Facebook, Liz Truss and future challenges with the internet giants

3 Jul

In recent weeks, Facebook has been up against huge pressure to control hate speech and groups on its site. Much of this increased after President Donald Trump posted “when the looting starts, the shooting starts”, in response to protests in Minneapolis, on both Twitter and Facebook. The aftermath exemplified, among many things, that the two dominant social media sites had taken very different strategies to tackling inflammatory content.

Twitter went for the cautious approach. It added a warning label for the post to say that it had glorified violence, and hid the content unless it was clicked on. Facebook, on the other hand, kept Trump’s post up, on the basis that it was not an incitement of violence, but an announcement of state use of force.

Facebook’s “hands-off” approach to Trump only changed when a number of powerful companies pulled out of advertising with the site, such as Coca-Cola, Verizon and Ford, in a campaign co-ordinated by Stop Hate for Profit. Some have called these organisations opportunistic – Covid-19 has eaten into advertising budgets, and surely any company will jump on the chance to look socially righteous – but it’s still an expensive wobble that Facebook no doubt wants to avoid.

As a result, the social media has said that it will add a label to tell people that content may violate its policies; it’s a watered down version of what Twitter is offering. Even so, Zuckerberg has been fairly resilient in dealing with Stop Hate for Profit, which has set out a list of content it wants gone from Facebook and other sites. Zuckerberg said that he would not change Facebook’s policies; that he thinks advertisers will be back “soon enough”, and that he remains committed to democracy and free speech.

In spite of this, one strange area Facebook has increasingly delved into is political affairs, especially in anticipation of the upcoming US election. Some of this is to right the wrongs of 2016, in which there was foreign interference, with Russia attempting to “undermine the voting power of left-leaning African-American citizens, by spreading misinformation about the electoral process”, among other activitiesFacebook has since spent “billions of dollars in technology” and hired “tens of thousands of people” to fix this. (Incidentally, the UK is still waiting for its report on the alleged Russian interference in politics to understand the extent of it here.)

But more strikingly, Facebook has ventured into interventionist territory, with the new aim to “help 4 million people register to vote”. In doing this, Zuckerberg is taking the organisation much further away from its initial design. Many users, like myself (aged 17 when it first came out), will think of it predominantly as a tool for making friends online and posting photographs; a type of social peacocking, in many ways.

Zuckerberg, however, clearly has more profound visions. He says he wants to boost “authoritative information” for voting that he expects “160 million people in the US to see”. The goal sounds altruistic on the face of it, but it also poses big questions, like, who gets to categories “authoritative”? And should social media giants be involved in democracy at all?

Increasingly there’s been accusations from conservatives that in delving into the political realm, social media sites tend to show biases in favour of liberals, most notably Trump, who said “Twitter is completely stifling FREE SPEECH” after it fact-checked one of his Tweets. 

One writer suggests that out of “22 prominent, politically active individuals who are known to have been suspended since 2005 and who expressed a preference in the 2016 U.S. presidential election, 21 supported Donald Trump”. In UnHerd, the author and commentator Douglas Murray goes further, revealing his own suspicions that Twitter is penalising right-leaning writers, such as hiding “likes” (a way of showing support for posts) from their posts.

Some say that there is no evidence of social media biases, with Kevin Roose, a tech journalist, noting yesterday that the best performing accounts on Facebook are all conservative. A tech expert tells me that the “exact opposite viewpoint (of social media bias) is shared in various countries, where the view is that the anti-capitalist left is censored by American tech giants”.

None of this has reassured Trump, however, who is proposing a bill to make social media giants take legal liability for material that their users post. But this could crush free speech, to a certain extent, making companies more likely to remove content to protect against litigation.

Even if there is not algorithmic censorship, many people were concerned last week after Google UK launched into Liz Truss, the Conservative MP, on social media. On June 18 it posted a petition trying to lobby her on the Gender Recognition Act.

This event should have rung serious alarm bells; a tech giant coming for a Conservative politician is seriously bad news, although – tellingly – there was a dearth of news stories about it. One suspects if Google UK had attacked a Remainer politician on refusing to leave the EU, it would have received the proportion response. This was, after all, perhaps the world’s biggest holder of personal information interfering in UK democracy.

One concern that has been pointed out repeatedly about Silicon Valley, and its companies, is that the demographic make-up of its tech talent could influence the ways in which content is censored. Even Zuckerberg has called it “an extremely left-leaning place”, and many will wonder how this affects their role in deciding the terms of “offence” on social media sites, and otherwise. 

In the UK, perhaps the most significant issue is that we are just so removed from these authors of our (online) reality, even if they have domestic offices. We know little about the algorithms they use – and it suits tech companies this way, limiting others’ abilities to get into the sector.

Here brings us to the biggest question: how should UK politicians deal with Facebook and other tech giants? Much of the focus on these companies has been on their involvement in elections, but they also have an impact on Joe Bloggs’ income, too, as one report by the Competition and Markets Authority (CMA) elucidates on.

It points out that Google has “more than a 90 per cent share of £7.3 billion search advertising market in UK, while Facebook has over 50% of the £5.5 billion display advertising market”. The report suggests that by dominating the market, these organisations control the default prices for advertising, which are arguably higher than they need to be – and in turn effect the consumer, as advertisers keep their product costs high.

CMA sets out numerous ways in which the Government can start to break up these giants and encourage competition. It is quite alarming in the ways in which it highlights tech giants’ control over many things – from prices, to regulation. And all of this has to change.

Ultimately, along with the current 5G issues the Government is dwelling on, they are going to increasingly need the knowledge, and foresight, to intercept some of these tech powers before they become so dominant as to make their powers irreversible.

Already the Government has found that Apple stifled the approach it wanted to take to contact tracing, and this is just a taste of what’s to come – as the tech giants, sometimes working in conjunction, block out competition. There is a mammoth amount of information to take on board, changing all the time. Along with Brexit and Coronavirus, Tories will have their work cut out.

Ryan Bourne: Why Tyrie’s attempt to make the Competition Authority more like Which? magazine was wrong

24 Jun

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

Shelves lay barren, yet the price stickers read “Buy 1 Get 1 50% Off.” Hand sanitiser was like gold dust here in Washington DC in March. Demand surged after the Covid-19 hand hygiene advice. Unsurprisingly, stores rapidly emptied of existing stock.

More surprising was the shortages’ duration. Prices usually rise with prolonged elevated demand, encouraging new supply and making consumers rethink “unnecessary” purchases or hoarding. Markets ultimately clear – providing more at higher prices.

But no adjustment came. Big chains worried about reputational risks of raising prices in a pandemic. DC’s emergency “anti-price gouging law,” meanwhile, meant small outlets opted not to bother selling at higher prices, lest they be punished for charging “more than normal.” So prices remained notionally low, but sanitiser was unavailable.

Economists oppose anti-price gouging laws for this reason. Price controls denying market realities harm economic welfare. It might seem in consumers’ interests to keep prices low by government decree to prevent “rip-offs.” But if consumers are unable to get products they’re willing to pay more for, they can be worse off collectively than with market pricing.

I remember thinking at the time that I’d never heard of such bad pricing laws in the U.K. Just two days’ later, Andrew Tyrie’s Competition and Markets Authority warned it would use existing powers to “consider any evidence that companies may have broken competition or consumer protection law, for example by charging excessive prices” during the pandemic [my emphasis].

Last week, the CMA confirmed it is investigating four pharmacies and local convenience stores for “suspected charging of excessive and unfair prices for hand sanitiser.” Under current law, the CMA must prove these retailers have abused a dominant market position.

Given none of these businesses seem likely to much affect market realities, this is really an attempt to stop price gouging by spooking retailers. The CMA wants to make an example of them to show it is “pro-consumer,” focusing on local outlets in all likelihood because consumers had fewer options to shop elsewhere, especially those without internet accdess, giving some semblance of credibility to the idea of dominance.

This absurd use of resources is befitting of Tyrie’s legacy as CMA chairman. The former Treasury Select Committee chair resigned last week, frustrated that his demand for ever-more expansive CMA powers from government went unanswered.

But, importantly, Tyrie aimed to shift the emphasis of the CMA’s role away from its bread-and-butter role of helping to regulate economic competition (such as breaking up BAA for airport competition, or blocking the merger of Asda and Sainsbury), towards beefing up its consumer protection role as well.  He synthesised by pledging that the CMA should champion the “consumer interest.”

A Social Market Foundation speech last May outlined his vision. An address on the limits of competition law quickly descended into an analysis of public perceptions about capitalism, with a sort of call to arms that the CMA should bend the knee to “what most concerns ordinary consumers,” lest it be swept away by populism.

Tyrie acknowledged he was potentially exiting his lane, but didn’t care. Competition experts – who see the most important CMA role as protecting consumer welfare through effective competition law – bemoaned his “grandstanding,” in private.

Despite his denial, Tyrie’s vision was clearly strongly influenced by a new U.S. anti-monopoly movement that says big is bad, more competitors in a market is good, and consumers face constant threats of exploitation. Economists challenge all such claims empirically. But Tyrie puts huge weight on sentiment. Consumers “feel” they are being ripped off. Even where they pay nothing, for social media, they feel terrified about data harvesting. “We are all vulnerable now,” he concluded.

Such generalisations bode ill as a guide even to the CMA’s primary role. Amazon is regarded as one of the most reputable brands in the country, as is Google. Digital advertising has lowered advertising costs for social media’s true customers, so advertising spending has plunged as a share of GDP.

Platform users meanwhile have the option of free services that economic studies find generate big benefits to them. Even on the supposed “big is bad” opposition to tech acquisitions such as Whatsapp by Facebook and YouTube by Google, opponents ignore the many more acquisitions that don’t work or consumer welfare gains from better products when they do.

But that’s the point: Tyrie wasn’t primarily animated by the idea the competitive process protected consumers’ welfare. No, what he envisaged in championing the “consumer interest” was a more populist body with huge discretionary powers marauding around stamping out practices unfavorable to some consumers, or which consumers disliked in other more subjective ways than conventional consumer welfare analysis considers.

This distinction between “consumer welfare” and “consumer interest” is crucial. Consumer welfare can be assessed and debated using facts about the structure of the market, pricing, and evidence on innovation. Consumer interests are defined by slipperier concepts of “fairness.” Someone caring about consumer welfare might consider higher prices an unfortunate reality in a pandemic market when demand rises; someone animated by the “consumer interest” might see it as unfair to some vulnerable consumers.]

A “consumer interest” champion looks at higher prices some loyal customers pay for utilities, and sees an unfair penalty. Those interested in overall consumer welfare muse that teaser rates for new customers encourage switching, pressuring companies to remain efficient to the benefit of consumer welfare. A competitive market allows companies to compete on pricing strategies too.

A consumer interest lens, then, could sometimes actually harm competition, by eliminating businesses’ opportunities to profit where reputational constraints bind on large firms or where consumer welfare-enhancing pricing strategies exist. The CMA’s ham-fisted intervention on Covid-19 prices almost certainly prolonged shortages of numerous household products, and encouraged supermarkets to remove pro-poor discount deals instead.

Now whether Tyrie is a symptom of a within-CMA attitude shift or its cause, I’m not sure. But his tenure overall accelerated a worrying push towards such discretion. On the audit market, the CMA bypassed the standard market investigations reference process designed to investigate new anti-competitive practices.

His proposals for new CMA powers, meanwhile, would have stripped protections from companies and heightened the risk of wrongful punishments. In short, he wanted the CMA to be an aggressive consumer champion and decision-maker simultaneously – “too much prosecution, judge, and jury” according to some experts.

Tyrie now promises to push his agenda strongly in the Lords. But with so much important competition activity coming the CMA’s way post-Brexit, this “consumer interest” shift couldn’t come at a worse time.

Thankfully, the Government has resisted Tyrie’s demand for power – hence his resignation. It should now select a new chair intent on returning the competition regulator to its primary role, rather than becoming the governmental arm of Which? magazine.