Every couple of decades, the world grapples with a new wave of monopolists. But nobody has ever seen empire-builders so insidiously powerful, so sweetly pernicious as our new digital overlords.
Alphabet Inc., the parent of Google and YouTube, is already enormous. So is the social media giant Facebook Inc. Yet, as we learned this week, they're still growing at warp speed. Alphabet reported a nearly-21-per-cent jump in revenue from a year earlier, while Facebook's sales surged more than 44 per cent during the same period.
For shareholders, this breakneck expansion is nothing but good news. But for a wide swath of society – from journalists and musicians to politicians and privacy advocates – the rise of the digital duopolists poses a huge threat.
Some of the victims are already clear: Worldwide music industry revenues have tumbled by a third since 2001, when file sharing became common. Newspaper ad revenue has plunged by a similar amount as Google has rushed in to grab much of the payoff from online marketing.
A less obvious casualty is the quality of public discourse. The pervasive reach of the new social networks, their ability to spread all kinds of information, and their nearly-anything-goes attitude toward content, has opened the flood gates for a tide of fake news.
Recent lies that were widely disseminated on Facebook have ranged from the Pope's fictional endorsement of Donald Trump to Hillary Clinton's imaginary role in a child-sex ring.
These fabrications may not have swung the recent U.S. presidential election but they certainly didn't help clarify voters' minds.
For Google and Facebook, this is business as usual. They make money by organizing and sharing other people's information, but they assume only very limited responsibility for verifying any of it is accurate.
Any newspaper that writes about this topic has to declare a vested interest, but it's not just pampered media types that worry about the growing clout of the online empires and their ability to shape how we perceive the world. The European Union recently hammered Google with a €2.4-billion ($3.5-billion) fine for favouring its own shopping platform in search results.
On a crasser note, authorities in jurisdictions ranging from the United Kingdom to Australia have had to fight to get the digital giants to declare more of their profits in the countries where they're generated.
It's not that Alphabet or Facebook are doing anything illegal; it's just that the stateless nature of the Web makes it easy for them to arrange matters so as to pay the least possible tax. That, in turn, means that both companies do as little as they can to support public infrastructure in most of the jurisdictions in which they happily do business.
You might think this would generate a nasty backlash, but regulators face a common problem: It's really, really difficult to rein in monopolies that most people love.
Earlier generations of monopolists – think the East India Company, Standard Oil, AT&T, Microsoft, even Bell Canada at one point – were usually loathed or, at best, tolerated by consumers. But many of us would find it difficult to imagine life without Google's all-encompassing vision of the world's information, or Facebook's ability to keep us in touch with everyone from elderly aunts to grade-school classmates. Not only are these services useful; they don't cost you a penny.
The challenge becomes even more difficult because both Google and Facebook benefit from what economists call a network effect. They get more and more valuable with each new user, because every additional person improves the quality of search results or offers a new web of potential social links.
Thanks to their ever-expanding utility, Google and Facebook are natural monopolies that seem destined to dominate their respective areas. At this point, no new rival could realistically challenge their supremacy.
Regulators face enormous challenges in trying to figure out how to challenge these online empires, especially in their home market. In the United States, antitrust law in recent decades has tended to define anti-competitive activity by looking for evidence that consumers are being hurt. It's difficult to argue that either Google or Facebook is hurting people by lavishing them with free services.
The usual remedies don't apply either. Earlier regulators could break up Standard Oil or AT&T without materially affecting the ability of the new, smaller components to do business. But splintering Google and Facebook into multiple pieces would impede the network effects that make them so attractive.
So what can be done? The goal should not necessarily be to protect existing newspapers or television stations. Instead, it should be to encourage competition, foster a high level of public discourse, protect content creators, and ensure that more of the profits that the online giants generate stay in the jurisdictions that produce them.
One of the most intriguing suggestions comes from Luigi Zingales and Guy Rolnik of the University of Chicago, who urge legislators to enshrine the right of each person to own all the digital connections he or she creates.
You could use this so-called "social graph" to move to new social networks, but with the advantage that all your old connections would still work – your old Facebook contacts could still send you messages and vice versa. The system would work much like taking your old phone number to a new cellular provider. Prof. Zingales and Prof. Rolnik argue that social-graph portability would encourage new social networks to start up and compete with the existing digital giants.
Smaller initiatives could also have an effect. Earlier this year, the Public Policy Forum, an Ottawa think tank, urged rules that would bar Canadian companies from deducting the cost of advertising on foreign-based websites in calculating their taxable incomes. That would give Canadian companies a strong incentive to keep their ad dollars closer to home.
For its part, the European Union has struck an aggressive tone in dealing with the U.S. digital giants. Perhaps not coincidentally, Google is pouring €150-million ($219-million) into a fund for innovative digital journalism in Europe.
Back in the United States, major newspaper publishers are banding together and requesting a limited antitrust exemption from Congress that would allow them to bargain collectively with Facebook and Google.
The pushback against the digital duopolists has clearly begun. The victor, though, still has to be determined.
Ian McGugan