After Regulation: The Facebook Panic
By John Burzawa
“There are only two industries that call their customers ‘users’: illegal drugs and software”
— Edward Tufte, professor emeritus of computer science, political science, and statistics at Yale University.
Quite literally, Facebook can only blame itself for the memes circulating the internet about its decision to rebrand under the eerie name “Meta”. My personal favorite features a dorky picture of Mark Zuckerberg superimposed on a block of white cheese with the caption “feta”. Avoiding the obvious cultural transition, “Meta” is actually a Greek word (μετά) meaning “after,” which is fitting when considering the economic impacts of market regulation. Facebook and other big tech companies have drawn bipartisan criticism over the last decade. Democrats are polishing their antitrust bazookas, fearing that firms possess too much market power. Meanwhile, Republicans aim to dismantle the Marxist agenda post-by-post, claiming that platform censorship violates a right to free speech.
Regulatory scrutiny isn’t unfounded, however. Last week, a whistleblower named Frances Haugen prompted an investigatory firestorm after revealing that Facebook knowingly ignored the social consequences of their product: deteriorating mental health in teens, promoting polarization, influencing elections, and disseminating fake news. Facebook already recognizes the leverage they have in their ability to provide digital communications —collecting data on posts that users interact with, and selling enhanced advertisements that are targeted toward a robust profile.
With the launch of their new crypto wallet app, “Novi”, Facebook has also solidified aims to facilitate financial transactions. Initially dubbed “Calibra,” the fintech project received so much backlash at its inception that within a year they rebranded the app and the corresponding stablecoin. With integrations for Facebook’s other services like WhatsApp and Messenger, Novi entered the market with an unmatched user base. Furthermore, if the accompanying Diem stablecoin comes into the picture as well, the implications for global financial stability, fiscal and monetary policy, and currency substitution will be profound.
So is Facebook destined to become the quasi-nation state that Nick Statt from the Verge prophesied in June of 2019? Some people think so, and without sound regulation, there’s nothing stopping this sentiment from making the conspiracy to reality transition.
There’s a clear market failure going on that necessitates the regulation of companies like Facebook. Market failures provide an impetus for government regulation when the free market produces a suboptimal societal outcome. In this case, a litany of externalities, inefficiencies, and asymmetric forms of information prove beyond libertarian doubt that the government should step in. The question is no longer why, but rather when and how.
The key consideration in drafting these regulations ought to be preventing rent-seeking from tech giants. Rent-seeking is the practice of manipulating public policy to favor your firm’s objectives over others. In this case, companies like Facebook and Google promote regulations that would make it harder for smaller firms to compete. Usually, restrictions on any industry come alongside a headache for leading firms — just ask Juul — but in the case of big tech, CEOs everywhere are hiding their backhanded calls for government-sponsored-anticompetitiveness as benevolence. The Cato Institute has written extensively on this issue, and I highly suggest checking out their work to look more deeply into other examples.
One proposed policy includes limiting conglomerates’ ability to acquire other firms. At first glance, this policy may slow the rate at which big tech companies can expand, but the second-order effects of such a regulation would significantly reduce startup incentives. Since most startup companies exist for the purpose of acquisition, such a policy would discourage innovation and reduce competition.
Even Facebook acknowledges the reality of anti-competitive strategy, using influence over government regulations to create barriers for smaller firms. Senator Dan Sullivan posed the question to Zuckerberg in a 2018 congressional hearing, to which the Facebook CEO replied, ”I think part of the challenge with regulation, in general, is that when you add more rules that companies need to follow that’s something that a larger company like us inherently just has the resources to go do”.
Advocates of tighter regulation for big tech need to consider the corporate positionality of companies like Facebook. Social media makes no effort to prevent public panic — the chaos makes for a steady stream of shares, comments, and likes, while simultaneously pressuring regulators to act regardless of haste, leaving competitive principles to the wayside. Besides, if we learned anything from the finsta incident with Senator Blumenthal last month, it’s that US regulators are hardly in a spot to understand, let alone act on big tech.
Interestingly enough, the word “panic” is also a Greek word (πανικός). It is said that Pan, the half-goat half-man son of Hermes, would win battles by the sheer shout of his voice, instilling a debilitating sense of panicked anxiety in his enemies. Quelling the fear of Facebook isn’t going to come from government policies that slaughter small tech at the bothering of big tech. While in some ways it may be necessary for governments to impose tighter controls and correct market failures, rushing to regulate the industry would be a mythical mistake.