Big Tech has become the catch-all scapegoat for countless problems. The latest White House statement on tech platform accountability joins the chorus pointing the finger in the wrong direction by using the potential for rent-seeking to justify additional regulatory action. If the administration wants to prevent rent-seeking from Big Tech, the solution is to rein in government — not industry.
Last month the White House released a statement on a listening session held on tech platform accountability. The statement lists Big Tech’s market power as a force enabling rent-seeking. The Biden Administration also put out a series of principles for reform, one of which was to promote competition in the tech sector because “a small number of dominant Internet platforms use their power to exclude market entrants, to engage in rent-seeking, and to gather intimate personal information that they can use for their own advantage.” Contrary to the administration’s outlook, rent-seeking as a justification for government action doesn’t make sense.
Rent-seeking is a term that covers a wide range of behaviors but that can be defined as when people, companies or industries turn to the political arena to ensure benefits for themselves. As this definition shows, rent-seeking is not limited to large firms and is only possible when the government plays favorites.
While many private industries may attempt to engage in some form of rent-seeking, the only entity that can make their efforts successful is the government. Furthermore, large companies are not the only ones capable of turning to politicians to succeed in the marketplace. Ironically, current calls to regulate Big Tech are an example of rent-seeking from smaller actors in the economy. If the government truly wants to address the problems of crony corporatism and favoritism, then it will take this opportunity to withdraw from interference in the marketplace. However, it’s currently taking the opposite approach.
The Journalism Competition and Preservation Act, introduced by Senator Amy Klobuchar, is a legislative attempt to give small news outlets a competitive edge in the increasingly digital economy. Klobuchar and other supporters of the proposed legislation believe that these actions are necessary to help small outlets compete and negotiate with Big Tech.
News outlets are indeed shrinking. Between late 2019 and the end of May 2022, 360 newspapers closed in the U.S.. Most of these papers weren’t replaced in digital or print form and contributed to a shrinking market. However, the size of the market does nothing to change the reality that government intervention to provide advantages on behalf of an industry is the epitome of rent-seeking.
Antitrust efforts that target firms based on size to protect smaller businesses follow the same pattern. The legislation aimed at protecting Big Tech’s competitors comes in the form of additional bills introduced by Klobuchar: the American Innovation and Choice Online Act (AICOA) and the Platform Competition and Opportunity Act (PCOA). Combined, these bills would target platforms over certain size thresholds by prohibiting self-preferencing and deeming mergers and acquisitions equal to or greater than $50 million unlawful.
As is the case with Klobuchar’s journalism bill, these pieces of legislation are designed to create rules to benefit Big Tech’s competitors.
Heavy-handed protectionism of competitor businesses is not only present in proposed legislation but also in agency action. The Federal Trade Commission (FTC) voted last July to rescind a policy that guided antitrust enforcement to focus on the consumer welfare standard. In practice, this means the FTC can look past consumer impacts when assessing competitive harms. Expanding the scope of impact enables enforcement to focus on the impacts not on the competitive process, but on a business’s competitors, which has the potential to artificially lessen competition for these players.
Rent-seeking has distortionary effects on competition in the economy and should be addressed. If lawmakers are truly concerned with the government’s sensitivity to private businesses lobbying for favors, the solution is to regulate the government, not the businesses. At the end of the day, these attempts to gain favor can only be successful if the government permits it.