Facebook’s latest scandal leads lawmakers to proclaim: “Big tech can no longer be trusted”; New Yorkers vow to resist Amazon’s HQ2 deal; monopolization is undermining public faith in capitalism; and why are US drug prices so high?
Facebook Under Fire. Again.
- Another week, another Facebook scandal: this week’s bombshell New York Times report by Sheera Frenkel, Nicholas Confessore, Cecilia Kang, Matthew Rosenberg, and Jack Nicas included a number of damning revelations. Chief among those was Facebook’s hiring of a Republican opposition research company—Definers Public Affairs—that sought to discredit critics of the company (including the Open Markets Institute and its Freedom from Facebook coalition group) by planting fake news stories that linked them to Jewish billionaire George Soros, a known anti-Semitic trope. At the time, Facebook was also reportedly lobbying the Anti-Defamation League to cast the very same critics as anti-Semites. Other revelations included Senate Minority Leader Chuck Schumer (D-NY) running interference on behalf of Facebook to get Sen. Mark Warner (D-VA) to tone down his criticism of the company, and Facebook executives—including COO Sheryl Sandberg—ignoring and allegedly attempting to conceal the full extent of Russian activity on the platform prior to the 2016 US presidential election.
- Reactions to the Times report were unsurprisingly harsh. “Facebook cannot be trusted to regulate itself,” wrote the Times’ editorial board: “Only Congressional hearings can answer what the company knew about Russian meddling—and when.” “Facebook betrayed America,” wrote The New Republic’s Alex Shephard. “Mark Zuckerberg promised Congress he would combat the spread of conspiracy theories—while his company was doing the opposite.” Open Markets’ director Barry Lynn, whose organization was the target of the smear campaign, wrote:
“… we are angry. Broadly, Facebook’s actions show a profound disregard for public authority, democratic institutions, and the security of the United States. More specifically, Facebook’s tactics were designed to intimidate us and ruin our professional credibility and personal reputations.
But we are also deeply encouraged. Facebook’s attacks demonstrate better than any statement that Mark Zuckerberg, Sheryl Sandberg and other executives at the corporation are truly scared of the antimonopoly powers of the U.S. government.”
- Mark Zuckerberg and Sheryl Sandberg themselves both denied any knowledge of Facebook’s involvement with Definers and the campaign to discredit Facebook’s critics, saying that the oppo research firm was hired by the company’s communications team and that they only learned about the relationship through the Times report. Facebook quickly severed its ties with Definers (whose tactics reportedly included tallying “how much each senator spent on Facebook ads and how much they had received in campaign donations from Facebook or other big tech companies”) and issued a rebuttal to the “inaccuracies” in the Times story. During a Q&A session with Facebook employees on Friday, Zuckerberg denied claims of a “cover-up.” Days before, he posted a 4,500-word “blueprint” for content moderation that promised, once again, to downgrade “sensationalist and provocative” content.
- Yet this latest Facebook scandal will likely lead to much more political scrutiny. The revelations are a “chilling reminder that big tech can no longer be trusted,” Sen. Richard Blumenthal (D-CT) told Recode. Blumenthal, along with fellow Democratic Senators Amy Klobuchar (D-MN), Chris Coons (D-DE) and Mazie Hirono (D-HI), sent a letter to the Justice Department calling for Facebook to be investigated for potential campaign finance violations. Coons, Sen. Bob Corker (R-TN) and Sen. Ron Wyden (D-OR) also called for new regulations on Facebook. “A corporation that stoops this low in response to legitimate criticism should not be trusted with your personal information,” Wyden told Recode. “Facebook needs to stop treating this like a PR crisis and Washington needs to stop treating this like a partisan opportunity—this is a real national security threat,” said Sen. Ben Sasse (R-NE). “This staggering report makes clear that Facebook executives will always put their massive profits ahead of the interests of their customers… It is long past time for us to take action,” tweeted Rep. David Cicilline (D-RI), who’s likely to become the next chairman of House Judiciary Committee’s antitrust panel.
- Meanwhile, calls to break up Facebook are increasing. “Facebook has lost its right to be trusted. It’s time to seriously consider breaking it up,” tweeted Harvard law professor Laurence Tribe. “It’s time to treat Facebook like the ruthless monopoly it is,” writes New York Times columnist Michelle Goldberg, who called Democrats to “un-friend Facebook.” In Slate, Siva Vaidhyanathan takes a more pessimistic view of the current moment: “as long as advertisers, authoritarians, and Chuck Schumer protect it, Facebook will face little significant pressure in most of the world,” he writes. In The American Prospect, Ganesh Sitaraman proposes ways to regulate digital platforms based on three simple principles: “quarantine, nondiscrimination, and regulation of rates.”
- From Axios: “The millionaire funding the campaign to break up Facebook.”
- The seemingly never-ending spate of Facebook-related scandals has severely hurt employee morale within the company, according to both Bloomberg and the Wall Street Journal. “Just over half of employees said they were optimistic about Facebook’s future, down 32 percentage points from the year earlier,” the Journal reports, citing an internal survey taken by nearly 29,000 Facebook employees. “‘Why does our company suck at having a moral compass?’” asked one employee quoted by Bloomberg’s Sarah Frier. Computer science students don’t appear too eager to work for Facebook these days as well. The company is also facing what appears to be a fledgling revolt by some horrified advertisers. This latest scandal may be “the straw that breaks the camel’s back,” Rishad Tobaccowala, chief growth officer for the ad giant Publicis Groupe, told the New York Times’ Sapna Maheshwari. “Now we know Facebook will do whatever it takes to make money. They have absolutely no morals.”
- In other Facebook news: Earlier this week, the New York Times reported on Facebook’s failure to closely monitor what smartphone makers who were granted access to the personal data of hundreds of millions of people, “most of whom had not explicitly given the company permission to share their information,” did with that information. Prior to the 2016 election, Facebook pressured the founder of Oculus, then a Facebook employee, to say that he supported Libertarian candidate Gary Johnson over Donald Trump, reported the Wall Street Journal. And Colin Stretch, Facebook’s general Counsel who announced he was the leaving the company in July, will be staying into 2019.
- In his new book The Curse of Bigness, Columbia Law professor Tim Wu proposes breaking up Facebook, along with Google and Amazon. Vox’s Kaitlyn Tiffany and The Nation’s Christopher Shay talk to him about it. Wu himself took to the New York Times this week to explain the connection between an increasingly-monopolized economy and the recent rise of neofascism. In Wired, an excerpt from Wu’s book explores “how Google and Amazon got away with not being regulated.”
- In The Atlantic, Alexis C. Madrigal compares the tech industry’s recent fall from grace to that of the transcontinental railroads. “There was a time when Americans loved and talked about the transcontinental railroads the way we loved and talked about the Internet,” he writes.
Amazon Sparks Outrage
- Amazon’s decision to split its second headquarters (“HQ2”) between Long Island City in Queens and Arlington, Virginia (along with a new operation center in Nashville) provoked a swift and fierce backlash, despite Amazon’s promise to bring 25,000 jobs to each of the two locations. While Amazon touted the economic benefits of the deal, critics focused on the massive government subsidies it was offered in exchange: $1.5 billion in New York and $573 million in Virginia. In New York, where local residents and politicians vowed to resist the deal, Amazon could receive about $48,000 in subsidies per job, according to The Verge. In The Intercept, David Dayen and Rachel M. Cohen cited an analysis by Good Jobs First, an organization that tracks corporate subsidies, which claimed that the government handouts to Amazon will amount to at least $4.6 billion—more than double the reported amount.
- New York Governor Andrew Cuomo (who previously joked that he’ll change his name to “Amazon Cuomo” in order to secure the HQ2 deal) and mayor Bill de Blasio attempted to defend the deal by touting the prosperity they claimed it would bring, but the corporate giveaways to Amazon sparked a great deal of outrage. “Amazon is a billion-dollar company. The idea that it will receive hundreds of millions of dollars in tax breaks at a time when our subway is crumbling and our communities need MORE investment, not less, is extremely concerning to residents here,” tweeted Democratic Rep.-elect Alexandria Ocasio-Cortez (D-NY).
- New York City council members and state legislators called for an investigation into the Amazon deal, which reportedly includes a non-disclosure agreement meant to keep many of its details secret [it also includes a helipad for Jeff Bezos]. “What we’ve seen here is a process that no American city should have to endure. A governor and a mayor who claim to be progressive Democrats throwing nearly $3 billion at the richest man in the world and then promising a secretive grease-the-wheels process that avoids ‘messy’ public votes and hearings that might muck up the works,” City Councilman Jimmy Van Bramer told Bloomberg. Van Bramer, who represents Long Island City’s district, said city council members were shut out of the negotiation process and only learned that the deal had been finalized by reading about it in newspapers. “Part of the deal involves a state takeover of land involved so that the City Council would have no zoning oversight,” Bloomberg reports.
- In The New York Times, J. David Goodman contends that those opposing the deal face a “daunting” challenge. “The deal reached between Gov. Andrew M. Cuomo, Mayor Bill de Blasio and Amazon was explicitly constructed to minimize the ability of local politicians to block it. The company would not agree to come to New York City, Mr. de Blasio said, unless it could be assured it would not have to go through the lengthy process of approvals that would give the City Council veto power,” he writes. “Why did they usurp the ability of the Council to do its job? Because it’s not good for our community,” newly-elected assemblywoman Catalina Cruz told the Times. Even in the normally business-friendly National Review, Jim Geraghty acknowledges that the “critics of the Amazon deal have valid reasons to oppose it.”
- Meanwhile, Amazon’s choice of “the most predictable places imaginable,” after a 14-month search during which it solicited bids from dozens of cities across the US, has caused some to label the whole ordeal as a “con,” a “swindle” and “a cynical game.” “Amazon has emerged in recent years as the leading beneficiary of corporate welfare, pocketing more than $1.6 billion in state and local tax breaks and subsidies (including more than $230 million this year alone) for construction of its data centers and warehouses since 2000,” writes The American Conservative’s Daniel Kishi. “With many government officials operating as if economic development is a zero sum game, Amazon will continue to foment localized bidding wars that pit city against city, county against county, town against town,” he opines.
- “Amazon’s HQ2 spectacle isn’t just shameful—it should be illegal,” writes Derek Thompson in The Atlantic. “Every year, American cities and states spend up to $90 billion in tax breaks and cash grants to urge companies to move among states. That’s more than the federal government spends on housing, education, or infrastructure.” In the New York Daily News, Matt Stoller writes that the Amazon outrage “isn’t just about subsidies. It isn’t that merchants, or local businesses, or warehouse workers, or communities are being mistreated or misled. It’s that Amazon has so much power over our political economy that it can acquire government-like functions itself. It controls elected officials, acquired the power to tax, and works with government to avoid sunshine laws.” Jeff Bezos, for his part, argued this week that Amazon isn’t really all that powerful, claiming that “Amazon is not too big to fail” and predicting that “one day Amazon will fail… Amazon will go bankrupt.”
Also, don’t miss Luigi Zingales’s take on the Amazon deals: “Subsidies to Amazon are uneconomical, un-American, and unconstitutional.”
- Atlanta, Georgia was one of the many municipalities that bid for a shot at hosting Amazon’s HQ2. The Atlanta Journal-Constitution’s Greg Bluestein offers a “glimpse” of the incentives Georgia offered Amazon to try to lure the company to the state, among them more than $1.3 billion in tax benefits and an on-site “Amazon Georgia Academy” that would have “operated with the help of the University System of Georgia and the state tech college system,” offering a “24-week boot camp program for staffers, undergraduate and post-graduate coursework, and state-sponsored recruiters to help fill the company’s jobs.” Had the offer been accepted, writes Bluestein, the state would have paid to build the academy and for the first five years of operating costs–“including salaries of professors and recruiters.”
Monopolization Is Undermining Public Faith in Capitalism
- “Whether they were created by cronyism or genius, if extraordinary profits are maintained for many years with no sign of new entrants, it is a clue that competition may not be working,” writes The Economist’s Patrick Foulis in a special multi-part report on how dominant companies—especially but definitely not limited to the technology sector—are undermining public faith in capitalism across the West. The report also mentions the Stigler Center conference on concentration and digital platforms that took place in Chicago earlier this year.
- From the New York Times: Nearly a year after the GOP’s $1.5 trillion tax cut, economic growth has accelerated. Wage growth, however, has not. Companies are buying back stocks and instead of creating jobs, they’re cutting them: “Since the tax cuts were passed, the 1,000 largest public companies have actually reduced employment, on balance. They have announced the elimination of nearly 140,000 jobs—which is almost double the 73,000 jobs they say they have created in that time.”
- Theresa May’s proposed Brexit deal led to one of the most turbulent weeks in British politics in recent memory. “Britain has reached a new worst-case scenario on Brexit,” writes Sebastian Mallaby in Washington Post.
- Current CFPB head Mick Mulvaney is reportedly angling for Wilbur Ross’s job as Commerce Secretary. Earlier this week, the New York Times’ Mike McIntire, Sasha Chavkin and Martha M. Hamilton reported on Ross’s business ties to Vladimir Putin’s inner circle.
- From OpenSecrets.org: having lost many of its big bets in the 2018 midterm election, the Koch donor network is apparently changing its approach. CNBC reports that the donor network is “mounting a multimillion-dollar campaign to push some key priorities—such as immigration reform and free-trade initiatives—before Democrats take over the House in January.”
- Pfizer will raise prices on 41 prescription drugs in January, reports CNBC. From the New York Times: why are US drug prices so much higher than anywhere else in the developed world?
- From the Washington Post: the 1MDB fraud scandal continues to haunt Goldman Sachs. “Goldman Sachs has a 1MDB problem,” wrote CNN’s Julia Horowitz. Goldman Sachs shares had their worst day since November 2011 on Monday, after Malaysia said it was seeking a “full refund” from the bank for its part in the scandal. Goldman Sachs, meanwhile, is attempting to distance itself from the whole thing—with limited success.
- Sinclair and five other media companies— Raycom Media, Tribune Media, Meredith Corp., Griffin Communications and Dreamcatcher Broadcasting—have settled a Justice Department antitrust lawsuit that accused them of sharing private information to manipulate TV ad prices, reports the Washington Post’s Brian Fung. In other media news, small cable companies are calling for the Justice Department to reinvestigate Comcast’s merger with NBC.
- “Think tanks should disclose their funders in order to participate in public debates,” argues The Guardian’s editorial board: “Think tanks have no electoral mandate. Nor are they mass membership organizations. The legitimacy of their voice in democratic debates rests largely on their intellectual independence. They ought to demonstrate this by revealing who funds them.”
Stigler Center Goings-On
- “The appropriate objective for a public company is shareholder welfare, not value,” writes Luigi Zingales in the Financial Times. “Shareholder welfare includes non-monetary benefits, like protecting the environment and freedom. Most of us would sacrifice some money to pursue these values; we want the companies we own to do the same.”
- In the latest episode of Capitalisn’t, Yascha Mounk talks with Kate and Luigi about his new book The People Vs. Democracy: Why Our Freedom Is in Danger and How to Save It. Recorded in front of a live audience, the conversation touches on recent populist uprisings and the extent to which they threaten liberal democracy.
Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.