A Week of Reckoning for Big Tech

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Does Big Tech have any defenders left in Washington that aren’t on the payroll?

Today begins a pivotal moment for the tech platforms that have been allowed to dominate the nation’s economy and democracy for many years. Three separate hearings in three different congressional committees over the next two days will reveal the extent to which Big Tech has lost all its allies on Capitol Hill, and whether it will be able to escape real scrutiny of its practices anyway.

Two of the three hearings concern Facebook’s digital currency Libra, amid bipartisan consternation. After Libra was announced last month, I expressed concern that nobody in Washington was taking it very seriously. My concern has lifted.

Last week, Federal Reserve Chair Jerome Powell told lawmakers that Libra raised “serious concerns regarding privacy, money laundering, consumer protection and financial stability.” This perhaps responded to bipartisan concern that the Fed, by dragging its feet on a faster payment system, left a back door open for Facebook and other monopolists. If the Fed created a public digital wallet to exchange dollars, Facebook wouldn’t have an entryway. “We cannot allow giant companies to assert their power over critical public infrastructure,” wrote Senators Mike Crapo (R-ID) and Sherrod Brown (D-OH) in a letter last week.

Treasury Secretary Steven Mnuchin piled on yesterday, adding national security to the bill of particulars by suggesting Libra could finance terrorism. “We will not allow digital asset service providers to operate in the shadows,” Mnuchin said. Even Donald Trump added to this chorus with a notably articulate series of tweets last week, asserting that Libra “will have little standing or dependability” and arguing that it must obtain a banking charter to operate.

Liberals share common cause with Trump on this point. “I’m suspicious,” says Representative Jesus “Chuy” Garcia (D-IL), a member of the House Financial Services Committee that will hear from Libra representatives Wednesday. “This sounds too good to be true. We will look at the growing role of Facebook and the possibility of creating a parallel system of banking without regulation.”

Garcia will introduce legislation this week aimed at making it more difficult for banking and commerce to fall under the auspices of one company by closing a series of loopholes, including the “industrial loan company” designation that enables commercial firms to obtain a bank charter. The legislation would put some constraints on Libra, but a far more targeted bill from Maxine Waters and committee leadership, called the “Keep Big Tech Out Of Finance Act,” would outright prohibit large tech platforms from becoming financial institutions and operating digital currencies, with a fine of $1 million per day for any violations.

“My worry is that they’re going to target communities like mine,” another Financial Services Committee member, Representative Rashida Tlaib (D-MI), tells the Prospect. Indeed, Facebook has been selling Libra on the basis that it would increase financial inclusion for those without access to financial services. How it would do this is unclear, as those poor families would still not have the resources to acquire Libra. “My residents are not going to be ready, they’re not going to fully understand what the implications here are,” Tlaib says.

Like Waters and others on the committee, Tlaib favors a moratorium on Libra until regulators can give it more scrutiny. “Facebook, what are your intentions here, what is the long-term plan here, and why are you only focused on these communities,” she says. With Trump staking out opposition as well, it’s unclear whether anyone in the Senate Banking or House Financial Services committees will grant Libra a friendly reception.

That Facebook vice president David Marcus, the only witness in the Libra hearings, appeals to rank nationalism in his prepared testimony, suggesting that if Facebook isn’t allowed to establish a parallel currency that could contract credit and torpedo the global economy then China will, doesn’t bode well for his confidence in persuading lawmakers. Claiming that Libra’s decisions will be made “democratically” when the decision-makers are a handful of large corporations suggests confusion with democracy itself. He’s already backtracked to say that Libra will not launch until it receives “appropriate approvals,” and that day may never come.

Meanwhile, whatever meager credibility Facebook had on managing secure transactions ended when it agreed to a reported $5 billion fine for violating a 2011 consent decree on user privacy with the Cambridge Analytica scandal. Facebook stock actually increased when this fine was announced in a Friday news dump; the market clearly signaled that the Federal Trade Commission failed to hold Facebook accountable. That regulatory abandonment—punctuated by a fine instead of structural reforms—in many ways is why the House Judiciary subcommittee on antitrust has embarked on an investigation of digital platforms like Facebook.

Today, the subcommittee will hear from representatives of Amazon, Apple, Google, and Facebook, along with a separate panel of mostly critics, including Curse of Bigness author Tim Wu, Yale law professor Fiona Scott Morton, and Institute for Local Self-Reliance co-director Stacy Mitchell, a frequent Amazon critic. The hearing’s focus is innovation and entrepreneurship, and in her prepared testimony, Mitchell savages Amazon as a dominant colossus seeking to extort from rivals and involve itself in everyone’s transactions. If the platforms themselves don’t fare well in the hearing, the second panel will deliver a punishing blow.

As Open Markets Institute director of enforcement Sally Hubbard notes, the subcommittee investigation itself, more than public hearings, will drive recommendations for reshaping tech platform markets. With fewer friends in Washington, tech firms will have to rely on high-powered lobbying to protect its dominance. And the platforms have employed less orthodox methods to reach those skeptical lawmakers.

A new report out today from the Google Transparency Project details a non-profit named the Connected Commerce Council, or 3C, pitching itself as “the voice of small business.” Curiously, they only seem interested with Amazon, Google, and Facebook. Since launching in 2018, 3C has testified before Congress twice, filed public comments in seven separate matters before regulatory agencies, held several events, unloaded reams of Big Tech-friendly writing at its website and in newspaper op-eds, and met with over 50 members of Congress, always defending Big Tech. “Google is essential to my business,” said the purported publisher of Madeworthy Magainze after a hearing on Google’s effect on journalism. “Members of Congress should know the value Google unlocks for publishers like me.”

Here comes the obvious punch line: 3C is an astroturf group for Big Tech. While the small businesses look to be genuine, many happen to have extensive revenue deals with tech firms; one was an event planner at Google’s Washington office. Others have been featured speakers at events funded by the platforms. Amazon, Facebook, Google, and Square make up 3C’s “Partner Council,” which 3C admits provide “general support” (i.e. money) for its operations.

At least six of 3C’s staff and consultants worked for Google, Amazon, or trade groups they financed. Communications groups who get Google and Amazon work are crawling all over 3C’s operations. The president of 3C, Jake Ward, spent six years at the Application Developers Alliance, another front group of small businesses that had the involvement of Google, and runs another Google and Facebook-funded front group simultaneously. Even an allegedly independent report 3C sent to Congress supporting “access to digital tools for small businesses” was actually commissioned by Google.

The obvious self-dealing from the likes of the platforms might explain the bipartisan revulsion at its tactics. Whether this has reached a tipping point will be on display at the hearings. Does Big Tech have any defenders left in Washington that aren’t on the payroll?

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