EricN
EricN

The Invisible Hand

January 26, 2021

 

And so it is today we have the ugly head of monopolistic power being raised and the cry for anti-trust lawsuits to be levied against Amazon, Google, Facebook and Twitter. Is it really necessary?

Once, in a universe far, far away, a man once wrote that governments need not regulate how people conducted business. Wealth was not in collecting gold, cotton and sugar. Wealth was in producing what people demanded at the best possible price. All this would emerge through the free exchange of ideas and commerce. It would be this symbiosis of greed, innovation and desire that would bring about a marketplace of perfect competition. He called this “the invisible hand.”

 

The man was Adam Smith, and the book that published that theory was The Wealth of Nations, first printed in 1776. What he put on paper would be the theoretical foundation of capitalism. No where was his theory employed more than in 19th century America. It would be this explosion of free enterprise that would settle a massive portion of North America and produce an economic juggernaut that would dominate the world after World War I.

 

Yet capitalism had a flaw, the seeds of its own destruction. For in the pursuit of the best price one had to have scale. Some markets did not work well with thousands of competitors. Your cable company, for example, is usually a public franchise simply because of the fact that there is only one cable. The electric lines going into your house can only be serviced by one company. The same applies to your gas line, or water line. The result was monopolization. Add to monopolization size and lots of money, you have power.

 

Monopoly power was abused substantially in the late 19th century, so much so that it was one of their own who turned on them – Theodore Roosevelt. He came down on them hard and would commence the anti-trust vendetta that would split up the monopolies. It is the power of the State that can raise its hand to any monopolist and say “Game Over.”

 

IT, however, has been a bit allusive. Back when I was young, the bogieman was IBM. The U.S. government filed an anti-trust suit against IBM in 1969. As a college student I found this assertion rather peculiar because it appeared that IBM’s position was vulnerable due to the rapid evolution of computer technology. While IBM would introduce the PC in 1981, it could not contain the rapid emergence of competitors. Distributed networking, along with the continual improvement of the mini-computer, would severely test the IBM paradigm of computing through powerful mainframes and dumb terminals. By 1993 it would post a record $8 billion loss. The company was in a crisis. In the end, the government’s anti-trust crusade against IBM was rather pointless.

 

In a similar fashion, Microsoft was challenged. In the mid-1990’s an anti-trust lawsuit was used to break up Microsoft’s licensing agreements with PC manufacturers. Even if you placed a UNIX operating system on an Intel processor, the computer manufacturer was still required to pay a license fee to Microsoft. That was not only an abuse of monopolistic power, but technically ridiculous. But it would be the anti-trust suit against the use of Internet Explorer that would prove that the invisible hand in the IT market can be so pervasive that lawsuits may not be necessary. The US government asked that Microsoft not bundle IE with their operating system. Before they could act, however, Microsoft’s primary competitor, Netscape, collapsed. IE ruled the market – for a moment.

 

Out of the dust, Mozilla arose. Netscape, alas, was not all dead. It would soon appear as Firefox. Then came Google. Apple long had Safari. Other browsers appeared. The technical efficiencies introduced by Firefox and Google easily outflanked the cumbersome IE browser. IE was further disadvantaged by being restricted to Windows. Firefox and Chrome (Google) could operate on either Windows or Linux (and it’s cousin, Android). Before the ink was dry on the anti-trust appeals, IE was rapidly declining as the browser of choice.

 

And so it is today we have the ugly head of monopolistic power being raised and the cry for anti-trust lawsuits to be levied against Amazon, Google, Facebook and Twitter. Is it really necessary?

 

Before January 6th, I would have said “No.” Before that date, without all the hype and emotion generated from the rampage at the Capital Building, there were forces at work that indicated that the “Big Tech” firms were vulnerable. Amazon was having issues simply because of being too big and pervasive. The PBS Frontline report on Amazon was disturbing as it listed case after case of its tendency to exercise its economic power to destroy competitors and even customers they did not like. The Google search engine was being challenged on several fronts for exploiting user data and commercializing search results. There were hints that even YouTube may eventually be challenged. Twitter was being pounded by Gab and Parler. Facebook’s WhatsApp was facing challenges from Signal and Telegraph.

How Big Tech responds to these challenges will be instrumental on how the U.S. government will respond. And, sad to say, they have responded with the passion of a John Rockefeller, an Andrew Carnegie, or a JP Morgan. After the assault on the Capital Building, Big Tech took it upon itself to destroy the competition. First, there was the wholesale assault on Parler. It began with Apple and Google removing the Parler app from their “stores.” But the real killer was when Amazon’s cloud service shut down Parler’s servers! Overnight, a company with 5 million customers simply ceased to exist. Maybe, just maybe, Amazon was striking back for losing the Pentagon cloud center deal a month previous. Amazon’s actions was the equivalent of the local power company cutting off your electricity because you thought the local election was a fraud.

Following the news narrative on other fronts, it is peculiar that the same logic is being used to threaten the other competitors. Even the domain registering services are joining into this lunacy. GoDaddy removed the DNS service from a gun dealer. It turned out the same was done against Parler by their registering service. In essence, the service that directs any customer to Parler’s web site was removed, a fundamental component of the Internet. It is an aspect of the Internet that has historically been controlled by a-political providers. Now, suddenly, the domain name of a company can be held at the mercy of a single individual. This action is like someone stealing your identity.

 

This was not done by governments. This was done by an oligopoly of technical firms. We have replaced the constitutionally protected freedom of speech with their idea of an “Acceptable Use Policy.”

 

What is also being overlooked in this bludgeoning of liberty is the severance of commerce. Companies like PayPal have cut off services simply because they don’t like what people say. Guess what? I also think such people are way off base. I don’t like what they have to say. But is it the role of a banking service to determine who can earn income and who can pay their bills? Again, it is a bank that is making that decision, not law.

John Kenneth Galbraith would elaborate at length on the role of government in preserving certain aspects of the “free market.” Some markets needed boundaries instituted by government. His theory of countervailing powers demonstrated the mechanism by which governments could use anti-trust law to balance against powerful oligarchies and monopolies. In this case, it is not the invisible hand, but a visible hand that can slap you across the face.

 

Government can also guarantee that the benefits of the invisible hand are best encouraged and defended. In the U.S., commerce is intimately interconnected with other liberties such as the freedom of speech and association. At this point, Big Tech has proven by their actions that they are NOT the ones to determine who speaks and who does not. It is for us, as citizens, to define by law whether privileges to communicate and conduct commerce are removed. It is NOT Acceptable Use Policies (AUPs).

 

The above stated assertion is not universally relevant. AUPs are needful. But the scope of AUPs does not apply to an entire population unless there is a law to back it up. If you are providing a communication service, you are in the same camp as ATT and the local telephone company. If you are in the business of processing payments, you are in the same camp as your local bank. THAT is the problem with Big Tech as it stands today. It is horrifying to consider that a group of anonymous censors can determine who speaks and who can receive payment. When you look at the roster of victims, you will see they range from the obviously deviant to the obviously conservative. When you consider that the victims of censorship have been John Stossel and Prager University, you must concede that this borders on tyranny.

 

The alternative is to let the invisible hand do its work where it can. Once that is not possible, the only solution is political. That means breaking up Big Tech. At this juncture, there is a lot in the bloodstream to indicate that anti-trust action is bi-partisan. Yet there is now evidence that the invisible hand will produce alternative media services, alternative DNS registration sites and alternative cloud centers. There are even alternatives to Paypal.

 

It will be indeed ironic if the day comes when conservative media outlets operate out of technology centers outside the United States, but don’t be surprised if that happens. At that juncture, it will be up to the U.S. government to sanction firewalls blocking access. That is unthinkable – presently. We can only hope that somehow Tim Berners Lee reinvents the Internet so that liberty can prevail.

Resources

Wealth of Nations, by Adam Smith

 

Amazon: The Rise and Reign of Jeff Bezos, PBS Frontline, February 18, 2020

 

American Capitalism: The Concept of Countervailing Power, by John Kenneth Galbraith

 

The Domino Effect of Mark Levin Leaving Facebook For Parler, OutKick, Bobby Burack, December 30, 2020

 

GoDaddy explains AR15 .com boot, Domain Name Wire, Andrew Allemann, January 17,2021

 

The Guy Who Built The World Wide Web Is Building A 'New Internet', Where You Control Your Data, IT, Gwyn D’Mello, October 1, 2018

 

Amazon Says Bid for Pentagon Cloud Deal Was Cheaper, Better, Bloomberg, Naomi Nix, December 15, 2020

 

Over 900 Authors Sign Open Letter to Amazon, Publishers Weekly, August 6, 2014

By Eric Niewoehner

© Copyright 2021 to Eric Niewoehner. Use of this document is provided at no cost as long as the recipient does not replicate this document for profit.

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