As Washington continues its anti-consumer war on big tech, Chair of the House Antitrust Subcommittee, David Cicilline (D-RI 01), and other trustbusters have called for a Glass-Steagall law to regulate tech companies. Despite the attractiveness of a Glass-Steagall law for big tech, it would only inflict unnecessary harm on consumer welfare and small businesses. Put simply, Glass-Steagall will create more problems than it solves for big tech.
Passed shortly after President Franklin Roosevelt took office, the Glass-Steagall Act formed a central pillar of the New Deal and the political response to the Great Depression. Congressional leaders and the Roosevelt administration recognized the need to “restore confidence in the banking system.”
The Glass-Steagall Act was designed “to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes.”
The Act is perhaps best known because it forced banks to separate their consumer savings and commercial divisions. The belief was if investments went sour, as had happened in 1929 due to high-risk speculative trading, consumer savings would not be affected.
The Act was ultimately repealed in 1999 by the Financial Services Modernization Act (FSMA), otherwise known as the Gramm-Leach-Bliley Act. FSMA once again allowed banks to engage in commercial and investment banking.
How a Glass-Steagall law would exist in the tech industry is still unknown, but it is widely believed this law could prevent tech companies from selling their products or operating separate divisions. Apple could be prevented from selling its apps on the app store, and Amazon could be forced out of selling its products or running its web services division.
For consumers and small businesses, this forced structural separation could have profound consequences as they are the ones who benefit most from these company structures.
One of the significant critiques launched against big tech is using data obtained from their platforms to understand what products consumers are demanding and sell their products at a lower cost than their competitors. This practice has allowed Amazon to offer numerous products to consumers at a lower price than its competitors can offer.
It has also allowed Amazon to provide consumers with more choices that would otherwise be unavailable to them.
Apple has also been accused of preferencing its own apps, such as Apple News, over competitors on the App store. While this may seem like self-dealing, these apps are typically offered at no charge to consumers, meaning they can access the latest news and podcasts at no cost. This preferencing has also enabled Apple to offer safety apps, like “Find My Friends,” at no charge.
Were a Glass-Steagall-styled law passed to prevent big tech companies from developing their products and selling them on their online platforms, consumers would be forced to pay for services they currently receive for free.
Another risk of a Glass-Steagall for big tech is it may force big tech to stop offering services beyond their core services. Amazon could, for example, be forced to end its cloud-based service even though it supports thousands of small and medium-sized businesses.
While Amazon Web Services (AWS) has large customers like Netflix and Airbnb, they also work with thousands of small and medium-sized companies across the United States. Additionally, AWS provides small and medium-sized businesses with advanced cybersecurity that would otherwise be unavailable to them.
This is an essential provision because the Small Business Administration reported: “88% of small business owners felt their business was vulnerable to a cyber-attack.” Some of these services are usually offered to small and medium-sized businesses at little or no cost.
If Congress passed Glass-Steagall styled legislation, Amazon would unlikely be able to continue offering these services to small and medium-sized enterprises, leaving them to pay more for increased vulnerable to cyberthreats and unable to reach the broad consumer base needed to grow and compete.
While a Glass-Steagall law might have rhetorical appeal to contemporary trustbusters, it should be readily apparent that a structural separation would significantly harm consumers and small businesses. In turn, consumers and small businesses would face the risk of being denied access to products and services they currently receive at no cost or for a nominal fee.
Congress would be wrong to use Glass-Steagall as the blueprint for regulation of big tech companies.
This piece was published in The Economic Standard.