What’s the difference between Mark Zuckerberg and John D Rockefeller? Exchange the trainers for a pair of spats, and the T-shirt for a frock coat, and the answer is not all that much, according to lawmakers in Washington: a robber baron is a robber baron whether he wears a top hat or a baseball cap.
The US has a history of bringing antitrust cases against monopolies that stretches all the way back to the breakup of Rockefeller’s Standard Oil back in 1911.
Now it is the turn of the tech giants to be put under the spotlight, which is why Facebook’s Zuckerberg, Amazon’s Jeff Bezos, Apple’s Tim Cook and Google’s Sundar Pichai were summoned to Capitol Hill last week – appropriately, via video stream.
David Cicilline, the chair of the House of Representatives’ antitrust subcommittee, made it abundantly clear what he thought. All four companies wielded monopoly power and some of them should be broken up. “Their control of the marketplace allows them to do whatever it takes to crush independent businesses and expand their own power,” he said.
Worryingly for Zuckerberg et al, it was not just Democrats such as Cicilline who were fired up. Republicans on the committee made it clear that they thought the social media companies had demonstrated blatant bias against conservatives. Inevitably, Donald Trump weighed in, saying that if Congress refused to act then he would.
Amazon, Alphabet, Apple and Facebook, together with Microsoft, have sailed through the lockdown and now account for getting on for a quarter of the S&P 500 by market cap
No question, the “big four” tech companies deserve to be subjected to the closest scrutiny. While none of them has the market dominance that Standard Oil enjoyed at its peak, they all have huge reach. Two of them, Google and Facebook, have no serious rivals.
And they want to keep it that way. The evidence amassed by Congress suggests that whenever Google or Facebook have spotted a potential rival they have used their clout to see them off: sometimes by squeezing firms out of business, sometimes by swallowing them up.
Zuckerberg put up the best defence when he said he had done it the “American way”, starting with nothing and succeeding by offering better products that appealed to consumers. Companies aren’t bad just because they are big, he insisted.
That’s absolutely true. There is no law in the US against a small company becoming a household name. There are, though, laws that are designed to prevent companies that make it big from eradicating competitors. Yes, at the moment, it is hard to argue that the tech giants are gouging consumers: Google and Facebook are free, Amazon wins market share by undercutting rivals, and there are plenty of cheaper alternatives to Apple devices.
Even so, there are two reasons why that will not – and should not – spare the big four from the threat of breakup. The first is that monopolies stifle innovation and that is bad news for consumers in the future. The second is that the concept of the harm that monopolies can do has been broadened out to include potential damage to debate and democracy. That’s the real difference between Standard Oil and Facebook: there was never any suggestion that Rockefeller could swing elections by manipulating the oil price.
All that said, immediate action against the tech giants looks improbable despite the sabre- rattling from both Capitol Hill and the White House. Why? Because Amazon, Alphabet (the company that owns Google), Apple and Facebook – together with Microsoft – have sailed through the lockdown and now account for getting on for a quarter of the S&P 500 index by total market capitalisation. Does Trump want to crater the stock market by breaking them up? Does Congress? Not really.
Dividend ban must not drag on
Provisions for bad loans landed with a thump at the banks last week. The share prices of Barclays, Lloyds Banking Group and NatWest fell as their boards took a conservative approach to planning for Covid-created losses.
Regulators, however, can give themselves a pat on the back. Amid the lenders’ grim economic projections, almost no one thinks the UK’s big banks need more capital. This happy state of affairs goes almost unremarked, but shouldn’t. Lessons from 2008-09 were learned; the recession would be worse with a financial crisis on top.
NatWest, as Royal Bank of Scotland has renamed itself, is sporting a core capital ratio of 17.2%, many times what it had in the bad old days. Lloyds and Barclays aren’t far behind. The scope for “loss absorption”, in the jargon, should be enormous. But shareholders, who have essentially funded such strong capital buffers, would like something in return – a return of dividends.
The Bank of England effectively banned them in March in the interests of safety, and investors worry that a supposedly temporary measure will be extended again and again. If a lender has more than enough capital to withstand a heavy storm, they ask, why shouldn’t it be allowed to distribute the excess? Isn’t that the point of investing in a bank? It’s a reasonable view.
This battle could become intense. The Bank will review the ban later this year but its statement last week was taken as cautious. It will look at “the level of uncertainty on the future path of the economy, market conditions, and capital trajectories prevailing at that time”. An extended ban, in other words, is possible.
Necessary too, some would say. Maybe, but nor do we want banks to retreat into full-on safety mode, which wouldn’t help the economic recovery. The dividend ban on banks should be as short as possible.
Eurozone rescue in stark contrast to US policy
There is a sense of trepidation across the US this weekend after official figures showed the economy shrinking at an annualised rate of 32.9% between April and the end of June.
This fall is more than the 30% drop seen over 15 quarters between 1929 and 1933, and brings home the magnitude of the Covid-19 pandemic. Never before has the US economy experienced anything like it, and to say the figures left economists stunned is an understatement.
The shock was compounded by the realisation that Washington is poised to switch off the unemployment benefit supplement that has kept many families from needing food banks and defaulting on loans since the pandemic gripped the nation in March.
Democrats have pleaded for a change of direction after recent figures showed that the recovery had already stalled. Unemployment claims in the US rose for the first time in four months last month. For people who have lost jobs and now live on credit, the coronavirus benefit supplement is a lifeline.
Meanwhile, GDP in the eurozone declined by 12.1% in the second quarter, the largest quarterly decline on record. It could be said that the same stuttering recovery that characterises the US, and the UK for that matter, is also taking place across the 19 eurozone countries.
However, there is one major difference. The nations that drive the currency bloc’s economic growth – Germany, France, Spain and Italy – have pledged to maintain subsidies for businesses and households, knowing that only a consistent and prolonged level of support can prevent the recovery from stalling. A €750bn package of grants and loans for business put together by Brussels, while flawed, helps to reinforce that message.
A second wave of the virus will be a blow to every country that succumbs, but the seriousness with which eurozone countries are dealing with the economic as well as the health effects of the pandemic is likely to prove a winner.