Imagine a small town where an enterprising restaurateur opens a small café on its western side.
After a few years of success and growing lines to wolf down her secret recipe of ham and eggs, our entrepreneur opens a second location on the eastern side of town.
But now, since those two locations are 50 percent of all the places to eat because there are only two other competing restaurants, the city passes an ordinance regulating them as a utility — like the electric company, or garbage service. Unimaginable, right?
The latest big government idea to come from Elizabeth Warren is her proposal to regulate and break up tech companies.
She cites firms like Google, Facebook, and Amazon as examples of her new “government knows best” plan. The omnibus idea captures Google apparently because of its dominance in search, Facebook because of its social media stronghold, and Amazon because of its ecommerce market share. Like our small town café owner, just being good and succeeding at what you do puts you in the crosshairs of government.
But how does the proposal decide who is a big enough tech company to merit regulation and be designated as a “platform utility” (her words)?
It turns out, whether a company is abusing its market power or not, it would be determined by annual revenue and arbitrarily set at $25 billion in sales. Basically, any company that has an internet presence and sells more than $25 billion of goods and services would be regulated by some new government internet police force. Those companies also wouldn’t be allowed to both sell (be a marketplace) and produce (be a manufacturer) at the same time.
Stop! Wait! What?
You mean I couldn’t buy the cheap Great Value cookies at Walmart anymore? I couldn’t get Health and Wellness at Walgreens, or even Kroger at Kroger? According to her hastily announced attack on internet commerce, all of these companies fit her definition as platform utilities. They sell both their own products and competing brands online and their revenues exceed $25 billion per year. The proposal remains silent on companies like these, but it does specifically call out Amazon for selling products it also manufactures. Following this twisted logic, you would have to get an Amazon Alexa at Target, or CVS — but not at Amazon.
The proposal also seeks to break up and also reverse previously approved and consummated mergers, like Instagram and Facebook, and Amazon and Whole Foods. But before Warren designates Facebook a utility and forces its breakup, let’s have a look at the history books.
In 1913, 1956, and again in 1982, the government forced breakups and divestitures of the various Ma Bell companies. Western Union was pulled out in 1913, Bell Labs in 1956, and the regional operating telephone companies ripped apart in 1982. So how did that all work out? Western Union ended up filing for bankruptcy and reinventing itself as a marginal player in the money transfer business, Bell Labs is now owned by the Finnish firm Nokia, and all of the Baby Bells have merged back together and are now either AT&T or Verizon. A new world order? Hardly.
The announcement of the plan highlights Amazon’s roughly 50 percent market share of ecommerce sales. But it is silent on the fact that those sales account for only about 4 percent of all retail sales. Costco sells as much as Amazon in the United States, and so does Home Depot, CVS, Target, and a laundry list of other popular retailers. But remember, since all of these stores also sell their own products online along with their competitors, and they have revenue over $25 billion, by definition they would become regulated platform utilities too.
The “only size matters” argument to break up and regulate large businesses should be a non-starter for anyone with common sense. Yes, we’ve all heard the narrative that Amazon and Walmart put local merchants out of business. That wouldn’t happen if consumers ignored them and continued shopping local — but they don’t — and the reason is price. In a world where the Warren crowd screams about the unfairness of being poor, you’d think they would support the economies of scale brought by retail giants because they sell at lower prices and enable more people to buy more things. Exactly who is this unfair to?
No, regulating and breaking up large firms solely because of their size and their internet presence doesn’t help anybody except bureaucrats living on the government’s largesse.
Warren sees a whole new wave of rules, regulations, and do-good enforcers dependent on her for employment and tasked with interfering in the efficiency of the market. Sell on the internet? Sell more than $25 billion in a year? You are now a utility like the electric company. But wouldn’t you rather buy a Ford from Ford and a Big Mac from McDonalds? Oh yeah, they fit the definition too.
Kevin Cochrane teaches economics and business at Colorado Mesa University in Grand Junction and is a visiting professor of economics at the University of International Relations in Beijing, China. He is a regular contributor to several national publications including the Washington Times, Washington Examiner, and American Thinker. He previously was the economic correspondent for both CBS and NBC TV affiliates in Southern California. For 27 years he formerly was a senior banking executive with a major NYSE listed bank holding company and the CEO of a national multi-bank operating company. To read more of his reports — Click Here Now.
© 2021 Newsmax. All rights reserved.