Zuckerberg Fancies Himself Our ‘National Champion’ Against China
Big Tech monopolists rush to patriotism to protect their territory---while sucking up to Beijing for big foreign deals.
Samuel Johnson said in 1775 that “Patriotism is the last refuge of a scoundrel.” If all arguments in an economic or political discussion fail, appeals to the flag are sure to follow.
Monopolies have come under attack from the left and right this year. The Department of Justice, the Federal Trade Commission and attorneys general are investigating the tech giants. The House Subcommittee on Antitrust has been conducting public hearings on monopolies and has the Silicon Valley behemoths in its sights. As well-worn arguments have failed to quell the backlash against monopolies, the hoary arguments that monopolies are needed for national pride and safety have surfaced.
Mark Zuckerberg and Sheryl Sandberg of Facebook and Eric Schmidt of Google have said pointedly that breaking up big tech will only help Chinese monopolies.
Sandberg said that “while people are concerned with the size and power of tech companies, there’s also a concern in the United States with the size and power of Chinese companies, and the realization that these companies are not going to be broken up.”
When Zuckerberg testified in front of Congress and was asked about Facebook’s market power, he changed the subject to the supposed threat of Chinese companies. He argued that Chinese tech companies represent “a real strategic and competitive threat.”
Perhaps Zuckerberg is hoping that as Franklin D. Roosevelt said of Nicaraguan dictator Anastasio Somoza, “He may be a son of a bitch, but he’s our son of a bitch.” Facebook and Google may be monopolies, but at least they’re our monopolies.
Schmidt has argued that there is regulatory bias in the West against Google and that hands China a competitive advantage on everything from privacy to data collection. He has argued that Google could be the national champion in the Artificial Intelligence race against China.
In the old days, GM claimed that what was Good for GM was good for America, and now Silicon Valley monopolies are making the same case. What is good for them is good for America.
Effectively, Google and Facebook want to be thought of as “national champions.” According to Bloomberg, national champions is “code for government support for home-grown corporate powerhouses as a way to give them an edge over outside competitors and create jobs, drive exports and fuel economic growth.”
The arguments for national champions fail on almost every level, and the claims are deeply hypocritical.
Facebook has handed over user data in data-sharing partnerships with dozens of device makers, including Chinese companies. From 2010 to 2019, when it was found out, Facebook allowed Huawei and four other Chinese groups to access highly personal data on users, including their friends, their work history, personal relationships, political and religious views, etc. These Chinese companies are all regarded as state-controlled companies that serve Chinese intelligence. It is worth noting that the data sharing was in violation of its 2011 consent decree with the FTC.
Mark Zuckerberg even asked Chinese President Xi Jinping to name his first-born child when he was genuflecting and seeking access to China for Facebook. He has been learning Mandarin and made frequent visits to Beijing to be in the good graces of China.
Google’s supposed fear of China is also odd, given it has an investment in JD.com and has been negotiating with Tencent to help bring Google Cloud to China. Furthermore, Schmidt is still very keen on Google’s attempts to make inroads in China. He recently told the BBC that Google was right to pursue opportunities in China, despite heavy criticism from senior U.S. officials. “The world is a very interconnected place. There are many, many benefits interacting, among other things, with China.”
Google is more than happy to play ball with the Chinese government. It had been secretly developing a Chinese-specific search engine called Dragonfly that would censor information at the request of the Chinese government and hand over everyone’s search histories. The work on Dragonfly was called off after an uproar in the press.
A further irony is that U.S. companies are asking American regulators to imitate the worst aspects of the Chinese system that they have already criticized. The State Department has criticized China’s antitrust authorities for pursuing a national champions policy and favoring local companies in its enforcement. A State Department report noted that foreign companies complain that antitrust enforcement in China almost never puts any conditions on local mergers, but frequently uses merger reviews to punish foreign companies. By promoting national champions in antitrust, the U.S. would be imitating China’s worst qualities.
The arguments to promote tech monopolies as national champions has not fallen on deaf ears. In early April, Senator Mark Warner has said that if regulators were to “chop off the legs of Facebook and Google,” they would be “be replaced by Alibaba, Baidu, Tencent—companies that are totally enmeshed with the Chinese government in their global economic plan.”
The national champion arguments are already infecting antitrust cases.
Recently, the FTC has brought a case against Qualcomm for monopolistic practices. Qualcomm refused to license its patents to competitors, even though the patents are now “essential to industry standards” and should typically be licensed at fair rates. It has used exclusive deals with customers to prevent them from using other suppliers. As its competitor Intel explained in an amicus brief, Qualcomm “refuses to sell any chipsets unless those manufacturers also purchase separate patent licenses that require them to pay exorbitant royalties for every handset they sell.”
The Department of Justice, Department of Defense and Department of Energy have all weighed in on Qualcomm’s side, citing national security concerns around China’s efforts to dominate 5G.
Ellen Lord, a former defense contractor and the Under Secretary of Defense for Acquisition and Sustainment, argued that Qualcomm’s position as a monopolist enables it to support national security and fight China. Lord’s job is to approve or deny mergers from her position at the Pentagon. She has been every bit as negligent as the DOJ and FTC when it comes to monopolies, and she enabled a merger in the rocket industry that has created a missile monopoly. (Please read Matt Stoller’s important piece on defense monopolies that appeared in The American Conservative.)
The FTC is the only agency that appears not to have bought into the national champion argument. (It is highly unusual for the FTC to side against monopolies.) In its brief, the FTC doesn’t buy the proposition that the anti-monopoly sanctions will harm Qualcomm’s ability to maintain 5G leadership. The agency said antitrust laws are not the appropriate means for supporting national champions. It argued, “If legitimate national security objectives require subsidizing Qualcomm, Congress is free to do that — or even exempt it from antitrust laws.”
Michael Chertoff, the second United States Secretary of Homeland Security and author of the PATRIOT Act, wrote about the problems of monopoly and national champions in the Wall Street Journal, “In the technology race against China, the U.S. should prefer to let competition drive innovation rather than support exclusive national champions. Apart from the economic inefficiency, a single-source national champion creates an unacceptable risk to American security—artificially concentrating vulnerability in a single point…. We need competition and multiple providers, not a potentially vulnerable technological monoculture.”
Monocultures have been disastrous throughout history. The Irish Potato Famine is a cautionary tale of the danger of monocultures. All of the potatoes in Ireland were genetically identical to one another, and the variety was vulnerable to the pathogen Phytophthora infestans. One in eight Irish people died of starvation in three years during the Irish potato famine of the 1840s. In the 1920s, the Gros Michel banana was almost wiped out by a fungus known as Fusarium cubense, and banana shortages became a growing problem. The widespread planting of a single corn variety contributed to the loss of over a billion dollars worth of corn in 1970, when a fungus hit the US crop. In the 1980s, dependence upon a single type of grapevine root forced California grape growers to replant approximately two million acres of vines when the pest phylloxera attacked.
By supporting monopolies as national champions, regulators encourage monocultures, rather than robust, diverse, and competitive markets.
The national champion arguments are finding roots again in Europe, where these have a long history. In 2019 Angela Merkel and Emmanuel Macron supported the creation of a European railway champion with the merger of France’s Alstom and Germany’s Siemens to counter China’s CRRC. The deal was killed by EU Competition Commissioner Margrethe Vestager, but it has only intensified German and French efforts to revise antitrust laws to allow more mergers of national champions.
John Fingleton, the former head of the U.K. and Irish competition authorities said, “The political independence of mergers is under attack everywhere.”’
Supporting national champions is an ineffective policy. As a 2004 report from Germany’s Monopolies Commission pointed out, “French enthusiasm for pronouncements on industrial policy and the media’s admiration for the activism of the ministers responsible are out of all proportion to the success of this policy.”
The idea of national champions was popular after World War II when many key industries in Europe were controlled by governments. However, these companies generally failed to deliver innovation, lower prices and enhance economic growth. Many big companies were unprofitable and sclerotic. In fact, Europe has spent the last few decades privatizing companies, selling state shareholdings, and introducing more competition. This has resulted in lower prices for telecoms and airlines than the US, and more competition. It would be a terrible step backwards to promote monopolies.
As Tim Wu has pointed out, “Had the United States followed the Zuckerberg logic, we would have protected and promoted IBM, AT&T and other American tech giants — the national champions of the 1970s.” Instead, the US broke up AT&T and forced IBM to split its hardware from software. These actions led to the software and telecommunications revolution in the 1980s and 1990s.
American tech companies are right to be worried about China. But the U.S. already has a Committee on Foreign Investment to prevent foreign companies from buying industries that are critical to national safety and defense.
America’s strength is not a government led industrial policy, but freedom to compete and innovate.
Jonathan Tepper is TAC’s senior fellow for economic concentration. He is also the 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.