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Facebook and Google Must Be Regulated Now

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At the recent F8 conference for Facebook developers, Mark Zuckerberg stood on stage laughing and trying to crack jokes.

“I know that we don’t exactly have the strongest reputation on ptrivacy right now, to put it lightly,” he said. The audience was speechless. It would be like BP laughing about oil spills or Union Carbide laughing about the Bhopal disaster. Nobody laughed, not even Facebook employees.

That same week, Facebook disclosed that it will be setting aside $5 billion to pay for potential fines from the Federal Trade Commission relating to violations of user privacy. The fine is significant—if only symbolically—because when it comes to the tech giants, the Department of Justice and FTC have been toothless enforcers and regulators. The biggest fine they’ve imposed thus far was for $22.5 million to Google in 2012 for misleading consumers about its online tracking tools, a penalty so inconsequential that it amounts to less than a rounding error.

While banks are too big to fail, tech giants are too big to manage. Facebook has accumulated over 2 billion users on its main platform, and also owns Instagram and Whatsapp. It is far too large to operate with any sensible degree of competent oversight.

The company has been accused of selling advertisements based on anti-Semitic keywords like “Jew haters,” selling ads that discriminate based on age for job advertisements, targeting people by race to exclude minorities, and live-streaming murders and suicides. It has helped fuel the ethnic cleansing of the Rohingya in Myanmar, according to the United Nations. It has exposed hundreds of millions of passwords internally without encryption. It has saved user videos that it promised were deleted. It has repeatedly misled advertisers about its advertising metrics. The only thing Facebook hasn’t been accused of is causing lung cancer.

For years, many on the Left and the Right did not want to regulate Facebook or Google as these companies were growing rapidly and were mythologized on magazine covers as the very best of Silicon Valley. Today, the environment has changed. Television personalities on the Right like Fox News host Tucker Carlson, as well as lawmakers on the Left like Senator Elizabeth Warren have been pushing the idea of regulating—or even breaking up—the platforms. 

It is uncertain what path reform will take, but reform appears inevitable and it must be done wisely. High degrees of regulation can entrench monopolists. Regulations should be simple, principles based, and must promote competition. And since Facebook and Google are natural monopolies, they must not enjoy monopoly-like rents for providing its services.

The most immediate need for reforms cover three areas: 1) user privacy and control over data; 2) the role of Facebook and Google as media companies; 3) their economic and political power as monopolies.

Efforts by Facebook, Google, and Twitter to self-regulate have encountered little success and present a host of problems. For example, the tech giants collaborate in the Global Internet Forum to Counter Terrorism. It shares a database of objectionable content that can be used to ban files and users. The problem with this database is that there is no transparency, accountability or even a right to appeal. The database keeps out extremism, but it is also an overly broad censorship tool. Users have been banned under this system without even knowing why they were banned. And there is nobody that they can appeal to to reverse their ban.

When it comes to privacy in the United States, the tech giants have no interest in harming their ad-driven business models, and there is very little self-regulation. Their surveillance of users is a feature, not a bug. Europe has the General Data Protection Regulation, a regulatory framework to protect individuals, but the tech giants have fought privacy regulations at every step in state legislatures and on Capitol Hill.

The issue of privacy is one that the United States will need to regulate. Facebook and Google are merely the tip of the iceberg.

Many data brokers are far more intrusive, and Google and Facebook buy data from them, as well as from payments companies like Mastercard. Acxiom is a data broker that collects 1,500 data points per person on more than 700 million consumers and sells analysis of such information. The kind of information it collects is vast: identifying and contact information, court and public record information, financial “indicators”, health “interests” including web searches for “diabetes, arthritis, homeopathic, organic and senior needs,” demographic information such as home value, home characteristics, marital status, presence of children in the household, number of members in the household, education, occupation, and political party, “lifestyle and interest indicators.”

Not even the Stasi had as much information on the East Germans as Google, Facebook, and its data brokers have on American citizens.

It is bad when the data is accurate, but it is almost worse when it is not. They store data indefinitely, even when people have had their criminal or misdemeanor records expunged by courts, and it has cost people jobs.

Apple CEO Tim Cook has called on the FTC to create a “data-broker clearinghouse.” All data brokers would have to register and allow users to see what data is held on them and allow users to see what data of theirs has been tracked and sold. It would also allow them to delete it. This is a good first step. Another important step is to require user consent before a merchant passes on data to a third party. This currently takes place with no user content.

Most importantly, the tech giants should be regulated as media companies. Executives from Google and Facebook go to great lengths to deny that they run media companies, even though they behave exactly like media companies.

They aggregate, curate, and distribute content, but bear none of the burdens that come with that designation. Facebook’s news feed has become what the front page of the newspaper was for older generations of people; at least 66 percent of the social network’s 2 billion users use it as a news source, according to a Pew Research Center study.

Thee are de facto editors of news content. Facebook and YouTube—a subsidiary of Google’s parent company, Alphabet—have intentionally designed their algorithms to customize user experience to increase engagement. They accomplish this by suggesting stories that user will be most likely to respond to. An algorithm may not be an old-fashioned editor, but it is making editorial choices all the same.

They are also creators of content. Facebook and Google may say they aren’t media companies, but they have been investing in originally produced entertainment videos and shows.

If Facebook and Google were held responsible for the content they promote, the Federal Communications Commission would not let them off lightly for their many failings. If Facebook and Google were treated as media companies, they would be held accountable for the content that appears on their platforms. Today, under Section 230 of the Communication Decency Act, tech giants are broadly immune from liability over content posted by others.

The most contentious issue for reform is treating Facebook and Google like the monopolies they are. In a way, it makes sense. For years, Zuckerberg routinely described Facebook as a “social utility.” Indeed, it was originally part of the company’s slogan.

Facebook and Google have become essential fixtures of 21st-century life. If you want to be on a network with all of your friends, there is really only one network to be on, and it is on Facebook. Likewise for search where Google has almost a 90 percent market share globally with very strong feedback loops from  its platform and advertisers. These business models have become a natural monopoly, much like a phone company or water system except that they remain completely unregulated.

Figures from the Left and Right have called for them to be regulated like public utilities. In 2017, Steve Bannon said tech companies like Facebook and Google have become essential elements of 21st-century life and should be regulated as utilities. The Economist has mooted the idea that the tech giants could be regulated based on a regulated return on assets. They can stay private and enjoy utility-like status, but the returns they can harvest from being natural monopolies are capped at utility like rates based on the return on their assets.

Reform is not impossible. More than two decades ago in 1998, Congress recognized that the internet was revolutionizing media and commerce and passed two laws to address copyright and free speech concerns. Two decades is an awfully long time in Silicon Valley and technology. Times have changed, and updating the laws is long overdue.

Jonathan Tepper is a senior fellow at The American Conservative, founder of Variant Perception, a macroeconomic research company, and co-author of The Myth of Capitalism: Monopolies and the Death of Competition. This article was supported by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors.

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