That’s because when there are relatively few big players in a market, companies that serve most of the customers in that market, there’s a risk that they don’t have to compete as fiercely as they should to keep their customers and win new ones. That means higher prices, worse service, less innovative products for households. For the economy more widely, it means underinvestment in the productive capacity that drives higher growth and higher wages.

Together, those things leave many people feeling ripped off, ticked off, and wondering if the system really is rigged against them.

At the Social Market Foundation, we have investigated the markets that matter most for voters’ experience of the market economy, those focused on consumers, which collectively account for about 40% of all consumer spending – cars, groceries, broadband, mobile telephony, landline-only phone contracts, electricity, gas, personal current accounts, credit cards and mortgages.

Sadly, we found that people’s suspicions of a rigged model are justified. Most of those markets aren’t working as well as they should. Eight of the ten are concentrated, a large proportion of sales made by a small number of suppliers.  Only the markets for cars and mortgages meet the description most people would have of a free and competitive model.

We also identified a link between higher levels of market concentration and lower levels of customer service and trust. That’s understandable when you consider the way people are treated.

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How to tackle the poverty premium? Let's start by breaking the oligopolies

By Charlotte Pickles

The pricing policies of the Big Six energy companies make it all too easy for critics of the industry to accuse firms of cynically exploiting consumers’ inertia and limited information: attractive “teaser rates” draw in new customers then mysteriously vanish, meaning many customers drift unwittingly into higher tariffs.

One of the worst practices in concentrated markets is bundling, where dominant players can offer what appear to be attractive and convenient deals to supply several goods and services together, for instance pay TV, broadband and a landline. Such deals are often expensive and unfair on customers, who cannot easily tell how much they pay for individual items – which may well be available more cheaply elsewhere.

The best remedy for harmful concentration is, of course, competition. When new challengers enter the market and fight incumbents for their customers, those customers tend to get a better deal. The UK supermarket sector today offers better deals to customers than it did a decade ago partly because of the entry into the market of chains such as Aldi and Lidl. Anyone who wants to save the market from the populists who would replace it with state control needs to think about ways to help challenger companies put big incumbents under more pressure. Competition that makes incumbents feel less comfortable is good for customers, and good for faith in markets.

Of course, we have rules and laws and public bodies who are responsible for doing this. But frankly, right now regulators and competition authorities are struggling to put up a fight on behalf of consumers.

One aspect of concentrated power in consumer industries I find most troubling is the ease with which big, rich incumbents can capture or defeat the regulators who are supposed to watch over them and ensure their market is delivering fairly for consumers.

A lot of this is about financial muscle, plain and simple. Big companies making big profits can afford to fight and win against regulators with more limited resources. One senior regulator puts it this way:

“Whatever decision we make, they can appeal, and if we have two lawyers on the appeal, they have ten. And if our lawyers are still good enough to win, they’ll get a job offer in the private sector soon enough and end up working for a regulated company.”

Some of the antics alleged in regulated industries are frankly scandalous. One telecoms executive recently told me about a rival firm that successfully gamed Ofcom’s broadband speed testing by simply cutting off a large number of rural customers with slow connections during the testing period.

I don’t say this as criticism of the regulators themselves, so much as criticism of the politicians who give the regulators their remit and their resources. Sometimes those remits simply don’t allow adequate intervention to prevent the concentration of market power that could harm consumers.

It’s an open secret that some senior officials at the Competition and Markets Authority were deeply uncomfortable about the authority’s decision in 2016 to allow BT to take over EE. The £12.5 billion deal brought together the UK’s largest fixed telecoms business and the UK’s largest mobile telecoms business. Despite widespread worries that the deal would harm consumers, the CMA’s own rulebook meant the authority had to give it the green light.

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By Charlotte pickles

That’s one of the challenges about competition, concentration and consumers that politicians should be trying harder to meet. Other, bigger questions include what Britain’s competition regime will look like after Brexit, and how it can be designed and equipped to deliver the best deal for consumers.

Sadly, there’s not much enthusiasm for answering such questions right now, even though the task becomes more urgent by the day.

Yet it’s noticeable how little politicians, policymakers and experts in Britain have paid attention to it. American economic debate is heavy with analysis of concentration ratios, incumbent advantage and the prospect of dramatic “antitrust” state intervention.

That’s partly a question of history: the antitrust movement of the early 20th Century, when big oligopolistic incumbents (then known as “trusts”) such as Standard Oil were broken up, still loom large in the American political imagination.

That history is getting a lot of attention in US political circles again now.[1. Maurice Stucke and Ariel Ezrachi, ‘The Rise, Fall and Rebirth of the U.S. Antitrust Movement’, Harvard Business Review, 15 December 2017] A group of economists and lawyers sometimes called the New Brandeis movement is asking all the right questions about the power of big incumbents in the markets that matters most to consumers and voters.

Anyone who wants to save Britain’s open market economy from the populists who would sweep it away needs to reflect on the lessons from thinkers like Louis Brandeis.

That might – or might not – mean the state intervening to break up big companies, but it should definitely mean that same state taking a much more active role to make sure those companies have to work harder.

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It's time to rein in the reckless monopolies

By Ann Pettifor

While most of us love Facebook, I’m not sure we love a vast corporate monopoly. And it’s obvious that you are one. Your first big backer, Peter Thiel, is so proud of the fact he’s going around saying that monopolies are wonderful and we need more of them. “Competition is for losers.” Yes, he said that[20.  Peter Thiel in the Wall Street Journal, 12 September, 2014. “Competition Is for Losers. If you want to create and capture lasting value, look to build a monopoly.” The article ends like this: “Tolstoy famously opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: Each one earns a monopoly by solving a unique problem. All failed companies are the same: They failed to escape competition.”].

And Peter Thiel is on your board. That suggests you don’t mind his views – or perhaps you share them?

There’s really never been a monopoly like yours – the scale of what you’ve built is astonishing:

• Every month, there are two billion users around the world; more than a third of the adult members of the species. With India just ahead of the USA[21.  Statista, reporting 241 million users of Facebook in India and 240 million users in the USA.].
• In the US alone there are 240 million.
• More than 40% of Americans are reported to get “news” from Facebook[22.  NiemanLab, 26 May 2016, reports research from Pew: “Two-thirds of Facebook users access news on the social platform, and with 67 percent of U.S. adults active on Facebook, that translates to 44 per cent of the overall US population which accesses news on the social platform, the study said.”].
• Facebook and Google together now account for one-fifth of global advertising[23.  The Guardian, May 2, 2017], and online ads have now overtaken television.

For an example of monopolistic behaviour, see Brian Feldman, New York Magazine: “Is Facebook a Monopoly? Just Ask Snapchat.”[24.  New York Magazine, 14 April 2017.]

Of course, as leader of a company it’s not your job to police competition policy – whether in Washington or in Brussels or in any other key market. But the rise and rise of the tech monopolies is worrying a lot of people on left and right alike. Bill Kristol, lightning-rod of Washington’s neo-conservatives, has just launched a new effort in partnership with well-known Democrat Bill Galston. And the first item on their joint agenda? You guessed. Taking down the tech monopolies. Eleanor Clift of the Daily Beast[25.  Daily Beast, 11 September 2017], talking to Galston, found that the numbers didn’t so much talk for themselves, but shouted:

“Just look at the figures, says Galston. “John D. Rockefeller would have died for a market share like that.” Rockefeller’s Standard Oil company epitomised the excesses of last century’s robber barons.  Today, one out of every two dollars spent online goes through Amazon. Facebook and Google got 99 per cent of the revenue growth from digital advertising last year. Facebook owns 77 per cent of mobile social traffic.”

While the American Left, epitomised by Senator Warren, has been more willing than the US Right to take on monopolies in recent years, the tech giants have been the exception. “Silicon Valley is part of the Democratic base,” notes Clift, “providing mega-donations and votes.” Some estimates suggest 80% of “tech cash” goes generally to the Democrats[26.  The Hill, 6 July 2016.] but went to Hillary Clinton rather than Donald Trump by 60-to-1 [27.  CNBC, 7 November 2016.].

So what can you do?

Here are some suggestions.

You really need to come out in favour of market capitalism – and against monopolies. As President you will need to police a market-place full of powerful crony-capitalists, every one of which is a rent-seeker or monopolist or wannabe. And, Zuck, running one yourself isn’t a great start. But there are commitments you can make that would make quite a difference:

• First, make it absolutely clear that you are an undying fan of the market capitalism that enabled Facebook to succeed in the first place. (Bye-bye, Myspace!)

• Then give us an assurance that you don’t plan to take over any more potential rivals (as you did with WhatsApp and Instagram) – because you really will welcome their healthy competition – or do another ‘Sherlock’ on the likes of SnapChat[28.  NYMag, 14 April 2017.].
• And I’m hardly the first person to suggest that you open up Facebook’s APIs – the keys to enable other programmes to connect with Facebook, so the powerful network effects that the internet makes possible don’t lock us all in to a single, monopoly platform[29.  “Application programme interfaces” are the keys to enable other apps to connect with Facebook – so smart developers will be able to come up with new ways of using Facebook – and integrate the platform with other online services. More here Wikipedia Open API.].
• Then assure us that you will soon roll out a Facebook-for-a-fee alternative to the fuzzy barter arrangement we all use at the moment. So for $x a month, users have an option to use the service while keeping all their data private (and getting no ads or merely generic, untargeted ones). This would also make all of us much more aware of how Facebook actually makes its money – and that it’s really an enormous and highly-profitable corporation.
• It may seem too much to ask, but I’ll ask it anyway: you could then assure us that your lobbyists in Washington and Brussels and other capitals will hold back from lobbying against efforts to use competition policy against your company (or any others). What, by the way, was the objective of the $2.38 million you spent on Washington lobbying[30.  The Register, 21 July 2017 reported that “In the second quarter of 2017 – April through to June – Google spent $5.93m on sending its representatives to meet with Senators. Amazon came next with $3.21m, then Facebook with $2.38m and finally Apple with $2.2m.”] in the second quarter of this year?

I know, the monopoly issue is hardly a simple one. A hundred years ago enormous public concern and some brilliant campaigning journalism[31.  For example by the pioneering journalist Ida Tarbell. See UnHerd’s short video tribute to her, narrated by Liam Halligan.] led the United States to take down destructive monopolies (the “trusts”), a tradition that continued right up to the break-up of the AT&T telecommunications monopoly into the Baby Bells in 1982[32.   Andrew Beattie, “Why is the 1982 AT&T breakup considered one of the most successful spinoffs in history?”].

Since then we have been kinder to monopolies, at the very time that technology has enabled new kinds of monopolies to flourish. But the pendulum will swing back as political interest on left and right builds to hold to account those who – like you – have amassed vast fortunes with your creative use of what was, let’s face it, originally publicly-funded US government technology[33.  Mariana Mazzucato’s The Entrepreneurial State (Anthem Press, 2013) powerfully summarises the manner in which the US Government either funded or in some cases directly developed the core drivers of value in Silicon Valley’s technology.].

One reason we have not so far seen much backlash against Facebook (and Google) is of course that unlike traditional companies (the trusts of the early 20^th century, and AT&T more recently) most users don’t think of themselves as customers. The service looks as if it’s “free,” and Facebook (like Google) some sort of charity. Of course, we pay with data, or you would not be making any money. And you are making a lot.

So we need you to come out as a crusading fan of innovation and market capitalism, not a contented beneficiary of monopoly power. Because people from Senator Elizabeth Warren, scourge of financial and corporate abuses, on the left, and Bill Kristol, godfather of the anti-Trump right, are calling for it and will call for it until the monopolies are reined in.

Will this cause you discomfort? I expect so. But hey, you’re not going to end up a pauper. And you’re the one who looks like he wants to be George Washington’s successor.

There’s no clearer way to redefine yourself as committed to public service rather than private business.

PART 2: Pay your fair share of taxes

If you were to become President you would be the most powerful elected politician in the world but you’d also be one of the richest people in the world and, because data is the 21st century equivalent of what oil was to the industrial age, you would be a tech power, too. When was the last time that such power would have been concentrated in one person? I asked a handful of historians and the best answer anyone could give was to make a case for a Chinese emperor at the time of gunpowder’s invention.

For a corporate superpower to also seek to be a political superpower would raise questions at any time but this isn’t any ol’ time. You’re leader of a huge corporation at a time when many Americans – right, left, centre and not normally bothered by politics – are concerned about the rise of big businesses. Let’s not forget that it’s less than a decade after Wall Street and a handful of “too big to fail” institutions brought the global economy to a juddering and very painful halt. Whether it’s the airline industry, banking, supermarkets  or your own area of technology, power is concentrated in very few hands. We need to know what you think about all this and we’d like to know now.

Bill Kristol, founding editor of the Weekly Standard, and Bill Galston, former adviser to Bill Clinton, have teamed up to form The New Center[1.  Jennifer Rubin in The Washington Post, 12 September 2017: “The New Center: Will it work?”], a think tank seeking to frame new issues that cut across the traditional political spectrum. And their top issue? “Challenging the Titans of Technology.”

This is what they have said:

“These companies have competed and acted in their interests, which is exactly what we expect in a free market system. But as these companies have grown, they have also become more prone to engage in the grungier anti-competitive practices that the public and political leaders decry when practised in other industries. In recent years, large technology companies have been investigated for colluding with a secret agreement not to hire one another’s best workers; fined billions of dollars for unfairly favouring certain services on their platforms over other rivals; and been accused of mishandling sensitive consumer information or of obtaining new customers under false pretences.

“Government can’t be expected to sit idly by if the size and power of certain companies begin threatening the vigorous competition and innovation upon which any healthy economy depends. The power of technology companies presents government with a challenge very different from the corporate monopolies of old. These companies don’t just dominate a commodity, as Standard Oil did before it was broken up by the Supreme Court in 1911, or physical infrastructure, as AT&T did with telephone lines before it was split into the “Baby Bells” in 1984. They own an unprecedented amount of data, the most valuable asset in the world today. And the more data they own, the more powerful they become.

“Successful market economies require new companies willing to challenge the status quo and find new answers to old problems. The New Center must clear the path.”

This is just one illustration of a new tide in political thought – as you must know.

So, Zuck, are you wanting to be President to help reverse the concentration of power or, like your board member, Peter Thiel[2.  Wall Street Journal, 12 September, 2014. “Competition Is for Losers. If you want to create and capture lasting value, look to build a monopoly.”], do you think that “competition is for losers”?

You don’t need me to tell you that for all the admiration the nation has for the innovation and dollars flowing from the Valley, we’ve become increasingly tired of the scandals. Whether it’s sexual discrimination and harassment, or just really unattractive people in charge, the Valley’s culture is now famous not just for its creativity. Some of us have been really surprised, since it would be reasonable to assume that companies led by young people – whose parents and grandparents fought for civil rights, and the equal workplace treatment of women – would be models of inclusiveness and corporate social responsibility. Plainly that hasn’t happened. So what are you doing about it?

Sure, you aren’t Sheriff of Silicon Valley but there seems to be a vacancy. There’s barely a company without serious issues, and maybe you’re just the guy to challenge them – from the top, and (always the most uncomfortable place for both parties) from among their peers. They can’t get you fired, like the guy working for the New America Foundation in DC who got too critical of Google and found himself searching for another job because the biggest search engine did not approve[3.  Kenneth P. Vogel in the New York Times, 30 August 2017, “Google Critic Ousted from Think Tank Funded by the Tech Giant.” ].

So maybe you should run. For Sheriff, I mean, for a start. America would begin to pay attention.

But now to some details, about you and your company. Things you should maybe look at afresh if you want to run a campaign that goes beyond Sheriff of Silicon Valley. Whether you focus chiefly on doing this as Mark, or Facebook does it as a corporation, or the pair of you do it in cahoots, there’s a golden opportunity to challenge poverty and corporate misbehaviour both in your backyard and across the planet. Not sure quite how you do the latter but that’s probably why you have hired Messrs Benenson, Mehlman and Plouffe, rather than me. I imagine you’re paying them handsomely. Make them earn it.

And as for less than best practice, there’s your “charity”, the Chan Zuckerberg Initiative. Aside from hiring high-octane pols to help, it’s begun to hand out big sums to researchers. But, of course, it isn’t actually a charity, is it? And no one seems to know why. It’s another private company that you control. You might think of shifting it into the world of regular charities by registering it with the IRS as a 501 (c)(3) – like the Gates Foundation and the Red Cross. Then what about having your lawyers draw up a deed that would make your enormous promised gift irrevocable? Just so we all know you’re really serious. This all might seem very untrusting but another businessman made very big promises on his recent road to the White House and you’ll have to forgive us if the idea of another one won’t be greeted with universal glee.

Best regards,

Nigel

(>>> Return to introduction).