Platforms and Justice: Is It Worth to Split Facebook Up and Pay Its Users
On May 9, 2019, Chris Hughes, the co-founder of Facebook, published a column in the New York Times in which he proposed to split the company up. His main argument was that the power of Mark Zuckerberg in its scale has no analogues either in politics or in business, and at the same time it is actually not limited by either the discipline of competition or the system of political checks and balances. Facebook controls the two other largest communication platforms which are used by millions of people — WhatsApp and Instagram. At the same time, the board of directors of the company cannot perform the duty of a full-fledged controlling authority, inasmuch as Zuckerberg owns 60% of the voting shares. The Cambridge Analytica scandal has demonstrated what a concentration of such power can turn into.
Rivals shouldn’t be here
According to DataReportal, in July 2019 the total number of active users of Facebook, Instagram and WhatsApp was about 4.9 billion. For comparison: Youtube has 2 billion active users for the same period, WeChat has 1.1 billion, Twitter has 330 million, LinkedIn has 310 million. The achievement of such ranges of activity is a direct result of the aggressive growth strategy that the company followed from the very beginning.
The most popular social networks in the world. The larger the circle, the more users the platform has
Since 2005, Facebook has swallowed up over seventy companies, including Instagram (2012) and WhatsApp (2014). In the former case, Facebook gained access to the photo networking market, in the latter case — to the real-time mobile messaging market. When there was no opportunity to swallow up a rival, Hughes explains, Facebook used its monopoly power: for example, the news feed generation algorithm gave priority to those videos that were generated on Facebook at the expense of videos coming from alternative platforms — Youtube and Vimeo. The blocking of Vine’s integration with Facebook has actually put an end to the independent development of the “Vines” exchange service — the exchange of short video messages. In case of Snapchat, a video messaging service with the option of deleting them, Facebook simply copied the technology and in doing so suppressed a potential rival.
The economic problem which rises from monopolization involves the restriction of consumer choice: if the most popular communication services are Facebook, Instagram and WhatApp, all of which belong to the same company, the choice between them is illusory. Thanks to the network effect, it’s quite difficult simply to pick up and leave the Facebook: you can delete your account, but what if all your friends, colleagues and casual friends stayed there?
Fight against monopolism
The economist Albert O. Hirschman proposed an elementary analytical scheme for analyzing such situations. According to Hirschman, people who are not satisfied with the quality of commercial services or government policy have two options. They can use the “exit” option that is to change the supplier or emigrate to another state. An alternative to "exit" is the voice that is the public raising of collective demands to improve the situation.
The basic model here is the political process, from voting at competitive elections to street protests. However, it's debatable how such mechanisms can work in the case of a platform company such as Facebook. The problem is not only the restriction of consumer choice but also the “formatting” of opportunities for enjoyment of the rights for freedom of speech and privacy. In fact, users have neither the “exit” option nor the “voice” option.
In 2011, the Federal Trade Commission (FCT) obligated Facebook not to share personal information with third parties without their consent. When the company violated this ban, the Commission fined it $ 5 billion, however, the 7% growth of asset prices of Facebook actually nullified this sanction, increasing the company's capitalization by $ 30 billion, which is six as much as the amount of the fine. In other words, standard methods of government control do not cope with their task.
Hughes proposed a more effective measure than fines — to divide the company by spin-off of previously absorbed WhatsApp and Instagram, as well as create a state agency to regulate high-tech companies as a means of users’ personal data security facilities. In his opinion, increased control will not necessarily lead to the loss of the US competitive advantage in the field of artificial intelligence technologies development in comparison with China, where this development is not restrained by privacy regulation - in the end, even after the division, Facebook in all probability will keep the lead and will be able to maintain the investment quote in research and inventions.
Efficiency vs. justice
The sum and substance of the argument for the division of Facebook is the appeal for the American tradition of antitrust regulation, the beginning of which was laid by the Sherman Antitrust Act of 1890, which outlawed monopolies. On this basis, the US Department of Justice has divided such behemoths as Standard Oil and AT&T, thereby supporting the effective competition in the oil and telecommunication fields. Thus, calling on the division of Facebook as a monopoly means advocating for market competition and economic efficiency.
As historians show, the American antitrust tradition, initiated by the Sherman Act, did not aim to increase the market efficiency by means of greater competition. On the contrary, large companies, unlike small businesses, can benefit from economies of scale, and in modern conditions — from the network effect, which allows them to be more effective. Incredible as it may seem, the antitrust policy worked against the market and “natural selection” in the process of competition, as it defended the less efficient business models of small enterprises. The main argument here was the need to prevent the concentration of power that is the political culture but not economic efficiency.
This historical background demonstrates the flaw in Hughes' argumentation. The problem is not so much with Facebook as with the platform’s business model itself — the tendency towards monopolization is natural for companies fueled by the network effect. The argument of restricting the consumer choice is based on a hypothetical situation in which this choice is more diverse than in reality, while the economic efficiency of Facebook is clearly reflected in the finance indexation and market capitalization of the company. Perhaps a stronger argument for demonopolization of platforms should be based on the arguments related to the problems of justice.
Should Facebook users get paid?
Lynccof Games / www.lyncconf.com/
When giant corporations first appeared in the United States at the turn of the 19th and 20th centuries, this very problem appeared at play: can the organizations that control the vast majority of national wealth be left to the care of managers? In the case of vertically and horizontally integrated firms, this problem has been solved more easily than in the case of network platforms — precisely because these firms had clear legal boundaries. As sociologists show, the problem of justice is closely related to the concept of territory and borders — not necessarily geographical, but also organizational. If justice is understood not as a set of abstract principles, but as a practical result of a dispute in which people jointly agree on what is considered to be fair, it is necessary to establish clearly limited categories within which this decision will operate.
So the question is who are Facebook users besides simply “users”? In which relations are they with the company whose profit depends on what they do within the platform, even if this activity such as communication, likes, comments, etc. is formally not affiliated with Facebook Corporation as a legal entity?
Recent initiatives such as the Wages for Facebook manifesto published in 2014, in which unknown authors demanded to recognize the users’ activity on a social network as a form of work that should be paid for, in equivalent to the movement for paying for domestic labor in the 1970s, testify to the acuteness of this issue. Another example is the modern movement of “platform cooperativism” promoting the idea of decentralized platform management using blockchain technology. The case of Facebook speaks to the fact that the problem of determining the status of platforms’ “users” in the nearest future will become increasingly more important. It is distinctly possible that the future of platform companies will not be decided in competition for the greater economic efficiency but in the struggle for recognition of the users’ status as the equivalent stakeholder of platforms’ economics.