Ordoliberalism 2.0: Towards a New Regulatory Policy for the Digital Age

Beside the DOJ, FTC, and state attorneys general investigations, there is another one led by the House (sub -)committee on antitrust (cp. Washington Post 2019a; 2019c; New York Times 2019a, 2019b).

Cp. Lanier 2013; Shapiro 2019; Wu 2018.

Cp. Pariser 2011; Sunstein 2017.

Cp. Dold/Krieger 2020.

According to StatCounter (2019a), Google Search’s market share in July 2019 was 92.19%.

Cp. StatCounter 2018.

Cp. Statista 2019a; StatCounter 2018.

Google planned to launch a censored version of its search engine in China. Yet, the project, code -named ‘Dragonfly’, was shut down in 2018 after an internal controversy initiated by Google (privacy) engineers.

Cp. StatCounter 2019b: The mono -/oligopolistic market structures are, thus, not only a Western phenomenon; China, in particular, with its tech giants, Alibaba, Baidu, Huawei, and Tencent (e.g., WeChat) has seen similar market trends.

Cp. StatCounter 2019c.

Cp. StatCounter 2019d.

Cp. StatCounter 2019e.

Cp. StatCounter 2019f.

Cp. StatCounter 2019g; Cosenza 2019; World Economic Forum 2013.

Cp. Statista 2019b.

This apparent trend towards ‘concentrated economies’ – that is, industries which are dominated by fewer and bigger corporations – is not limited to the tech industry. The Herfindahl -Hirschman index, which measures industrial concentration, has increased since 2000 in more than ¾ of all industries (cp. Wu 2018: 21). Examples, beside big tech, include the (agro -)chemical, airline, cable, pharmaceutical, telecommunications, and ticket sales industries.

The growth of individual corporations via M&As leads to increased concentration and fewer corporations in the market. Large and powerful firms can use this power to create market entry barriers and engage in price coordination and/or predatory pricing and other forms of abusive and anti -competitive behavior (e.g., ‘exclusion of nascent threats’ and ‘extension of market power into adjacent markets’); they also possess substantial leverage and bargaining power over their workers as is the case in Amazon warehouses (i.e., Amazon’s monopsony power) (cp. Shapiro 2019).

Cp. Wu 2018: 123.

Cp. Statista 2019c.

Cp. Statista 2019d.

Cp. TechCrunch 2018.

Taplin 2017: 126.

Cp. Bloomberg 2016.

According to Ash (2016), the power of money – especially in the form of lobbyism and rent -seeking – is one of the biggest threats to First Amendment and other freedom rights.

In addition, both Republican and Democratic politicians have received campaign donations from Alphabet/Google and others – making sure that no matter which party occupies the White House and rules Congress the company has a seat at the negotiation table (cp. Taplin 2017: chapter 7).

Cp. Washington Post 2017.

Cp. Transparency International 2015; Taplin 2017: 128f.

Taplin 2017: 128.

The first gilded age occurred a bit more than a century ago. It was dominated, among others, by Rockefeller’s Standard Oil company – which at that time was the largest private firm in the world – and J.P. Morgan’s U.S. Steel, AT&T, and New Haven Railroad.

Google dominates the search engine market, Facebook the social network market, Apple is a powerful player in the online content delivery and hardware markets, and Amazon in the retail market (cp. Khan 2017).

Yet, the question remains whether large firms are also more efficient (and able to outperform their competitors), e.g., due to economies of scale? A potential counterargument could be that economies of scale run out at some point, (i.e., increasing the size of a company no longer creates further efficiencies). That is, as operation size increases, ‘dis -economies’ of scale might creep in – potentially resulting in dynamic disadvantages, e.g., due to the overburdening of administrative and bureaucratic processes. As a consequence, oversized firms might be unable to adapt to changing market conditions as they become more and more inflexible (i.e., so -called ‘curse of bigness’) (cp. Wu 2018: 68).

The problem is that network or platform capitalism tends to replace or crowd out actual or potential competitors (it makes little sense for companies to create yet another social media platform similar to Facebook’s) – which might cause disadvantages in the medium to long run for the various stakeholders due to a decreased level of competition and, thus, a potential decrease in quality and innovation and/or higher (advertisement) prices (cp. Shapiro 2019).

Two of the most famous tech lobbyists are Eric Schmidt, former CEO and Executive Chairman of Alphabet/Google, and Peter Thiel, co -founder and former CEO of PayPal, founder and chairman of Palantir Technologies, board member of Facebook, Silicon Valley venture capitalist, political advisor to Trump, and mentor of Zuckerberg. Interestingly, in his book Zero to One, Thiel defends ‘monopoly capitalism’ due to its (alleged) innovation -fostering capabilities. Thiel also argues that ‘creative monopolies’, and not perfectly competitive markets, drive progress; a competitive economy is, according to him, a ‘relic of history’ and ‘something for losers’ (cp. Thiel 2014).

Lanier 2013: 79/97; cp. Lanier 2011.

“The silicon age has been a new gilded age” (Lanier 2013: 40).

Lanier 2013: 250.

A further problem with (quasi -)too -big -to -fail and system -relevant (tech) companies is the following: As is the case for financial institutions, those organizations have an incentive to engage in excessively risky business transactions (i.e., ‘moral hazard’) as they can be assured that they will be bailed out by the government – respectively the tax payers’ money – if their operations fail (i.e., socialization of losses); yet, if these risky operations succeed, the company and especially top -level management will make substantial profits (i.e., privatization of profits). This issue becomes more even prevalent once tech companies start entering the fintech market and/or collaborate directly with the finance industry. Facebook, for instance, has recently announced plans to launch its own blockchain -based cryptocurrency (i.e., Libra) in 2020.

Cp. Wörsdörfer 2018: chapter 11.

““Facebook defines who we are, Amazon defines what we want, and Google defines what we think.” We can extend that epigram to include finance, which defines what we have (materially, at least), and reputation, which increasingly defines our opportunities” (Pasquale 2015: 15).

Cp. Helbing et al. 2017; Wörsdörfer 2018: chapter 11.

Cp. Greenwald 2014; Snowden 2019; Zuboff 2019.

In 2016, Google and Facebook controlled ca. two -thirds of the global digital advertisement market (cp. Fortune 2017). According to eMarketer, “Google is expected to rake in more than $48 billion in U.S. digital ad revenue [in 2019], far rivaling its peers, while capturing 75% of all spending on U.S. search ads” (Washington Post 2019c).

Cp. Lanier 2011: 198.

Ash (2016) speaks in this context of a double threat to personal liberty and human rights (i.e., free speech, privacy) due to the amalgamation of private and government powers, which he dubs as ‘p²’.

The term ‘neoliberalism’ is used here in its original (historical) meaning as it was intended by (some of the) participants of the Colloque Lippmann (1938) and the early representatives of the Mont Pèlerin Society (1947) (see, for example, Rüstow (1961), who coined both the terms ‘paleo -liberalism’ as well as ‘sociological neoliberalism’), and not in its current understanding, which is mostly shaped by Reaganomics and Thatcherism and the rise of the global political economy and the ‘second wave of globalization’. (Historical) neoliberalism, however, was not a monolithic bloc; that is, it consisted of several schools, including German neo - or ordoliberalism (Freiburg School and ‘sociological neoliberalism’), the London School of Economics and Political Science (Cannan, Robbins, Hayek, Popper), the (early) Chicago School of Economics (Knight, Simons, Director, Stigler, Friedman) as well as independent thinkers such as Einaudi, Rougier, and Rueff (cp. for more information on the differences between German and Anglo -American neoliberalism Plickert 2008; Mirowski/Plehwe 2009; see also Wörsdörfer 2013b for a concise analysis of the differences between Eucken’s ordoliberalism and Hayek’s evolutionary liberalism).

Interestingly, the issue of regulation of big tech has not yet received much attention among contemporary ordoliberals (cp., for example, Dold/Krieger 2020).

Ordoliberalism has gained global prominence during the latest financial market crisis, when researchers, politicians, and practitioners were debating how to (better) regulate multinational banks to prevent future financial meltdowns.

Cp. Wörsdörfer 2013a.

Classical ordoliberalism has to be distinguished from contemporary ordoliberalism which bears considerable resemblances to constitutional economics à la Hayek and Buchanan. Contemporary ordoliberals include Goldschmidt, Feld, and Vanberg – to name a few (cp. Feld/Köhler 2011; Goldschmidt 2002, 2007; Goldschmidt/Wohlgemuth 2008; Vanberg 2004, 2005, 2008, 2013).

Both schools provide valuable insights for a potentially new regulatory policy for the digital age; yet, the following sections refer mostly to the ordoliberalism of the Freiburg School and particularly Eucken’s approach.

Cp. Eucken 1950/1965, 1952/2004, 1999, 2001.

Cp. Eucken 1952/2004: 254/291; Meijer 2007: 181; Grossekettler 1994: 16.

Cp. Eucken 1952/2004: 334.

Cp. Hayek 1973: 117.

Cp. Röpke 1942: 86/286; 1944/1949: 76; 1950: 142; Rüstow 1955: 63.

Cp. Röpke 1942: 86; Rüstow 1957: 98; 2001: 54.

Cp. Eucken 1952/2004: 325; Röpke 1944/1949: 222.

Other characteristics of (classical) ordoliberalism include the emphasis on Leistungswettbewerb, that is, competition on the merits and in terms of better services to consumers (cp. Eucken 1952/2004: 247/267/297; Röpke 1944/1949: 76); Wettbewerb als Entmachtungsinstrument, that is, competition as an instrument of disempowerment (cp. Böhm 1961; 22; Eucken 2001: 83; Lenel/Meyer 1948: XI); and the already mentioned principle of ‘market conformity’ (market -conform instruments are those that are compatible with the market economy; they leave the market processes intact and do not interfere with the proper working of the price mechanism (cp. Röpke 1942: 252; 1944/1949: 77/350)).

Cp. Brennan/Buchanan 1985/2000; Buchanan 1975/2000; Buchanan/Congleton 1998; Buchanan/Tullock 1962/1999; Congleton 2013; Vanberg 2008.

Cp. Oppenheimer 1933; Rüstow 2001: 43.

Cp. Rüstow 2001: 50.

Cp. Röpke 1944/1949: 46.

Cp. Müller -Armack 1956.

Cp. Eucken 1952/2004: 254.

Especially large corporations tend to create market entry barriers to keep competitors with potentially better -quality products and/or lower product prices out. Typical tools to create those barriers include control over scarce resources, exclusive or preferential deals with retailers and distributors, and/or government licenses.

Cp. Eucken 1952/2004: 291.

Cp. Ibid.: 334.

Cp. Eucken 1946/1999.

The ‘raw material’ and main ‘ingredients’ of the Fourth Industrial Revolution and the Second Machine Age are people (i.e., ‘human capital’) and especially personal data (being the ‘oil of the twenty-first century’).

Other potential non -economic (ethical) reasons to regulate big tech and the Internet – beside the previously discussed monopolization and refeudalization argument – include the existence and spread of false information (e.g., via social bots), dangerous and hate speech (including terrorist propaganda and other forms of political extremism), and filter bubbles and echo chambers. Besides, research also indicates that platform capitalism enhances the so -called ‘digital (and social) divide’ and ‘winner -takes -all effects’ and – together with automation – could lead to the outsourcing and elimination of millions of blue - and white -collar jobs, thereby, potentially hollowing out the middle class (cp. Wörsdörfer 2018: chapters 8, 11). Yet, as Shapiro correctly points out, those issues should not be addressed with the help of antitrust legislation and cartel law, but with other legal -political tools: “A first step toward answering these [issues] is to recognize that the goal of antitrust policy is to protect and promote competition. Antitrust is not designed or equipped to deal with many of the major social and political problems associated with the tech titans, including threats to consumer privacy and data security, or with the spread of hateful speech and fake news” (Shapiro 2019: 79).

According to Shapiro and others the following economic facts speak in favor of stronger antitrust enforcement: “First, there is clear evidence that corporate profits have risen significantly over the past few decades. […] Second, there is evidence that price/cost ratios in the United States have risen in recent decades. […] Third, there is convincing evidence that larger, more efficient firms have been growing at the expense of their smaller, less efficient rivals, causing various measures of broad industry concentration in the US economy to increase. […] Fourth, labor’s share of GDP has significantly declined since the 1980s” (Shapiro 2019: 77ff.).

The question is, thus, not whether or not to regulate big tech, the question is how to do it: The overall aim of ‘platform -capitalism’ regulation must be to police the Internet with the rule of law and to establish a democratic and rule -of -law digital society in which the personhood, that is, the integrity and sovereignty of the people, as well as freedom of speech, press and assembly, and other civil liberties are protected. Beside a legal framework, a moral framework consisting of basic moral norms and values such as respect and dignity is needed as well.

I.e., Böhm’s ‘private law society’ (cp. Böhm 1966/1980; Vanberg 2005, 2013).

The work of Eucken and others was not only influential regarding the establishment of the socio -economic order in Germany after WWII (e.g., monetary and economic reform of 1948, monetary policy of 1957 (Bundesbankgesetz), and anti -cartel legislation of 1957/58 (Law against Restraints of Competition, Monopolies Commission Act)); ordoliberalism has also played a significant role in the European integration process and has had a lasting impact on E.U. institutions and policies: For instance, Article 3(3) of the Treaty on European Union – same as the Treaty of Lisbon – requires the E.U. to establish a ‘highly competitive social market economy’. In addition, the Maastricht Treaty – and particularly the Euro convergence criteria – and the European Economic and Monetary Union with their focus on price stability and the independency of the European Central Bank are heavily shaped by ordoliberalism (cp. Lechevalier 2015; Claassen et al. 2019).

Cp. European Commission 2004.

Cp. European Commission 2015.

Cp. European Commission 2016a.

Cp. European Commission 2018.

Google 2019.

Cp. European Commission 2016b.

Cp. European Commission 2017.

Cp. European Commission 2019.

Apple is apparently using its App Store to copy (steal?) the best product ideas from competitors (cp. Washington Post 2019b; New York Times 2019e).

Cp. European Commission 2016c; see Guardian (2017) for more information on the so -called ‘Paradise Papers’.

For more information on the so -called ‘Lux Leaks’ scandal see Guardian (2014).

According to Wu (2018: 127 -139), such an agenda could also be labeled ‘neo -Brandeisian’ as it shares multiple insights with Louis Brandeis, the former U.S. Supreme Court justice, who is not only famous for his work on privacy as a human right (i.e., ‘right to be let alone’ [together with Warren]), but also for his ‘principles of economic decentralization’, ‘democratic economy’, and ‘regulated competition’. Both, ordoliberals and Brandeis, defined freedom as freedom from both public and private coercion (thereby, arguing against government and business overreach and dominance) and they were both committed to free and competitive markets operating within a strong socio -political framework.

For more information see Crèmer et al. 2019; Furman et al. 2019; Scott Morton et al. 2019.

Cp. Shapiro 2019: 77ff.

In the U.S., the FTC – properly equipped and administered – could easily fulfill this function. The agency’s primary purpose is consumer protection: Section 5 of the FTC Act allows the FTC to bring action against any ‘unfair or deceptive trade practice’, including ‘unfair methods of competition’. Deceptive trade practices include false or misleading claims, while unfair business practices refer to commercial conduct which causes substantial injury that consumers cannot reasonably avoid without offsetting the respective benefits. In summer 2019, the FTC voted to fine Facebook US$ 5 billion for mishandling users’ personal data in the wake of the Cambridge Analytica scandal – the largest fine ever imposed by the agency on a tech company.

Germany plans to update its cartel and competition law by including access to user data as a crucial additional criterion – beside revenues and profits. The proposed law also contains (enhanced) measures to better protect whistleblowers who provide evidence of a tech company’s abuse of power (cp. Spiegel 2019).

Shapiro 2019: 82ff.: Current examples include Amazon (A.), Facebook (B.), Apple and Google (C.).

Cp. Wu 2018: 129.

Cp. Elhauge 2018.

Cp. Shapiro 2019: 70: Shapiro also argues that stronger antitrust enforcement is needed in the following two areas: “The second area where antitrust enforcement has become inadequate is the treatment of exclusionary conduct by dominant firms. The third area concerns the market power of employers as buyers in labor markets” (i.e., monopsony and buyer power) (Shapiro 2019: 70).

The case might have ended in a potential breakup of Microsoft, similar to the ones of Standard Oil and AT&T; yet, it was settled in early 2000 without any major consequences for the company.

According to Wu (2018), one of the main reasons for this development is the strong influence of the Chicago School on U.S. politics: Especially Director and Bork were spearheading this new intellectual opposition to antitrust. Bork (1978/1993), for example, believed that antitrust is insensitive and counter -productive to consumer welfare. He thought that large firms are more efficient and, hence, able to offer lower consumer prices (in addition, antitrust is in most cases entirely unnecessary as laissez -faire capitalism is able to work things out by itself, so the libertarian line of reasoning). Bork argued that government has to prove to a certainty that the complained -of behavior and the respective business practices actually result in higher consumer prices – which is almost impossible, especially in the era of big tech. Only in those cases is government action warranted. Consumer welfare is, hence, the only legitimate measure in U.S.’ antitrust policies (the impacts on small producers as well as the socio -political risks associated with market power, however, are largely ignored). As a consequence of this (quasi-)libertarian ideology, the U.S. has seen a higher tolerance for monopolies and less (big) antitrust cases in recent decades.

Spotify, among others, filed a complaint with E.U. regulators in this regard.

According to Shapiro, “the basic antitrust question for each tech titan is whether that company has engaged in practices that go beyond competition on the merits [a crucial ordoliberal ideal] and are likely to (1) exclude its rivals and fortify its market position or (2) extend its power to adjacent markets” (Shapiro 2019: 80; cp. New York Times 2019b; Washington Post 2019b).

Cp. Shapiro 2019: 86.

Cp. New York Times 2019c, 2019d.

False or pseudo-solutions, however, include ‘regulated monopolies’ or ‘corporatism’, that is, nationalizing and supervising trust monopolies instead of breaking them up. Eucken and other ordoliberals clearly argue against any forms of state-supervised monopolies (cp. Eucken 1952/2004, 1999, 2001).

Cp. Wu 2018: 112.

Note that the ‘Open Internet Order’ issued by the Federal Communications Commission (FCC) in 2015 is currently being challenged by the Trump administration and the new FCC chair, Ajit Pai, who is an outspoken critic of net neutrality (Pai also used to work for Verizon, one of the most important U.S. Internet service providers).

Cp. Wu 2003; Wörsdörfer 2018: chapter 8.

Cp. Norris 2001.

The here suggested ordoliberal-inspired reform measures could be further supplemented by the introduction of a digital tax similar to the one recently implemented in France and/or by an international tax regime that would ensure that multinational corporations not only pay their taxes in their home countries (where their headquarters are located), but in all countries where they have significant ‘consumer-facing activities’ and generate profit (cp. OECD 2019).

This is especially the case in the context of big tech functioning as gatekeepers of and to the Internet: Beside the already mentioned economic issues, we also face concerns about privacy and data protection, filter bubbles and echo chambers, dangerous and hate speech, the spread of fake news and ‘alternative facts’, to name a few – all of which have the potential to erode democratic and rule-of-law societies.

Cp. Hayek 1944/2007. Noteworthy in this context is the role that concentrated economic power (e.g., Krupp, Siemens, and especially I.G. Farben) and M&As played in stimulating the rise of Nazism and fascism.

Cp. Wu 2018.