Data is the new oil and Facebook is Standard Oil

Data is the new oil and Facebook is Standard Oil
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Facebook CEO Mark ZuckerbergMark Elliot ZuckerbergFacebook hosts 'pop up' privacy tutorial in New York City Merkel named Harvard commencement speaker The Hill's Morning Report — Presented by T-Mobile — Congress to act soon to avoid shutdown MORE’s testimonies to Congress last week mark the degradation of the social networks from the masters of the universe to ungovernable Frankenstein monsters. Congress needs to seize this challenge with extensive legislation before it becomes insurmountable.

The social networks have become vast monopolies. They are non-transparent, but rather than manipulate, the Cambridge Analytica affair shows that they have become manipulated, allowing not only anonymous political ads, but even intrusion by foreign powers. Data is the new oil, whose rents are barely taxed.

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To sort out this conundrum, Congress needs to apply four principles: transparency; treating social networks as publications; competition policy; and equal taxation.

 

Transparency is the most obvious cure. Nobody should endure insults from anonymous Russian bots. The Patriot Act of 2001 insisted that banks had to know their customers. In the same way, social networks should identify their users or keep them out.

Social-account holders should be obliged to show their true identity to other actors on a network. Individuals need to gain the right to know what data is collected about them and how it is being used as well. The new privacy regime of the European Union, the General Data Protection Regulation, does exactly that. The United States should follow this example.

The social networks have been treated as internet platforms without responsibility for their content. Clearly, this is no longer permissible. Social networks operate algorithms that are in effect editorial policy, and they should be recognized as such.

To begin with, political advertisements on the web should be regulated like political ads anywhere else. The social networks should also be forced to take full responsibility for the quality and decency of the materials they proliferate. This process is under way, but it should be speeded up and driven by principles rather than scandals.

To an amazing extent, the United States has excluded the social networks from competition policy, while the European commissioner for competition policy has pursued the tech giants Microsoft and Google for anti-competitive practices. The United States should not only follow the EU example but go further.

The incumbent hi-tech mastodons buy one competitor after the other. Why was Facebook allowed to buy Instagram for a paltry $1 billion in 2012 or WhatsApp for $19 billion in 2017? In the first decade after its initial public offering, Google bought 145 companies, including YouTube, for $23 billion.

This process needs to be restricted. Some purchases appear to be made to eliminate promising competitors, and others seem outright monopolistic. The swift concentration to a few colossal companies is a threat to technical development and innovation.

A first step should be to scrutinize acquisitions by the leading hi-tech companies. The next step could be to break away apparent competitors, such as Instagram from Facebook and YouTube from Google. A potential third step would be to apply the Sherman Antitrust Act of 1890 and break up monopolistic tech giants.

This act has not led to any breakup of a U.S. company since AT&T was broken up in 1982. An attempt to force Microsoft to break up failed in 2001, but the new dominance of Facebook, Apple, Amazon, Netflix and Google calls for a return to U.S. antitrust policy.  

As a skyrocketing infant industry, the social networks have escaped much of ordinary taxation, but taxation should be equal to all. Ordinary state sales taxes should apply to all internet retail sales to level the playing field.

An outdated Supreme Court verdict from 1992 designed for mail orders should be reversed for the sake of equal taxation of all kinds of companies.

The tax reform of 2017 has done some good in equalizing corporate profit taxation between hi-tech companies and other companies, but the European Competition Commissioner Margrethe Vestager has punished Apple for major tax avoidance in Ireland with an additional tax bill of $13 billion.

Congress needs to legislate rules for the social networks before these monsters lose themselves in the unwieldy monopolies they have created.

Anders Aslund is a senior fellow in the Atlantic Council’s Eurasia Center, specializing in European economic policy, and he teaches at Georgetown University. The author of 14 books on economics and politics, he chairs the Scientific Council of the Bank of Finland Institute for Economics in Transition and the Advisory Council of the Center for Social and Economic Research, Warsaw.