Facebook is in big trouble.
Or not.
I’m going with not.
In fact, I’d argue that Facebook is making a strategic gamble, with fairly low risk, and that they are exactly where they want to be.
An economic theory called regulatory capture explains why, even with all the nasty details about how awful Facebook is, I won’t be shorting their stock anytime soon.
Regulatory capture can be pretty easily simplified in four logical steps.
Competitive markets require low barriers to entry so that new firms can form and compete with old firms that are bad at whatever they are doing.
Big firms don’t want competition because competition requires increased costs to stay ahead of the competitors.
Big firms want government regulation because it raises the barriers to entry, making it harder for new companies to compete with them.
If big firms can control the government regulations, they can be the rulemakers for their own market.
This is where the “revolving door” idea comes in. Companies want their executives to have a stint at a DC bureaucracy to oversee the regulation on their market. Even if we assume there is nothing nefarious when this happens, and that these executives will make an honest effort regulate in good faith, this still benefits companies. Nobody wants to admit they are a bad person, or that they have made choices that hurt other people. So, a former executive from an industry will be more likely to look at a situation from the perspective of the companies involved, rather than ordinary people. If company executives had to look at their decisions from another angle, they might have to see how their own decisions have a negative impact on society.
My favorite example for this is Boeing because it’s so simple. There are no complex financial machinations to explain like Credit Default Swaps, or Collateralized Debt Obligations; there is not complex health or climate science to understand, like with tobacco or energy companies; and there are no complex algorithms to dissect, like in big tech. Boeing is a monopoly—absolutely dominating the American airline manufacturing market. The FAA is supposed to oversee their production to ensure safety. They didn’t, and people died.
It’s really that simple.
Instead of doing their job, the FAA let Boeing oversee their own safety tests, a clearly deadly idea. Why? Well, FAA employees have a theory.
“A recent draft internal FAA ‘safety culture survey’ of employees in the agency’s Aviation Safety Organization (AVS) drew similar conclusions. ‘Many believe that AVS senior leaders are overly concerned with achieving the business-oriented outcomes of industry stakeholders and are not held accountable for safety-related decisions,’ the survey observed.”
Regulators, having been ‘captured’ by Boeing, looked at the situation and thought: “Boeing would never let people die, because it would risk their reputation, and people would be nervous about flying on their jets. It just makes sense to let them regulate themselves because they have their passengers’ best interests in mind, and if they have less red tape they can make planes cheaper and faster.”
Somebody outside the regulatory capture is more likely to think, “Boeing is not a non-profit. They are in this to make money. A CEO’s job depends on pleasing shareholders every quarter. If they regulate themselves they may make decisions that cut small corners. Too many small corners cut could mean planes fall out of the sky.”
No former CEO is going to look at their decisions and be willing to think they chose to let planes fall out of the sky. Perhaps you remember when we were told certain big banks wouldn’t risk their reputation by gambling on high risk assets?
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Back to Facebook.
Facebook is dying, because it’s users are aging. Young people really don’t like Facebook, and the younger someone is the less likely they are to use it. In fact, if it weren’t for Instagram, Facebook wouldn’t really have much direct impact on young people at all. More on this later.
So, if you’re Facebook, what is your best option? Spend billions remaking Facebook to attract young people? Spend billions making a new platform to attract young people? Spend billions to improve Instagram to compete with Snapchat and TikTok? You see where this is going…to spending billions.
Or…
Get the federal government to regulate the social media industry so that other Snapchats and TikToks are less likely to ever happen?
You don’t have to be as cynical as me to guess which one is more likely.
This is where the whistleblower comes in.
As far back as 2018, the other time Facebook was in trouble for being terrible, Mark Zuckerberg was telling Congress it was “inevitable that there will need to be some regulation.”
But Congress just wouldn’t listen. (Frustrating, right Mark?)
Since 2018 Facebook has lost more market share, especially among young people, to their competitors as SnapChat and TikTok have grown. Now, Frances Haugen has come forward with all sorts of documents and evidence detailing all the horrendous that is Facebook.
But, was any of this a surprise?
If you pay close attention to the news, you have actually seen all of this information before.
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It’s been known for some time that Facebook promotes harmful misinformation. Just a few months ago they even revoked access to their data from researchers that were studying this, and they were known for giving only incomplete data to begin with. Think about the Cambridge Analytica episode. Facebook was happy to let a private company target voters with lies, then downplayed the extent of the problem.
We’ve known celebrities get special treatment, and that—despite the angry rhetoric from the MAGAverse—conservative politicians and Trump fluffers were not silenced, but were given a leg up on everyone else. Anger gets clicks, and nobody is better and rageporn than Donald Trump, Ben Shapiro, and conservative media.
We’ve also known for quite some time that Facebook and Instagram are harmful to mental health, and can increase suicide among users. The fact that Facebook knew this already shouldn’t have been surprising. Kind of like how everyone should have known nicotine was addictive, and it shouldn’t have been a surprise that big tobacco knew this too. Or how everyone should have known climate change was mostly human caused, and it shouldn’t be a big surprise that energy companies have known this for decades.
I went through every new leak I could find from the Facebook papers. The only thing that was novel to me was material proving Facebook wouldn’t provide accurate voting information in spanish because they didn’t want to appear to be helping Democrats (irony, right?).
But as it turns out, we knew this at least six months before Haugen’s leaks.
Don’t be surprised when you start reading about links between Trump’s gains in Latino voters in 2020 and Facebook.
But don’t worry about how Facebook is destroying democracy. Facebook has a solution…and it just happens to be the same solution Frances Haugen has.
Create a whole new regulatory agency to watch over big tech.
You see where this is going?
Who can regulate big tech? Well, big tech will argue that only big tech can regulate big tech, because lawyers and economists don’t know enough about algorithms, web design, computer science, or program development. So, we end up with another revolving door between big tech and a new regulatory agency. This would give another light touch approach, and Facebook would keep being terrible, just government approved terrible—like Boeing.
Side Note:
It’s also not hard to predict that the second somebody isn’t allowed to say the next ridiculous thing—maybe that antibiotics turn us all into reptiles, and that’s why the lizard heads who run the government want us all to take antibiotics. LONG LIVE THE PLAGUE!!!—the complaint will not only be about big tech, but government regulation. Now it will be a bureaucracy that is censoring insanity, and big government will be part of the problem. But this is a whole new can of worms I'm not gonna open in this post.
Also noteworthy is that Facebook has not, as far as I know, made any attempt to punish Haugen for her leaks.
I’m not saying that Facebook and Haugen coordinated this, or that Facebook wanted this to happen. I have no evidence of this. What I am saying is that if there were going to be a disastrous leak of Facebook company secrets, having a leaker who doesn’t reveal any new material, and wants the same “solution” Facebook wants is ideal for Facebook. The leaks may be nothing but a big coincidence. In all likelihood, that’s what it is. But, that doesn’t change that this state of play is the best possible scenario for Facebook.
What would a worse scenario look like for Facebook?
One possible solution would be to regulate Facebook through existing antitrust law.
Facebook is clearly a monopoly, and clearly that monopolization has harmed the social media market—and humanity. If, for instance, Facebook were split up, and Instagram and WhatsApp became independent companies again, then Facebook would be forced to compete with these companies. Unless and until Facebook spent their billions to build a product young people actually like, they would have only one market: angry, old, white people. It might be a lucrative market as long as Donald Trump is alive, but it isn’t a market with any future growth prospects.
The awfulness of Facebook would be mitigated because they’d have to build a product that competes for users, rather than manipulates them. These two are not mutually exclusive, but competition breeds innovation.
Through the existing regulatory framework, Congress could also pass laws to address push that innovation in a positive direction. If there are many players lobbying Congress a potential the law, the influence one company, like Facebook, has over the process would be far larger than if Facebook were broken up and had many competitors.
I don’t know what the best solution is. Only that there are more options than a new big tech regulatory agency. But there certainly is good reason to doubt that a new big tech regulatory agency would be the solution most DC lifers seem to think it is.
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