By Daniel Lyons
It’s safe to say that Federal Trade Commission (FTC) chairwoman Lina Khan is no fan of Mark Zuckerberg. Yet one could argue that her first few months in office are epitomized by the Facebook co-founder’s cheeky motto, “Move fast and break things.” However useful this may be as business advice, for many reasons it’s a suboptimal theory of regulatory policy.
Moving fast: Risks to transparency and accountability
Bold strokes have marked the beginning of the Khan FTC. In short order, the commission has withdrawn several key agency policies.
- On July 9, the commission rescinded its 2015 Statement of Enforcement Principles explaining how it would exercise its Section 5 powers.
- On July 22, the agency revoked a 26-year-old policy statement that allowed mergers to proceed without FTC approval unless they raised a credible risk of unlawful conduct.
- And on September 15, the commission withdrew the vertical merger guidelines developed last year with the Department of Justice.
This breakneck pace of reform, each accomplished with minimal notice by 3–2 party-line votes, has prompted concern about transparency and accountability. Commissioner Christine Wilson unsuccessfully called for the agency to seek public comment before rescinding the prior approval statement. Wilson and fellow Commissioner Noah Joshua Phillips similarly criticized the vertical merger decision for proceeding, in Phillips’ words, “with the minimum notice required by law, virtually no public input, and no analysis or guidance.”
This criticism is more than mere sour grapes. Unlike Congress, agencies are not directly politically accountable to the public they serve, and constituents cannot simply call their representatives to voice their opinions on a proposal. Typically, agencies cure this deficiency through the notice-and-comment process, which allows for a period of public comment on proposed agency action. Comments allow affected parties to raise potential concerns with the agency, so agencies are fully informed of the potential effects before action. And while notice-and-comment is not required for changes to policy statements, it remains good practice on important issues such as these to make sure that (in the words of one court) “major issues of policy [are] ventilated” by the agency.
Breaking things: Risks of the ultimate antitrust remedy
In the litigation arena, the FTC filed an amended complaint in August seeking to break up Facebook for alleged antitrust violations. To be fair, this case precedes Khan, and the cry to break up Big Tech has been bipartisan lately. But breakups are the biggest sledgehammer in the antitrust toolkit, and government should think carefully before reaching for it as a remedy.
Will Rinehart has written at length about antitrust cases gone wrong. As he explains, a successful breakup requires finding points of cleavage where the company can be separated with minimal disruption to economies of scale. Standard Oil was broken up along geographic lines, which largely worked. But a similar approach to American Tobacco had little effect on firm behavior or prices.
In the tech space, these points of cleavage aren’t obvious. A regional Facebook would be useless to me in Boston trying to reach friends in Los Angeles — and would be even less useful to the Arab Spring protesters trying to get their message out to the world. As Rinehart notes, firms like Facebook and Google are highly integrated, with multiple teams working across departments to solve problems and increase firm productivity. Splitting up the firm risks losing that cross-divisional support and cooperation, making each unit less valuable on its own.
Trustbusting would also require breaking up the companies’ technologies. Facebook has developed its own suite of software to address unique problems dealing with vast troves of data: BigPipe to load pages faster, Haystack to store photos efficiently, and Unicorn to search its social data, among others. Many of these technologies operate across the company’s myriad consumer-facing platforms. A breakup that allocates each technology to only one part of the firm would erode the consumer experience of the other platforms. It would also stymie innovation, as the firm would have fewer options to leverage current success to push the envelope of new technologies (as Facebook is currently doing with virtual reality).
“Move fast and break things” is a fair summary of Schumpeterian creative destruction at work. It works in the private sector because the public benefits from companies throwing ideas against the wall to see what sticks. Most ideas fail, but the costs are absorbed primarily by shareholders who are rewarded for the risk if one product takes off. But good statecraft requires careful deliberation, with input from affected parties and public dialogue to build legitimacy and accountability, and careful cost-benefit analysis before undertaking bold moves. Reckless experimentation should not be a hallmark of regulatory policy.