The Return of Antitrust — Digital Economy’s Biggest Threat
Once upon a time there was an incredible concentration of wealth and power around a few men and their companies because they built and controlled the infrastructure of a booming new economy. If you think Bezos, Zuckerberg, Page/Brin et al control large portions of the economy today; you should also know that men like Carnegie, Vanderbilt, Morgan and Rockefeller dwarfed them in scope of power. The business world has never seen the accumulation of capital to compare with the titans of the late 19th / early 20th century America. Then it came unravelled. Why? They messed with the public trust.
(Joseph Keppler’s “The Bosses of the Senate”, 1889)
The parallels between the current era and the age of the “Robber Barons” are striking.
Mass industrialization completely changed society in the countries that embraced it. Those that did not would be reduced to colonial exploitation for another 50 – 100 years. The creation of wealth in industrialized countries was completely unprecedented in its scale and speed. Global populations shifted, from rural to urban and subsistence to abundance. Since everyone seemed to be benefitting regulations were few and far between. Who knew how to regulate entire industries that had never existed in human experience? Aggressive actors – first movers – were rewarded for their risks and they dominated everything they could get their hands on. The individual was expected to appreciate the good things big business was doing for them and not make trouble.
Is there any part of this that DOESN’T sound like present day? Swap the birth of the industrial economy to the digital economy and you have a close reflection of our current, equally dramatic, period of constant change. It’s moving fast and creating huge wealth. Regulation is still very loose. Maybe we’ll shake our heads someday in the memory of internet transactions that weren’t taxed. Certainly the incredible innovations will all look inevitable on our path of progress, in hindsight.
But it went too far.
Around the turn of the 20th century, the biggest businesses, sometimes called ‘Trusts’, became so large they could and routinely did stifle competition through coercion or manipulation of markets that no one fully understood. It was ultimately bad for their workers, who had practically no rights, and consumers, who had to pay whatever the monopoly dictated. This gave rise to landmark legislation. Most notably the Sherman Antitrust Act of 1890. Soon, there were populist candidates and parties – most notably US President Teddy Roosevelt and the Bull Moose party – fore-runner to Tea Party and Occupy movements. His primary platform was “Trust Busting”. TR’s administration brought suits against scores of companies. His hand-picked successor, William Howard Taft, would carry on the work as President and then Chief Justice of the US Supreme Court. It was the end of an era for big business and the rise of unions, the Federal Trade Commission and countless other regulatory bodies. Gone were the mega-powers.
We appear to be on the verge of another major correction. Again it is targeting the big guys and again it is based on a crisis of Trust. Too Big to Fail is the battle cry of many populist voices (or “Not Too Big to Jail” as we heard from the US Attorney General this week). While populist outrage initially focused on Banks, the target is clearly shifting to the digital titans. The digital economy is based on trust. That trust has been abused in the eyes of consumers, employees and now regulatory bodies. While there has been a great uproar over government spying on citizens, an April poll by Reason found that US citizens trust the vilified NSA more than they trust Facebook with their private information. The American Psychological Associations 2014 Work and Well Being Survey found that roughly 1 in 4 employees distrust their employer, 1 in 3 say their employer is not always truthful while only half think the employer is open and honest with employees. Seizing on this momentum, the Obama Administration has called for a consumer privacy “bill of rights”, specifically calling out big data and its potential for abuse.
These are critical warning signs for any business which depends on trust in its ecosystem, which means every company out there. Trust, developed through clear communication, is the centerpiece of all relationships. Those of us focused on creating better customer relationships – oops, I meant engaging customers better to create a perfect customer experience – had better take notice. In business, trust is created when you and I agree on what we will do for each other. Not only do we understand the definition of the exchange (e.g. delivering a product for money… or is it a service in exchange for information?), we also have confidence in each other’s ability to execute. Target and a dozen other high-profile security breach victims couldn’t execute. If a company doesn’t trust a customer’s ability to pay, they put a credit card between them. If a customer doesn’t trust a company’s ability to do what they claim to do or starts to worry that company has ulterior motives (e.g. the harvesting of data we’d rather not share) they go somewhere else. Quickly. There is no relationship without trust. Maybe you get a transaction. But what you’ve got isnot trust, it’s antitrust.