Big Tech

The problem with regulating Big Tech

February 1, 2023 | By Dean Sevin Yeltekin


The call to reform the rules and regulations surrounding Big Tech companies has grown noticeably louder in recent years. But hearings, headlines, and tweets have yet to translate into substantial action.

In the Q&A below, Joseph Kalmenovitz draws upon his extensive knowledge of the U.S. regulatory system to explain why regulating Big Tech is such an uphill battle.

In terms of the market power and political influence they wield, how do Big Tech companies compare to industry heavyweights of the past?

Today’s Big Tech companies are, without a doubt, the biggest monopolistic power the U.S. has ever seen. If we go back 100 years, the dominant industries were oil, railroads, and finance. Today’s Big Tech companies know things about their customers that would surpass the wildest dreams of titans like John D. Rockefeller and J.P. Morgan. Even though we all recognize how little digital privacy we have, nowadays, I’m still surprised by the reach of Big Tech companies. The other day, I filled out an online questionnaire using a pseudonym, and since then I’ve been bombarded by ads addressing me by that name. The public only sees the tip of the iceberg
when it considers how powerful these companies are.

In your view, should Big Tech be more heavily regulated?

My sense is that society would be better off if some Big Tech companies were broken up. Amazon started off by selling books and is now vying to become a leader in the healthcare industry. Regulatory agencies exist to examine—and potentially block—the development of this kind of multi-market conglomerate. I think most of us have an intuition that if one company creeps into all these markets, there are going to be problems for society. But it is very difficult to prove this concept economically.

In the past several years, more and more members of Congress have paid lip service to regulating Big Tech more heavily. Do you see this coming to pass?

Every now and again, there will be public outrage around things that are so egregious—like FTX making billions of dollars evaporate in a short period of time—that the members of Congress feel compelled to do something. They feel a sense of duty to please the public. But even events like the FTX meltdown are unlikely to cause a permanent shift in how markets are regulated, for several reasons. First, it’s important to recognize Congress is comprised of people, and people respond to incentives and pressures. When you look at the flood of lobbying money being funneled from Big Tech companies into reelection campaigns, it’s easy to see how our elected officials are incentivized to act. Second, there is an enormous gap between legislation and implementation. Once a bill is signed into law, we need federal agencies like the Federal Trade Commission (FTC), U.S. Securities and Exchange Commission (SEC), and Food & Drug Administration (FDA) to write and enforce regulation. That’s where we run into a different set of problems.

What is happening at the agency level that prevents effective regulation?

Regulation is a cat-and-mouse game. Regulators are supposed to be more sophisticated in their knowledge of regulation than the companies they are regulating, but the reverse often proves to be true. Big Tech companies are drawing from a deeper pool of knowledge. They have more skin in the game, and they pay top dollar. The federal government has 1.2 million employees
and a pay structure that is difficult to alter in a significant way. There are a lot of good employees at regulatory agencies, but across the board, they have weak incentives to pursue robust implementation and strong incentives to look toward their next job at a Big Tech company. We know about this revolving door problem, but we have not yet come up with a solution. Another major problem is that regulation is highly fragmented between federal agencies. If one agency wants to take the lead to break up a monopoly, it may have to convince five others to cooperate. This diffusion of power works to the benefit of large companies and stands in the way of action.

Does history give us any precedent for overcoming these obstacles?

Like I mentioned previously, the U.S. was in a similar situation a century ago with the oil, railroad, and finance monopolies. But even in this environment, the Sherman Antitrust Act was passed into law in 1890, followed by both the Federal Trade Commission Act and the Clayton Act in 1914. One narrative that seeks to explain how this happened focuses on the fact that the U.S. Supreme Court was willing to defend the crackdown on anti-competitive practices. Another is that President Theodore Roosevelt was passionate enough to risk his political fortune on getting the Sherman Antitrust Act passed and signed into law. There are not many leaders with similar conviction today.

Gary Gensler, the Chairperson of the SEC, may be an exception. He has resolved to write more aggressive rules and take more enforcement action. It remains to be seen how this will play out. It is still unlikely that the SEC will be able to significantly affect antitrust issues. Laws as old as Sherman need to be adapted and updated to modern-day companies, but again, Big Tech has
some of the best and brightest minds in the country writing opinions to regulatory agencies about how they should craft regulation. Unless we tackle the more fundamental issue of money in politics, I’m skeptical of the possibility of real change.

Joseph Kalmenovitz

Joseph Kalmenovitz is an assistant professor of finance at Simon Business School and a former senior law clerk at the Supreme Court of Israel. His research focuses on developing novel data sets to study how regulation affects economic decisions. To learn more about past and ongoing research, visit his website here.

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