Editors’ Briefing: This Week in Political Economy (September 22–29)

Facebook’s bad week included a new security breach, high-profile resignations and damaging exposés; tech giants are spending billions on physical infrastructure and lobbying for new federal privacy rules; and what is Google trying to achieve with its sponsorship of media organizations?

 

 

 

  • Facebook said today that it has discovered a security breach that affected nearly 50 million of its users. According to the company, attackers used code related to its “View as” feature to take over Facebook users’ accounts. Even before the latest news arrived, Facebook was already having a bad week, after Instagram founders Kevin Systrom and Mike Krieger announced their resignations, months after WhatsApp founders Brian Acton and Jan Koum quit. Systrom and Krieger didn’t specify the reasons for their resignations, but the New York Times and ReCode suggested they left over tensions regarding Instagram’s increasing integration into Facebook.

 

  • Acton, who sold WhatsApp to Facebook for $22 billion in 2014 and has been telling people to delete Facebook in recent months, was interviewed by Forbes’ Parmy Olson this week, detailing his concerns regarding Facebook’s data collection and advertising-based business model. The whole interview is worth a read (as well as this retort from Facebook exec David Marcus), but one specific anecdote worth highlighting has to do with Acton’s claim that he was “coached” by Facebook to provide European antitrust officials with what later turned out to be false information regarding Facebook’s ability to blend WhatsApp’s system with its own. (Facebook was later handed a $122 million fine for providing the EU with “incorrect or misleading information” regarding the WhatsApp deal.) 

 

  • A new study by researchers from Northeastern University and Princeton finds that Facebook is giving advertisers contact information handed over by users for security purposes, like phone numbers they provided for authentication. The researchers, writes Gizmodo’Kashmir Hill, found that “when a user gives Facebook a phone number for two-factor authentication or in order to receive alerts about new log-ins to a user’s account, that phone number became targetable by an advertiser within a couple of weeks. So users who want their accounts to be more secure are forced to make a privacy trade-off and allow advertisers to more easily find them on the social network.” Moreover, the authors found that Facebook is also using what they call “shadow contact information”—information not directly provided by the users—for ad targeting purposes. This Washington Post story by Elizabeth Dwoskin on Instagram’s “sizable open marketplace” for opioid ads is also worth a read. 

 

  • A new report by Harvard’s Shorenstein Center on Media, Politics and Public Policy and New America argues that digital platforms’ business models “undermine user privacy and incentivize disinformation campaigns despite recent efforts by tech companies to prevent abuse.”

 

  • Facebook’s vice president of global public policy, Joel Kaplan, was seen sitting among Brett Kavanaugh’s supporters at Thursday’s Senate Judiciary hearing, raising some eyebrows (Facebook says Kaplan was there merely as a friend of Kavanaugh and not in any official capacity). The political battle around Kavanaugh’s confirmation fight, explains Matthew Yglesias in Vox, goes beyond the various allegations surrounding the SCOTUS nominee, but concerns the future of the US economy, especially since Kavanaugh has previously called the existence of independent regulatory agencies a “threat to individual liberty.” Kavanaugh’s vision, he writes, “is one in which the courts should stand as staunch allies of capital and block any effort at democratic control of big business.”

 

  • Google has been under intense political scrutiny as of late—its conspicuous absence from Congressional hearings certainly didn’t help its political standing—which prompted CEO Sundar Pichai to visit Capitol Hill to meet with Republican lawmakers. In a letter to members of the Senate Committee on Commerce, Science, and Transportation ahead of this week’s committee hearing on data privacy, former Google scientist Jack Poulson revealed more details about Google’s planned censored version of its search engine in China, codenamed Dragonfly. Poulson, who resigned from Google in August in protest, wrote of “a pattern of unethical and unaccountable decision making from company leadership.” He also reported that during the development stages of the Chinese search engine, Google experienced “a catastrophic failure of the internal privacy review process, which one of the reviewers characterized as [having been] actively subverted.” During the hearing, which featured Google’s chief privacy officer Keith Enright, Enright was asked about Google’s controversial re-entry into China, but provided few answers.

 

  • Wired editor-in-chief Nicholas Thompson sits down for an interview with European competition commissioner Margrethe Vestager, “the most feared person in Silicon Valley.”

 

  • The big five tech platforms—Alphabet, Apple, Amazon, Microsoft, and Facebook—collectively spent $80 billion on “big-ticket physical assets,” including manufacturing equipment, further raising competition concerns, reports Bloomberg’s Shira Ovide. “How can a company hope to compete with Google’s driverless cars when it spends $20 billion a year to ensure it has the best laser-guided sensors and computer chips?” she asks. 

 

  • Tech giants are also apparently lobbying for new federal privacy legislation in the hopes of bypassing California’s strict new privacy law.

 

  • A new study by the European Journalism Observatory looks into Google’s News Initiative and asks: what is Google trying to achieve with its push into sponsoring publishers and media organizations? As Google becomes “a central node for the production and distribution of news” and provides media institutions and publishers with hundreds of millions of euros through various grants and initiatives, the authors write, it gains a “soft power” that helps advance its long-term interests.

 

  • Award-winning investigative journalist Julia Angwin announced the creation of a new nonprofit data journalism venture called The Markup this week. Backed by a $20 million grant from Craigslist founder Craig Newmark and $2 million from the Knight Foundation, the new site will focus on investigating the tech industry (In an interview with the New York Times, Angwin compares today’s tech platforms to the canned food industry), exploring such areas as “how profiling software discriminates against the poor and other vulnerable groups; internet health and infections like bots, scams and misinformation; and the awesome power of the tech companies.” In Fortune, Jeff John Roberts writes about the new venture and the legal risks that will likely be involved with going after tech giants.

 

  • The SEC is suing Tesla CEO Elon Musk over his failure to back up the infamous August 7 statements about having “secured” funding to take Tesla private, alleging that Musk had misled investors. Musk, the suit alleges, “knew or was reckless in not knowing” that he was making “false and misleading” statements. “In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” the SEC suit says. UPDATE: Musk and the SEC reached a settlement under which Musk agreed to step down as Tesla’s chairman (Musk will remain CEO) and pay a $20 million fine. Tesla will pay a separate $20 million fine, add two independent directors to its board and monitor Musk’s public communications, including his tweets. 

 

  • In a new issue brief, the Roosevelt Institute’s Marshall Steinbaum and University of Tennessee law professor Maurice E. Stucke propose an alternative to the consumer welfare standard that has dominated antitrust enforcement for the past four decades, which they call “the effective competition standard.” Also this week, Federal Trade Commission Chairman Joseph Simons announced that Gail F. Levine would serve as the deputy director of the FTC’s bureau of competition. Levine has worked in the past for both the FTC and the Department of Justice, but her most recent job has been as Uber’s top antitrust lawyer.

 

  • In The American Prospect, David Dayen explores BlackRock’s rise to power and how the asset management giant took control of Mexico’s major pension funds. BlackRock’s power and political influence, he argues, are “often at odds with the public good and combined with potential hazards for the overall financial system, demands additional scrutiny.”

 

  • “Having a union could hurt innovation which could hurt customer obsession which could ultimately threaten the building’s continued existence,” argues Amazon, which has faced increasing scrutiny in recent years to improve its workers’ low wages and the poor working conditions in its warehouses, in a training video that was sent to Whole Foods team leaders and leaked to Gizmodo. Amazon is currently fighting unionization attempts by Whole Foods employees.

 

  • In an interview with The Guardian ahead of the United Nations General Assembly, former UN chief Ban Ki-moon called the US health care system “politically wrong, morally wrong,” and “unethical.” Ban said “powerful” interests—pharmaceutical companies, hospitals and doctors— “inhibit the American government” and prevent the US from moving towards universal health care. “It’s not easy to understand why such a country like the United States, the most resourceful and richest country in the world, does not introduce universal health coverage,” he said. “Nobody would understand why almost 30 million people are not covered by insurance.”

 

  • Last week, Comcast outbid 21st Century Fox and won the auction for Sky. The Financial Times covers Comcast’s expensive $39 billion bet on the future of media.

 

  • Forty-seven bankers were sentenced to jail time for the role in the lead up to the 2008 financial crisis, the Financial Times has found, “dispelling the myth that no one was held personally accountable for the financial sector’s catastrophic failures.” The problem: 36 of those sentenced for their role in the crisis come from just two countries: Iceland and Spain.

 

Stigler Center Goings-On

 

  • In the second of a three-part series on the 2008 financial crisis, Capitalisn’t hosts Kate Waldock and Luigi Zingales discuss the aftermath of the Lehman crash. In the weeks after the crash Luigi remembers petitioning the government for a better bank bailout. Looking back, he and Kate review everything from TARP to Dodd-Frank to see how we averted a worse recession. But did some CEOs get away with fraud?

 

 

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