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  • 3 Reasons Why Facebook’s Zuckerberg Wants More Government Regulation

    Posted on by Azrael 1 Comment

    Facebook CEO Mark Zuckerberg wants more government regulation of social media. In a March 30 op-ed for The Washington Post, Zuckerberg trots out the innocent-sounding pablum we’ve come to expect from him:

    I believe we need a more active role for governments and regulators. By updating the rules for the Internet, we can preserve what’s best about it — the freedom for people to express themselves and for entrepreneurs to build new things — while also protecting society from broader harms.

    But what sort of regulation will this be? Specifically, Zuckerberg concludes “we need new regulation in four areas: harmful content, election integrity, privacy and data portability.”

    He wants more countries to adopt versions of the European Union’s General Data Protection Regulation.

    Needless to say, anyone hearing such words from Zuckerberg should immediately assume this newfound support for regulation is calculated to help Facebook financially. After all, this is a man who lied repeatedly to his customers (and Congress) about who can access users’ personal data, and how it will be used. He’s a man who once referred to Facebook users as “Dumb F-cks.” Facebook lied to customers (not to be confused with the users) about the success of Facebook’s video platform. The idea that Zuckerberg now voluntarily wants to sacrifice some of his own power and money for humanitarian purposes is, at best, highly doubtful. (Although politicians like Mark Warner seem to take it at face value.)

    Fortunately for Zuckerberg, thanks to the economic realities of government regulation, he can both support government regulation and enrich himself personally.

    Those who are familiar with the effects of government regulation will not be surprised to hear a billionaire CEO throw his support behind it. Large firms with dominant market share have long made peace with government regulation because it often helps these firms create and solidify monopoly power for themselves.

    Specifically, there are three ways that regulation will help Facebook.

    Many Facebook critics like to claim that Facebook is a natural monopoly. That is, they think Facebook is so dominant in the marketplace, that it can use its supposed market power to keep out competitors. We’re told that Facebook has so many users, no serious competition will ever be possible.

    But remember MySpace? People used to say exactly the same thing about that social media platform. A recently as 2007, The Guardian was asking “Will Myspace ever lose its monopoly?” Xerox corporation was once a tech powerhouse, as well. It has now all but disappeared.

    Obviously, the answer to The Guardian‘s question is “yes.” But we’re now hearing about how Facebook is a monopoly. The reality, however, is that unless governments artificially erect barriers to entry, no firm can expect a safe place as a dominant firm. Other firms with new ideas will come along, threatening the older firm’s dominance.

    The answer to this problem, from the point of view of a firm like Facebook, is to make things more expensive and difficult for smaller startups and potential competitors.

    Facebook knows that if government regulations of tech firms increase, the cost of doing business will increase. Larger firms will be able to deal with these additional costs more easily than smaller startups. Big firms can access financing more easily. They have more equity. They already have a sizable market share and can afford to be more conservative. Large firms can absorb high labor costs, higher legal costs, and other high fixed costs brought on by regulation. A high-regulation environment is an anti-startup, anti-entrepreneurial environment.

    In an earlier age, many might have taken Zuckerberg’s new proclamation as sincere. Fortunately, we live in a cynical age, and even a beat reporter at Mashable knows how this game is played. Mashable‘s Karissa Bell writes:

    It may seem obvious that Zuckerberg’s proposal is self-interested, but it’s important to remember that his ideas are, of course, designed to help Facebook….

    And by touting the social network’s existing work around political advertising and content moderation, Facebook has an opportunity to determine the rules the rest of the industry will also have to abide by.

    Part of the reason Zuckerberg has made peace with the idea of government regulation is the knowledge that Facebook will be one of the most powerful groups at the negotiating table when it comes to writing the new regulations. In other words, Facebook will be in a position to make sure the new rules favor Facebook over its competitors.

    This is a common occurrence in regulatory schemes and is known as “regulatory capture.” When new regulatory bodies are created to regulate firms like Facebook, the institutions with the most at stake in a regulatory agency’s decisions end up controlling the agencies themselves. We see this all the time in the revolving door between legislators, regulators, and lobbyists. And you can also be sure that once this happens, the industry will close itself off to new innovative firms seeking to enter the marketplace. The regulatory agencies will ensure the health of the status quo providers at the cost of new entrepreneurs and new competitors.

    Moreover, as economist Douglass North noted, regulatory regimes do not improve efficiency, but serve the interests of those with political power:

    Institutions are not necessarily or even usually created to be socially efficient; rather they, or at least the formal rules, are created to serve the interests of those with the bargaining power to create new rules.

    After all, how much incentive does the average person have in monitoring new regulations, staying in touch with regulators, and attempting to affect the regulatory process? The incentive is almost zero. The incentive for regulated firms, on the other hand, is quite large.

    Not only will a small start-up lack the resources and political pull to challenge Facebook in the rule-making sphere, but those small firms won’t be large enough to be considered important “stakeholders” on any level. Thus, Facebook will continue to wield more power than its smaller competitors through its regulatory power.

    Another big benefit of regulation for Facebook will be the potential for using government regulation to limit Facebook’s legal liability when things go wrong. Bell continues:

    By offloading decisions about harmful content, privacy rules, and elections onto third-parties, Facebook may not have to take as much of the heat when mistakes are made.

    Put another way, Facebook can protect itself from both the legal and public-relations repercussions to itself when it uses its platform to delete the posts and visibility of users with whom Facebook employees disagree.

    As FTC commissioner Brendan Carr put it, Facebook’s proposed regulatory agenda would allow it to “outsourc[e] censorship.” Not only would this put the federal government in a position to be directly determining which opinions and ideas ought to be eliminated from tech platforms, it would also allow Facebook to pretend to be an innocent third party: “Don’t blame us for deleting your posts,” Facebook could then say. “The government made us do it!”

    Moreover, regulation can be employed by firms like Facebook to shield the firm from lawsuits. Potentially, in the marketplace, Facebook could be sued for using its platform to endanger domestic abuse victims or victims of suicide. Whether or not the firm should be found guilty of such things would be complex legal questions decided on a case-by-case basis. However, regulation can be used to circumvent this process entirely, and serve the interests of large, abusive firms.

    This phenomenon was explained by Murray Rothbard in the context of construction regulations:

    Suppose, for example, that A builds a building, sells it to B,and it promptly collapses. A should be liable for injuring B’s person and property and the liability should be proven in court, which can then enforce the proper measures of restitution and punishment. But if the legislature has imposed building codes and inspections in the name of “safety,” innocent builders (that is, those whose buildings have not collapsed) are subjected to unnecessary and often costly rules, with no necessity by government to prove crime or damage.

    They have committed no tort or crime, but are subject to rules, often only distantly related to safety, in advance by tyrannical governmental bodies. Yet, a builder who meets administrative inspection and safety codes and then has a building of his collapse, is often let off the hook by the courts. After all, has he not obeyed all the safety rules of the government, and hasn’t he thereby received the advance imprimatur of the authorities?

    Let’s apply this to the tech industry: Firm A is a new startup which has developed a way to make money in a way that satisfies consumers and does not expose them to any unwanted harassment, de-platforming, or violations of privacy. Meanwhile, Facebook (Firm B) continues to use its dominance in the regulatory process to keep in place costly regulations that prevent new startups from making much headway. These same regulations, however, continue to allow privacy violations, and other abuses up to a certain threshold established by regulators.

    Thus, the outcome is this: Firm A is unable to deploy its new, inventive, non-abusive model at all because regulatory costs are too high. Meanwhile, Facebook can continue to endanger and abuse some users because regulations allow it. Moreover, Facebook enjoys greater immunity from lawsuits because it complies with regulations. Thus consumers are denied both the benefits of the new startup and legal remedies from suing Facebook for its continued abuse.

    In short, Zuckerberg’s pro-regulation position is just a pro-Zuckerberg position. By further politicizing and regulating the internet, policymakers will assist large firms—and their billionaire owners—in crushing the competition, and ensuring the public has fewer choices.

    This article is republished with permission from the Mises Institute.

    Ryan McMaken

    Ryan McMaken is the editor of Mises Wire and The Austrian. Ryan has degrees in economics and political science from the University of Colorado and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

    This article was originally published on FEE.org. Read the original article.


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  • Regulate Google, Facebook, and Twitter as Public Utilities? Bad Idea.

    Posted on by Azrael Comment

    Free markets can be hard. They might not produce outcomes you personally like. This is why we have such extensive literature on economic inequality, public goods, or merit goods, among other alleged market failings.

    Government provision or regulation is usually the proposed solution to these market failings. But advocates for free markets will point out that this cure is, in many cases, worse than the disease. Economics undergraduates will hear much in their classes about “market failure,” but the problem of “government failure” is at least as widespread.

    However, even for free-market advocates, it can be a tough principle to cling to when the market isn’t doing what they would like. For some, it is too tough. When faced with a market outcome they disapprove of, some embrace the very government intervention they usually oppose.

    A case in point is the Internet, specifically websites such as Twitter, Google, and Facebook. Many conservatives believe these companies are politically biased and are “censoring” conservative content in various ways or promoting their opponents. They propose increased government regulation of these companies. They are said to be “public utilities” that require the hand of government a little heavier on their shoulder than other businesses.

    Personally, I can readily believe these websites are biased and do discriminate against certain political views. But what should the government do about that? Should it do anything?

    Underlying this argument is the notion that public utilities are a class of producer apart from most others we leave to the discipline of the market. What sets public utility producers apart?

    Nothing. My old (1992) edition of the Penguin Dictionary of Economicsdefines a public utility as follows:

    An industry supplying basic public services to the market and possibly enjoying monopoly power. Usually, electricity, gas, telephones, postal services, water supply, and rail and often other forms of transport are regarded as public utilities. These services all require specialized capital equipment and elaborate organization.

    Capital is heterogeneous; it is all, to some degree, specialized. Is the capital required to produce automobiles more specialized than that required to produce postal services? Is the organization of a bus company really so much more elaborate than that of Amazon that it belongs in a different, more tightly regulated class of business? More useful is my old (1965) Everyman’s Dictionary of Economics definition:

    Public Utilities, groups of industries in a monopoly position supplying “essential” goods and services, subject to public regulation designed to ensure that they operate “in the public interest.” It is difficult to say which industries fall within this definition since what constitutes “the public interest” or “essential goods” is a matter of personal and political opinion.

    In an age where we can choose between countless different handsets and competing networks, where I can watch live English football on my phone while traveling through rural Minnesota, it might seem bizarre that telephones were once considered something that should be provided by the same people who brought us the Veterans Administration. At one time, even such a staunch advocate of free markets as Milton Friedman thought this. In the 1975 edition of his book An Economist’s Protest, he wrote that “there are some cases, of which telephone is probably one, where technical considerations enforce monopoly.”

    Why has our attitude toward telephones changed?

    Technological progress is part of the answer. This has changed the “technical considerations” Friedman cited back in 1975. There is no longer any technical argument that all telephone users need to be on one network that government is required to regulate.

    But the proximate cause is a change in regulation itself. In the 1920s and 1930s, government became concerned that “competition resulted in duplication of investment.” It stepped in to restrain such duplication by granting monopolies. In an attempt to safeguard the consumer from the effects of this intervention, government intervened again. The Communications Act of 1934 authorized the Federal Communications Commission “to impose service requirements priced at regulated rates. Any deviations in product or service required government approval, a laborious process then as now,” explained Diane S. Katz in a 2004 paper published by the Mackinac Center for Public Policy.

    This is how “AT&T secured its dominance over telephone service for decades to come, controlling more than 80 percent of all telephone lines and assuming family status as ‘Ma Bell.’” There was nothing “natural” about the monopoly—it was created by government regulation in the first place.

    And, when regulation changed, the monopoly it had created collapsed. As LiveMint has pointed out:

    The company’s monopoly was broken up in 1984, with the parent retaining long-distance telephony and the seven regional “Baby Bells” becoming de facto local monopolies providing local services. Long-distance services became heated with competition, with the entry of MCI and Sprint. Due to AT&T’s break-up, the charges that long-distance carriers had to pay regional Bells became transparent. Until 1984, these charges were opaque, and mother AT&T actually used to subsidize local calls. In fact, after the break-up, the local calls became more expensive, rising faster than the rate of inflation. This was also the period of the entry of VOIP (voice over Internet protocol) into telephony.

    As we look back at the saga of the AT&T break-up, it looks strange and archaic. That’s because the emergence of the Internet, the mobile phone and cable plus satellite television was mostly post 1984…

    Just as the monopoly in telephony was a consequence of government regulation, so, also, was the technical progress that makes such a mockery of the notion that telephony is a monopoly a consequence of deregulation.

    In contrast to the blunt instrument of government regulation, producers in free markets are regulated by competition and consumer tastes.

    Facebook, Google, and Twitter may look like monopolists requiring tighter government regulation now, but so did MySpace back in 2007.

    In February 2007, The Guardian asked: “Will MySpace ever lose its monopoly?” In April 2008, Facebook overtook MySpace in the Alexa rankings, and in 2009 Myspace lost half of its user base. As the example of telephony after 1984 demonstrates, if individuals and businesses are allowed to innovate in a free market, they will. For all the talk about “network effects,” “economies of scale,” or whatever else, MySpace’s vaunted “monopoly” was destroyed in a year by such innovation. In contrast, government regulation granted AT&T a monopoly and protected it.

    Facebook, Google, and Twitter may look like unbeatable monopolists requiring tighter government regulation now, but so did MySpace back in 2007. If Facebook’s potential competitors are allowed to innovate in a free market, they will. And, one day, perhaps Mark Zuckerberg will simply be an affectionate memory, like Tom of MySpace fame.

    Source: Regulate Google, Facebook, and Twitter as Public Utilities? Bad Idea. – Foundation for Economic Education


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  • Congress, Not Facebook, Is the Real Threat to Free Speech

    Posted on by Azrael 1 Comment

    Facebook is under fire for allegedly manipulating its “Trending Topics” section to reduce the visibility of conservative topics and stories about the social media platform, according to a story published by Gizmodo based on interviews with several former Facebook contractors who were not identified. The company has categorically denied these allegations, but that hasn’t stopped many commentators from criticizing Facebook for secretly injecting bias into its users’ feeds.

    I have no idea whether Gizmodo’s scoop is accurate, but I can certainly sympathize with journalists and consumers who don’t want left-leaning curators filtering the stories they learn about. (If the allegations are true, who knows how many stories about former IRS official Lois Lerner I missed out on because Facebook curators “deep-sixed” the topic?!)

    But what’s more troubling than Gizmodo’s Facebook story is the Senate Commerce Committee Chairman John Thune (R-SD) sending the company a letter on Congressional letterhead demanding that Facebook explain its curation policy and what, if anything, it’s doing to “investigate” allegations that it filtered conservative stories.

    Although Sen. Thune is a longstanding supporter of free markets and limited government involvement in the Internet and telecommunications sectors, the decision to turn Facebook’s alleged transgressions into a public policy matter is problematic. Chairing a powerful Senate committee brings with it a bully pulpit that often tempts elected officials to pry into affairs properly left to the marketplace, as I discussed years ago when former Sen. Joe Lieberman successfully pressured Amazon to terminate service to Wikileaks — despite the absence of any judicial determination at the time that the website had violated any laws.

    The letter suggests that Facebook may have “misl[ed] the public” if its curators prevented right-wing stories from reaching the Trending Topics section. Although Sen. Thune doesn’t point to any law or regulation that Facebook might have violated, the letter seems to imply that the filtering of conservative stories might constitute an “unfair or deceptive act[] or practice [] in or affecting commerce,” contrary to Section 5 of the Federal Trade Commission Act of 1914.

    As far as I can tell, however, Facebook never represented to its users that the Trending Topics section was free from curation. Although a “trend” can be driven solely by users, favoring certain newsworthy stories (such as the Charlie Hebdo attack) or certain media outlets (such as the New York Times) is another approach to identifying which stories are “trending.”

    One could, I suppose, argue that Facebook engaged in deception by omission — it didn’t explain that Trending Topics are actively curated — but do many consumers really believe that “trending” stories are entirely free from curation, based entirely on their popularity with users? I doubt it.

    More importantly, however, Facebook enjoys the right under the First Amendment to engage in editorial discretion with respect to the content it features on its social network, free from government manipulation — including political fishing expeditions. As Mercatus Center fellow Brent Skorup has explained at length, online intermediaries enjoy rights similar to those of newspapers to make editorial decisions about the messages they distribute and highlight. Just as the Supreme Court has held that newspapers don’t have to give space to politicians who want to rebut editorials they dislike, Facebook doesn’t have to give conservative news stories equal treatment when it decides which stories to list as Trending Topics.

    Of course, by the same token, conservatives are free to stop using Facebook, or start their own social network — just as Facebook did when it upended MySpace a decade ago. Nor does it matter that Facebook supposedly curated its Trending Topics without informing its users, because non-commercial speech cannot be “false or misleading” by its nature — instead, it’s held to a more protective standard articulated by the Supreme Court in New York Times v. Sullivan.

    Unfortunately, many large Internet companies have been inconsistent in supporting the right of service providers to curate the speech that traverses their platforms. Back in 2012, CEI joined TechFreedom, the Cato Institute, and the Free State Foundation in defending online service providers’ First Amendment rights in an amicus brief we filed with the US Court of Appeals for the DC Circuit. However, the Open Internet Coalition — which included Facebook among its members — filed a brief on the opposite side, dismissing the First Amendment arguments of Internet service providers as bogus.

    Although it may be tempting to see Facebook get a dose of its own medicine, so to speak, elected officials who believe in limited government and free markets should respect the constitutional rights of all interactive computer services to manage their platforms as they see fit.

    Source: Congress, Not Facebook, Is the Real Threat to Free Speech | Foundation for Economic Education


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