The Federal Trade Commission (FTC), under the leadership of Lina Khan, has essentially gone to war against U.S. big tech. In the center of their target circle sit leading U.S. firms such as Amazon, Google, and Microsoft. These companies are driving the U.S. economy to new heights, creating tens of thousands of smaller businesses and hundreds of thousands of new jobs. They develop new technologies, provide unique and vital capabilities to the U.S. military and its intelligence community, and enhance the wellbeing of millions in the United States and around the world.
By pursuing the dubious legal theory that the size of these firms creates inherently monopolistic conditions and gives them unacceptable advantages, the FTC seems to take no interest in the likely negative consequences of its efforts to singlehandedly restructure the core of the modern U.S. tech base.
The FTC is on a trajectory to repeat the mistakes the U.S. government made when it decided to break up AT&T in the 1980s. That experience should be a cautionary tale for the Commission. Congress needs to take a close look at the FTC’s current efforts to exert control over this critical part of the U.S. economy.
Ringing the Wrong Bells
Fresh from a loss in its case to bar Microsoft’s purchase of Activision, the FTC has redoubled its efforts against big tech. According to published reports, it is readying a lawsuit intended to result in the breakup of Amazon. The Justice Department also is going after Google for its alleged dominance of the search engine market.
The FTC’s ultimate goal seems to be to reduce Google’s presence in the search marketplace, where it has an 80% market share. A ruling by the judge in the case brought by the Justice Department significantly narrowed the scope of the charges, based on the lack of substance to several of the allegations.
In the 1982 decision to break up AT&T, rather than a single nationwide phone company, a series of regional monopolies, the so-called “Baby Bells,” were created. At the time, a headline in the New York Times perfectly encapsulated the lack of foresight associated with this step in the dark: “Bell System Breakup Opens Era Of Great Expectations And Great Concern.” The untested theory behind this decision was that it would lead to an era of greater competition and increased innovation. This did not happen.
Over the next several decades, the regional phone systems gradually consolidated. The advent of wireless technology accelerated this effort as consumers and businesses demanded seamless communications. The idea that each of the Baby Bells would stay in its own geographic sphere fell before the demand from consumers and businesses for greater competition in long-distance communications. In essence, the theory behind the AT&T breakup was proven to be demonstrably false.
One of the unintended consequences of the AT&T breakup was a significant reduction in innovation. For nearly a century, AT&T funded Bell Labs, which pursued research on a broad array of basic technologies. AT&T had the deep pockets to support Bell Labs’ work in basic science and technology maturation. Over the decades, Bell Labs was the source of countless breakthroughs and inventions on which the modern world now relies. One of the most important of these was radar, discovered just in time to have a major impact on the outcome of World War Two. Other inventions included the transistor, the charge-coupled device, and the laser.
Big Tech Is the Most Important Sector of the Economy
Following the breakup, the regional Bells wanted the results of the research performed by Bell Labs, but they were unwilling or unable to pay to maintain this crown jewel of American tech innovation. Bell Labs was spun off as an independent entity and slowly withered as it was repeatedly bought and sold.
Before we embark on changing the face of American big tech, we need to consider the potential risks.
Breaking up Amazon and attempting to increase competition in the search marketplace will have incalculable negative consequences for consumers, national security, and great power competition, particularly with China.
Amazon created an entire merchant ecosystem, allowing millions of consumers ready access to products and services at competitive prices, often cheaper than conventional retail. It also allowed the creation of tens of thousands of businesses based on the ability of entrepreneurs small and large to access a global pool of consumers, as well as the operating capabilities to advertise their products and deliver to customers.
To meet its own internal needs, Amazon invested in cloud computing and software. The result was the creation of Amazon Web Services (AWS), which revolutionized the marketplace for data storage and computing. It is the relationship between AWS and the other parts of Amazon that creates the demand for the former to continue developing new technologies that support the latter and, more broadly, the American economy.
AWS has repeatedly demonstrated its ability to provide the Department of Defense and the intelligence community with the most advanced products and capabilities. AWS, along with Google, Microsoft, and Oracle, is now part of the Joint Warfighting Cloud Capability contract supporting the Pentagon. AWS won a unique contract to create and manage a cloud environment for the intelligence community. These advances would not have been possible without the financial strength and technology depth resident in the major big tech companies.
Breaking up Amazon or hobbling Google’s search business would not be a one-time affair. In order to avoid going down the path experienced by the telephone industry after the AT&T breakup, the U.S. government would have to continually micromanage the tech sector, picking winners and losers and choosing among technologies that companies would be allowed to pursue. Should the FTC prevail in its assault on big tech, it is likely to lead to centralized control of the most important sector of the U.S. economy.
Dr. Daniel Goure is Senior Vice President with the Lexington Institute, a nonprofit public-policy research organization headquartered in Arlington, Virginia. He is involved in a wide range of issues as part of the institute’s national security program. He is a 19FortyFive Contributing Editor.
