misinformation” are used in place of “censor.” Still, code words and dog whistles serve an important purpose. Even Biden Press Secretary Psaki said, “The president’s view is that the major platforms have a responsibility related to the health and safety of all Americans to stop amplifying untrustworthy content, disinformation and misinformation.” According to Politico, the Biden administration even wants to use, “SMS carriers to dispel misinformation about vaccines that is sent over social media and text messages.” Earlier this week, Minnesota Amy Klobuchar introduced legislation that strip Section 230 protections from BTSM platforms that allowed users to post medical (yes) “misinformation” as defined by the HHS Secretary.
Confusingly, some conservatives such as Ted Cruz, Clarence Thomas, and Douglas Murray have argued for BTSM regulation to which they replied, “Don’t threaten me with a good time.” It’s hard to imagine regulation working in their favor under the current administration and congress.
Facebook and YouTube already censor speech on certain topics, often explicitly following “guidelines” from the CDC. This has blown up in their face in certain areas such as the Lab Leak Hypothesis, discussion of which was throttled on BTSM for a year, only to be substantially vindicated. Nevertheless, the model of BTSM “relying on guidance” from government agencies seems to be the model for future bans and censorship.
Still, its users still understand that Facebook chose to use the CDC as a standard. Facebook doesn’t want that choice, and most especially they do not want their competitors to have that choice. Few in academia defended Alex Jones when he was deplatformed by Apple, Spotify, Facebook, and YouTube simultaneously 3 years ago. Some grumbling has been heard over the last few weeks as when evolutionary biologist Bret Weinstein was demonetized by YouTube after he published videos criticizing the CDCs position on the use of the drug Ivermectin. BTSM would much rather be mandated to follow government guidance along with their upstart competitors.
In other countries, the strategy is sometimes less roundabout. Bloomberg reported earlier this month that, “According to people familiar with the matter, [Tesla] also complained to the government over what it sees as unwarranted attacks on social media, and asked Beijing to use its censorship powers to block some of the posts.” In this country, for the time being, the strategy is the same as it was for railroad companies 150 years ago.