Interview with Robert McChesney:

How can Internet be De-monopolized?

Sally Burch

15/04/2014

Opinión

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Article published in ALAI’s magazine No. 494: Internet, power and democracy 10/06/2014

“Left on their current course and driven by the needs of capital, digital technologies can be deployed in ways that are extraordinarily inimical to freedom, democracy, and anything remotely connected to the good life. Therefore battles over the Internet are of central importance for all those seeking to build a better society”, writes researcher Robert McChesney in the conclusion of his book Digital Disconnect: How Capitalism is Turning the Internet Against Democracy[1]. Professor at the University of Illinois at Urbana–Champaign, McChesney studies the history and political economy of communication. He is also co-founder of Free Press, a national media reform organization in the USA. In the following interview with ALAI, he summarizes the arguments of his book, with emphasis on the tendency of the Internet economy to promote monopolies.

- How would you characterize the evolution of the Internet over the past two decades?

- To summarize I would say that the Internet began as a function of the public sector. It was started by government subsidies and was non-commercial, even anti-commercial, in its earliest days. The vision that developed of it was always of an egalitarian, nonprofit sector where people would come together and share. But the process starting in the early 1990s, especially after the development of the World Wide Web, has been towards its intense commercialization on one hand, and on the other hand, of an aggressive interest in the importance of the Internet by military, national security, intelligence and police agencies. Those two forces have really made the Internet their own in the last 20 years in a way that I think very few people, as recently as 1993 or 1995, thought possible.

- At the global level, what do you see as the main implications of this evolution?

- One of the great claims about the Internet was that it was going to spur economic efficiency, growth, competition. It was going to open up the economy for new players, especially for small businesses and new entrepreneurs to get in the game and be able to compete with larger entrenched corporations and businesses, because the Internet would allow them to make an end-run around the barriers to entry that kept them away from consumers and markets. It also was regarded as the place where consumers would be suddenly empowered because they’d have more choice, and they’d have more leverage using the Internet to get lower prices and better service from companies.

Unfortunately almost none of this has come true in any meaningful sense, and one of the great ironies of the Internet is that is has become the greatest generator of economic monopoly ever known, in any economic system, certainly under capitalism. Instead of producing competitive markets and lots of successful entrepreneurs, Internet has done just the opposite, because of network economics, where basically it’s winner-takes-all economics. Once someone gets in first place, there’s tremendous incentive for everyone to use that service, such as search, for example, or E-Bay or You-Tube. You use the same search because you want to be on the network that everyone else is on, and you get what’s called a “natural monopoly” through the network effects.

When we look at the Internet, it is filled with these monopolies, there’s no “middle-class” of 20 or 30 competing companies in an area. It’s usually one company that dominates it with maybe one or two others that have a little bit of the action. And it has really accentuated and aggravated the problem of monopoly in modern capitalism, which is one of the great problems, of course, of the world economy.

Now this is especially true outside of the US because – perhaps not coincidentally – the dominant monopolies of the global Internet –and it is a global phenomenon– are American based. Google, Microsoft, Apple, Amazon, EBay, Facebook, are US-based firms. So these are companies that have inordinate power outside of the US, and I think for people living in countries outside the US, their dominance is of particular concern.

- And what are the repercussions of these dynamics in terms of democracy?

- Democracy has a lot of components, and one of the great claims of the Internet was that it was going to make it possible for average people, those without property, to participate in politics in a way that never was thinkable prior to the Internet. That you could have access to all the information that only elites used to get. You could communicate with like-minded people inexpensively and establish networks that would be very powerful, that would shake that power and force it to either leave power or to respond to the democratic aspirations of the people. And it has had an element of that, let’s be clear; there have been many positive aspects of the Internet for enhancing the power of those at the bottom against the top. But when those claims were made, it was forgotten that those at the top also owned computers. In fact, they own computer companies, they own the networks, and they too know what they’re doing, and they’re doing it to win, they’re not playing by the rules. And what they’re doing is to neutralize the threat of the Internet as a democratic force that can arrest or challenge elite power.

Now one of the crucial areas this takes place – one that I study and write a great deal about – is the great crisis of journalism worldwide and in the US. As you go increasingly into the digital world, there’s no way for journalism to be supported anywhere near a satisfactory manner, to have sufficient reporters covering people in social life, keeping tabs on people in power and what they’re up to.

In a nutshell, the reason for this is that advertising in the digital era operates very differently than it did before the Internet. Before we had the Internet, the advertiser would buy an ad and the newspaper would use a significant amount of money from that ad to pay for the content; that’s how they paid journalists. Advertising provided most of the revenues to most commercial news media in the world. In the digital era advertisers no longer need to pay for the content. They have found a more efficient way to reach final consumers. They can simply go to one of the big ad networks like the ones run by AOL, Google, Microsoft or Yahoo, and they say: we want to reach 30 million women aged 18 to 25, who might be in the market to buy new shoes in the next three months. They’ll find those 30 million women right away, wherever they are on the Internet, because those companies know everywhere you go, there’s no such thing as privacy on the Internet. So the advertisers don’t need to pay a website for anything more than the cost of the one person they’re trying to hit there. The website gets much less money and that’s why online journalism is basically not solvent commercially. The advertising money has gone, and that accounted for well over half the revenues that paid for journalism over the years. This is causing an enormous crisis worldwide.

By this, I’m not saying that journalism was great before. Much of my work has been on the severe limitations of commercial journalism, which is true in Latin America as in North America, if not more so. But the starting point of journalism is that you’ve got to have someone who can do it, and eat. Someone who has time and the expertise to cover sometimes complicated stories about national security, or the environment, or economics. Ideally, you want competing news firms, so if someone misses a story someone else will get it. All that is all disappearing now. Commercial interests are jumping ship; they say we can’t make money doing journalism. And that leaves us very far short of a democratic society. It should be Mission A, Job No. 1 for people committed to democracy, to set up institutions and resources to provide media and journalism, and ultimately culture, to communities that the market is no longer interested in. I think these all have to be non-profit and non-commercial entities to be effective. The market simply has given up on journalism and it should go its way now.

That means, if we’re going to have credible, independent, competitive news media – and it will be digital – the resources are going to have to come from the public. The great challenge we face in democratic societies is how do we do that? All countries need to be looking at that very seriously.

- Coming back to the issue of monopolies… in a globalized economy, global political agreements and institutions are needed to establish the necessary rules, controls and checks on its functioning, in the public interest (as most nation states have to limit monopolies at the national level). But these international spaces are increasingly captured by the same global corporations that they should be controlling. With respect to the Internet, what do you see as the key issues to take on in terms of global governance?

- I think your question is so good that it has part of the answer, because global trade, economic and governance arrangements are crucial, especially for the Internet. Unfortunately, because there is so much money now in the Internet, these governance arrangements are dominated by huge monopolistic companies that are so wealthy and so powerful that they can call on the US government to be their private police force. The global function now of the US government is to protect the interests of these private monopolies. It never does anything against their interest. That means that the ability of nation states in Europe, Latin America, Africa or Asia to countermand these pressures, to set up their own autonomous digital realm, is much more difficult without effectively taking on the entire economic structure of the world.

- You have been involved in some of the big battles taking place in the US around freedom, rights, democracy and the Internet. What do you see as the main issues at present?

- In my view the big issues in the US, and I think to varying degrees worldwide, are threefold. First, on the issue of getting serious funding for independent, non-profit, non-commercial, uncensored and competitive news media institutions, at the local and national level, we are working with colleagues on the idea of having a US$200 voucher of federal money that anyone can give to a news medium of their choice. So you’d have a huge public subsidy of non-profit news media, but the government wouldn’t control who gets the money, the people would.

The second great issue in this country – and probably everywhere – is that control over access to Internet and to cellphones is limited to just three companies: Comcast, Verizon and AT&T. There are a few other companies in the game, like Sprint and T-Mobile, but the big three set the terms and everybody else follows. They have divided up the market like a cartel, they don’t compete with each other, their prices are high so Americans pay an incredible amount of money for cell phones and Internet access for a very mediocre service. It’s really outrageous. We need a campaign in the US – or internationally – to take Internet service provision out of the hands of private monopolies, and make it like the post-office. Internet access should be a human right; the government should run it and then the costs would come tumbling down. It will be a difficult fight, because these companies are world-class lobbyists, they own all the politicians, but their existence is really illegitimate. They do nothing of value, except gouge us for super-monopoly profits to give us lousy service.

The third area –and this brings us back to the question of natural monopolies – is that there comes a point where you have three choices in a democratic society about how you deal with monopolies. Now, the way economists use the term monopoly basically means a company that has so much market share that it can set prices on the whole industry and it can determine how much competition it has. If it wanted to rub everyone out of 100% of the market, it could probably do it, but that would hurt its profits, so it settles for a lower percentage of the market and less people stay on the margins, but it gets the maximum profit it can in the industry. That’s the sort of monopoly world we’re looking at. John D. Rockefeller, at the peak of his Standard Oil monopoly, did not have 100% of the oil market in the US, I believe his peak percentage was in the low 80s, but he was in a situation where if he wanted to, he had the power to lower the price to drive people out of business. It just wasn’t in his interest to do so. Google, Apple, Amazon, Facebook, eBay and Paypal all have Standard Oil type of monopolies, and as a rule the only competition they face in their core monopoly markets comes from the other companies. So Google has a successful search, then of course Microsoft will have a competitor one. There are no independent companies competing with them, as they all get bought up along the way.

So what are we going to do about these monopolies that are completely antithetical to democratic theory? This isn’t even a progressive notion. Milton Friedman – the right-wing conservative economist, whose legacy in Latin America, thanks to the Pinochet era, is quite dark – was the first one to argue that the defense of capitalism in a democratic society was that the people who ran the economy didn’t run the government. Power was diffused and that allowed freedom to prosper, unlike feudalism, unlike existing communism then, where the people who ran the government also ran the economy. The key to Friedman’s argument was that the economic market had to be competitive. If it was dominated by a few giant firms, those giant firms would invariably and inevitably take over the government, and then that whole premise of democracy collapses like a house of cards. That’s why, in democratic theory, from both the right and the left, monopoly economic power has always been a crisis.

In that context, there are three choices of what society can do. One, you can keep the private monopoly power and then try to regulate it in the public interest. In the US we did it for a long time with the telephone company AT&T and we still try to do it a little with our phone and cable companies. But the evidence is that it doesn’t work. These companies are too big, they capture the regulators, they own the government and the regulation is largely ineffectual; so you still have monopoly gouging you and the monopolists run the government. That’s really not a good solution.

The second solution is to try to break up the monopoly into smaller units that would actually compete. So instead of having one oil company, such as Standard Oil, you would break it up into 5, 10 or 15 that would compete with each other and give you the benefits of market competition without having the detriments of monopoly control of the government. Unfortunately, in the case of the Internet that’s really not possible. Because of network effects, they become monopolies very quickly because that’s the logic of the technology. There’s no way to have competing search engines because people would gravitate to the best one and all the others would go out of business.

So with natural monopolies, you have only one course left, and it was Milton Friedman’s mentor who actually said this. He said, even if you have free market capitalism, you need to socialize and nationalize the monopoly companies, because otherwise they will steal profits from smaller businesses and charge them and consumers higher prices, and they will corrupt market economics from working efficiently, just to their benefit. So even those who truly respect and desire market economics should want to socialize those larger monopolies that are impossible to be competitive.

- Might that mean nationalizing or socializing Google or Microsoft…?

- Well, that’s the conversation we’ve got to have, ultimately. We can start now, or we can wait for 20 years and talk about it then, but eventually we’ll have to do something along those lines. If you look at the 30 most valuable companies in the US today, in terms of their market value, 12 of them are Internet monopolies; the ones I’ve just named and a few others. They completely dominate the American political economy (if not the world political economy); they are the vibrant force, such as it is, of capitalism today. This sort of economic power translates into complete control over the government. In America, we always talk about the too-big-to-fail banks that got the huge bailout. As senator Dick Durbin from Illinois said, they frankly own the government. They own Congress, they get their way with whatever they want. Well there are only two or three of those banks among the 30 largest firms in America, but there are 12 Internet monopolies. So if we’re serious about addressing monopoly power as a threat to both the economy and to political democracy, if we’re serious about reinvigorating democracy, even if one’s a free-market person, then sooner or later we’re going to have to address this issue of monopolies and I would say the sooner we start having that conversation the better.

- In the case of global monopolies, would that mean looking at the possibility of having global public companies?

- These are really interesting questions, and I think that in America we haven’t had that debate anyway near enough, because our markets are so enormous and the companies are based here. We think in terms of national solutions being sufficient, since we have the companies here that we need to deal with. I think, though, as soon as one crosses the border to any other country in the world, the debate has to change, because then, clearly, purely national solutions have real limits to them, even in theory, and international or regional solutions become much more important. But at this point of the discussion I become a student, not a teacher.

- So, coming back to our starting point, the evolution of the Internet: between digital utopia or Big Brother nightmare, what’s the present balance?

- It’s moving to Big Brother nightmare. Those are loaded words, its pejorative and you might dismiss what I’m saying with ‘this guy’s a whacko’. (Those weren’t the terms I picked – I want to make that clear – but at the same time I’m not going to run from them). One of the things that I came upon when I was doing the research for Digital Disconnect, that I didn’t fully appreciate just two or three years ago, was the extent to which everything we do online is known to commercial and government interests. You must start from the assumption that everything you do is recorded, it’s tapped, it’s monitored and it’s available to some people, somewhere, in some manner. I was shocked by that when I did the research; but as soon as the book came out, then the Snowden revelations came out about the NSA and there was a lot more general awareness of this whole process.

But I just had a new shock. The former head of NSA’s surveillance program has recently left, and he’s done some interviews in which he said that the NSA has access to everything and can track everyone everywhere globally. They really have that power and they’re using it. So what do they do now if they want to arrest someone? It’s very easy, they can put together a case on someone (and they can always find a law you’ve broken somewhere, it seems) and take their illegally gathered information to the police and say to them, piece together whatever information you said get, come up with legal documentation. Then they can arrest that person if they want; they have that capacity. As this former NSA head said, that’s the definition of a police state. Now that might not always be exercised, but it’s that very threat, the very notion that that’s looming in the background, that creates exactly the Orwellian world that I don’t think anyone wants to live in.

* This article is part of edition No. 494 of ALAI’s (Spanish language) magazine “América Latina en Movimiento”, special English language digital edition http://www.alainet.org/publica/494-en.phtml, titled: “Internet, power and democracy”.

[1] The New Press, New York, 2013.

https://www.alainet.org/es/node/84840?language=es