Presidential candidate Liz Warren’s antitrust proposal shows why regulating 21st Century companies with 19th Century laws is a bad idea.
In detail, US Senator Warren (D-Massachusetts) wants to break up several tech giants by enforcing old antitrust laws. For example, Warren outlines plans to split Amazon (NASDAQ: AMZN), Facebook (NASDAQ: FB), and Alphabet (NASDAQ: GOOGL) into smaller companies in a Medium post.
Warren’s proposal is problematic in five ways. First her breakup plans will not limit the monopoly power of Big Tech. Second, some of Warren’s plans will merely shift the monopoly from Big Tech to other companies.
Facebook will still have a Monopoly under Liz Warren’s Antitrust Proposal
For instance, Warren wants Facebook to sell WhatsApp; a messaging app that only has 23.6 million users in the USA, Statista estimates. Moreover, Warren’s proposal will leave Facebook with 242 million active monthly users in the United States and Canada, Statista calculates.
Hence, Facebook will still have a practical social media monopoly in the United States and Canada after Warren’s forced breakup. Incredibly, Facebook will keep most of its revenue and the power that brings under Warren’s plan.
Furthermore, the unprofitable WhatsApp; which has 1.5 billion users, could shut down without Facebook ownership. Hence, social media users could have fewer choices and Facebook a bigger monopoly because of Warren’s antitrust proposal.
Warrens’ Antitrust Proposal could hurt Alphabet
Oddly, the only company seriously hurt by Warren’s antitrust proposal will be Alphabet (NASDAQ: GOOG) or Google.
To explain, Warren wants Alphabet to sell the advertising company Double Click or Google Ads. That will hurt Alphabet because the company makes most of its money from digital advertising.
In fact, Alphabet folded Double Click into its Google search engine in 2018. Therefore, Double Click is now Google Ads; which generates most of the $136.819 billion in revenue, Alphabet reported in 2018.
Warren’s Antitrust Proposal will Make Big Retail Bigger
The worst aspect of Warren’s antitrust proposal is that it will shift monopoly power from Big Tech to Big Retail.
To explain, Warren wants Amazon to sell the grocery chain Whole Foods. Whole Foods management sold the chain to Amazon in 2017 because the company was near collapse. In fact, Whole Foods was out of money and closing stores when Amazon bought it.
If Amazon sells Whole Foods the logical buyer is America’s largest standalone grocer Kroger (NYSE: KR). Kroger and America’s largest “grocer” Walmart (NYSE: WMT) already have a practical duopoly in many grocery markets.
In addition, Kroger and Walmart are ruthless competitors that drive smaller brands out of business with deep discounting. Whole Foods has already demonstrated it cannot compete with those giants.
Hence, Warren’s antitrust proposal will reduce competition in the grocery business by eliminating a competitor to Walmart and Kroger. In fact, consumers could have fewer places to buy groceries thanks to Liz Warren’s antitrust proposal.
Notably, Warren wants to run one of the few companies that can compete with Kroger and Walmart; Amazon, out of the grocery business. Cynics will wonder if Walmart or Kroger’s legal departments wrote this antitrust proposal.
Warren’s Antitrust Proposal Helps China
The greatest beneficiaries from Warren’s antitrust proposal will be Chinese tech companies.
The logical buyers for services like WhatsApp, Google Ads, Apple Pay, and Google Pay are Chinese tech companies. Potential Chinese buyers of American tech include search engine Baidu (NYSE: BIDU), social media and payments Goliath Tencent Holdings (OTCMKTS: TCEHY), the world’s most valuable unicorn Ant Financial, and e-commerce powerhouse Alibaba (NYSE: BABA).
Moreover, the People’s Republic’s sovereign wealth fund; the China Investment Corporation, could loan Chinese companies the money to buy American Tech. Interestingly, China’s foreign exchange reserves; proceeds from Chinese exports, finance the China Investment Corporation. Hence, American consumers could finance China’s buyout of Silicon Valley.
Warren’s Antitrust Proposal could give China a Global Social Media Monopoly
Uncle Sam could prevent Silicon Valley from selling its US assets to Chinese companies. However, there is no way for the US government to stop Chinese from buying Facebook assets in other countries.
For instance, Facebook could transfer ownership of all the WhatsApp infrastructure overseas to an Irish or a Cayman Islands company. Then that entity could turn around and sell itself to Tencent Holdings.
Such a deal could give Tencent a practical monopoly on Social Media in large areas of the world. For instance, Statista calculates 73% of the population of Saudi Arabia, 65% of the population of Brazil and Germany, and 56% of the people in Mexico use WhatsApp.
A Chinese acquisition of WhatsApp is likely because nobody else is likely to buy the money-losing company. Owning WhatsApp makes sense for China because it will enable the People’s Republic to control the flow of information in many nations.
They could sell Apple to China Under Warren’s Antitrust Proposal
Nor is it just WhatsApp. I think Baidu, Tencent Holdings, Alibaba, or Ant Financial could get their hands on Instagram (another Facebook subsidiary), Alphabet-owned YouTube, Apple Pay, Google Pay, the App Store, and even iTunes under Warren’s plans.
The App Store, iTunes, and Apple Pay could end up in Chinese hands because Warren wants to break up Apple Inc. (NASDAQ: AAPL), The Verge claims. Hence, Senator Warren could turn control of the world’s media infrastructure over to the Chinese Communist Party.
Thus, Warren’s attempt to breakup American monopolies could create a far more dangerous global monopoly. Consequently, Americans will have only themselves to blame if China Inc ends up owning digital media.
Warren’s Antitrust Proposal could drive Big Tech out of America
Warren’s Antitrust proposal could send Silicon Valley overseas. Instead of breaking up their global empires, Alphabet, Facebook, or Apple could move their home offices offshore.
Obviously, many places will welcome Big Tech; and its money, with open arms. For instance, China’s Silicon Valley; Shenzhen, Canada, the United Kingdom, India, Switzerland, and the Republic of Ireland.
Plus, companies can move their legal addresses to tax havens like the Cayman Islands to avoid many laws. In fact, they base or domicile Alibaba, in the Cayman Islands, The Conservative Income Investor reveals.
Since companies like Alphabet already maintain offices in Ireland, moving the head office office to Geneva, London, or Shanghai is not much of a stretch. In particular, some companies might view a staunchly capitalist authoritarian state like China as a better investment than the populist United States.
Warren’s Antitrust Plan ignores Big Tech’s most dangerous businesses
Finally, Warren’s antitrust plan apparently ignores some of Big Tech’s most dangerous business moves.
Disturbingly, Warren’s proposal says nothing about financial services apps like PayPal (NASDAQ: PYPL), Google Pay and Apple Pay. In reality, such digital wallets could be far more disruptive and destructive than any monopoly.
For instance, PayPal’s digital wallet and Venmo peer-to-peer payment (P2P) solution operate like bank accounts. However, the Federal Deposit Insurance Corporation (FDIC) does not insure those apps.
Hence, PayPal or Venmo could run out of money and leave millions of people without access to cash. Frighteningly this nightmare scenario is no fantasy.
Warren’s Antitrust Proposal Ignores Silicon Valley’s Greatest Threat to our Economy
In July 2018, the People’s Bank of China (PBOC), China’s central bank ordered Ant Financial and Tencent Holdings to keep 20% of consumer deposits in their digital wallets, The Financial Times reports. Essentially, the PBOC’s regulators worry that the digital wallets could run out of money leaving Chinese that rely on them with no cash.
In detail, Ant Financial’s Alipay and Tencent Holdings’ WeChat Pay are the two most popular digital wallets in the world. Uniquely, WeChat Pay had 600 million users and Alipay had 400 million users in August 2017, Statista estimates.
Under these circumstances, mobile wallets can trigger a financial crisis as great as the meltdown of 2008 and Warren is ignoring them. For instance, what happens if banks suddenly block access to Google Pay or Apple Pay or PayPal runs out of money.
Conversely, if a bank runs out of money the Federal Reserve or FDIC can take it over, or loan enough funds to keep the institution operating. Meanwhile PayPal could collapse instantly, leaving millions of small businesses with no access to cash or credit.
The Regulation of Silicon Valley we need
Hence, forcing PayPal to become a bank; which would put it under FDIC deposit insurance, is a smarter regulatory move than antitrust actions.
Therefore, forcing the sale of Apple Pay or Google Pay to a monster bank like JPMorgan Chase (NYSE: JPM) could be better for consumers than forcing the sale of Instagram. To explain our government has some control over banks like Chase, which is better than no control.
For instance, banks have to get approval for the financial products they offer. Currently, tech companies can offer almost any financial service as long as they do not link it to a bank account. Hence, I think companies like PayPal are banking without FDIC insurance.
We need 21st Century Regulations not Liz Warren’s Antitrust Proposal
At the end of the day, Instagram is just a toy while Apple Pay, Venmo, and Google Pay are dangerous financial tools. Moreover, tech companies like Amazon and Facebook are researching newer financial technologies; like cryptocurrencies and stablecoins that could be even more dangerous than digital wallets.
Hence I think stopping Facebook and Alphabet’s efforts to enter financial services is more important than enforcing archaic antitrust laws. In particular, the antitrust laws Warren wants to enforce are 19th Century policies.
For example, they wrote the antitrust laws for a national economy in a horse and buggy age. Yet we now operate in a global economy and live in a digital age. America needs leaders who live in the 21st Century, not idealists who want to revive the past with 19th Century economic policies.
We must reject Liz Warren’s antitrust policies if we want America to remain relevant and competitive in the 21st Century.