Not when but how: Big Tech regulation is on the way

As part of the Ethics of Disruption programme in partnership with Stifel, Matthew Gwyther reflects and reports on a roundtable discussion, hosted in early September, which explored how policymakers should best respond to rapid changes in the technology landscape, especially surrounding FinTech, AI and Robotics. How can we help build a regulatory system that properly reflects a healthy tech-led future – and protects the citizen and democracy at the heart of it all? 

If you would like to participate or find out more about the programme get in touch.

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When Kim Kardashian West starts advocating boycotts of social media platforms you know something deep might finally be stirring in the depths of discontent with Big Tech. The reality show A-lister announced in mid-September that she would freeze her Facebook, Instagram and other digital activity to protest against the spread of "hate, propaganda and misinformation". Doubtless mindful not to spend too long biting the hand that feeds her, Kardashian announced that she would stay away from the keyboard and smartphone for a mere 24 hours.

Maybe Kardashian had watched the July appearance of the leaders of Amazon, Apple, Facebook and Google in front of the US Congress' House Antitrust subcommittee with interest. (Ok. Maybe not.) This was the highest-profile hearing into antitrust and competition since the 1970s. Blows were unquestionably landed on Zuckerberg, Cook et al but the hearing also illustrated how broad, complex and technical the cases against these companies are, and how difficult they are to make in the brief sound bites that form the simple currency of political debate.

It took some time for the committee members to get to Amazon founder and CEO Jeff Bezos, who was giving his very first congressional testimony. But once they did, they landed some of their hardest hits. Nappies proved Bezos’ undoing. The subcommittee had got their hands on internal emails showing that, in 2009, Amazon deliberately began selling diapers at a loss in order to muscle Diapers.com out of the market and force the company to accept a takeover. This achieved, Amazon then hiked nappy prices back up.

One email baldly declared that “these guys are our #1 short term competitor... We need to match pricing on these guys no matter what the cost.” The evidence clearly showed that Amazon was willing to lose an astounding $200 million to execute the strategy. Such predatory pricing at a loss in order to drive out the competition is illegal in a very old fashioned and non-digital way.

"Since the start of 2020, the worth of Amazon is reckoned to have increased by more than half, to $1.49 trillion (£1.1tn)"

A different predator - COVID - has been good for Big Tech. Traditional bricks and mortar shops may be in freefall and landlords desperate to collect what rent they can, but since the start of 2020, the worth of Amazon is reckoned to have increased by more than half, to $1.49 trillion (£1.1tn). In September it announced quarterly sales up 40% on the same period last year.

Much of this has been driven by what the pandemic has done to people’s buying habits, and the share of the chain’s retail e-commerce market: now put at 44% in the US and around 30% in the UK. (Amazon has a 30% share of the UK market which is the third largest in the world after the US and China.) But also relevant is Amazon’s Web Services division, which has cleaned up on the working-from-home new normal as companies have shifted more of their activities to the online cloud.

Meanwhile, in the UK, the government in late Spring accepted the recommendations of the Digital Competition Expert Panel, chief among which was to set up a “digital markets unit” (DMU), a regulator to oversee big tech companies and encourage competition online. That panel was chaired by Professor Jason Furman, an American economist and Professor at the Kennedy School of Government at Harvard.“The digital sector has created substantial benefits but these have come at the cost of increasing dominance of a few companies which is limiting competition and consumer choice and innovation. Some say this is inevitable or even desirable. I think the UK can do better,” wrote Furman.

In the report, the panel wrote that it believed competition policy should be “given the tools to tackle new challenges, not radically shifted away from its established basis.” In particular, “policy should remain based on careful weighing of economic evidence and models,” they suggested, arguing also that “consumer welfare” remains the “appropriate perspective to motivate competition policy” — and rejected the idea that a completely new approach is needed.T

hen, on July 1st, the UK Competition and Markets Authority released its study of the digital advertising market. Google and Facebook were under examination here. It identified problems “so wide-ranging and self-reinforcing that our existing powers are not sufficient to address them”. It set up a taskforce to figure out what a new regulatory framework might look like.

Things are stirring in the world of tech regulation. Economic power in many industries is more concentrated than it has been in a century. However, tech has performed best and, due to its all-encompassing nature, has more impact on our democracy, public health, privacy and economy. Many now clearly feel that a growing proportion of that impact has been negative. There is no doubting the myriad social benefits that come from internet platforms or smartphones. Users spend increasingly large proportions of their waking lives on them. And they are “free.”

However, people are discovering that it is possible to love the services of Facebook and Google and question whether the benefits justify the harm. They wonder why they cannot have the good without the bad. It is, to coin a social media term, “complicated.” Whereas more than 4 in 5 of those Brits polled in a YouGov survey said they distrust Facebook and Twitter, a full sixth implicitly accept anything a friend shares with them on social media as fact.

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The subject “Regulating Tech, Big and Small - Ain’t No Stopping Us Now” was the title of the latest Jericho (virtual) roundtable discussion supported by Stifel Europe. There were four questions considered by the panel.

First, the effects of COVID have been hugely to the benefit of Big Tech. Not only have we new kids on the block in the form of Zoom but the existing US behemoths have pressed home advantage. Is this likely to see a more “lenient” approach as we recognise the benefits brought or likely to increase the chances of, for example, a digital sales tax?

Second, how have the effects of the pandemic changed attitudes towards privacy and the use of data for the common good, specifically in the realm of health?

Third, are we currently approaching regulation with a sunset mindset for sunrise industries? The agility of flexibility of modern tech organisations combined with the speed with which they can move to neutralise threats or capitalise on new opportunities threatens to leave regulators hardly out of the starting blocks.

Fourth, in the realm of electoral politics is this a question of regulating machinery, services and systems, or regulating humans? How do regulators deal with Deep Fakes and/ or Russian bots if social media businesses are unable to do so themselves?

"Certain obligations go with this newly found great power and I’m not sure Tech is ready for where it’s found itself"

Eithne O’Leary, CEO of Stifel Europe, opened the conversation. “The six months of COVID have led us to an inflection point in digital adoption. A verb that didn’t exist last year - to Zoom - will now make it into the Oxford English Dictionary. It’s the human side, how to deal with ethical issues, that interests me as a member of a sector that went through great difficulty just over a decade ago. Certain obligations go with this newly found great power and I’m not sure Tech is ready for where it’s found itself.”

The opening provocation came from Chi Onwurah, the MP for Newcastle Upon Tyne Central and Shadow Minister for Science, Research and Digital. “Tech and the digital world are the biggest things since the arrival of electricity,” she said. “And I’m proud that, as an electrical engineer before entering politics, I spent 23 years in telecoms helping to build the internet. We would certainly regard ourselves as the party of the white heat of technology. Tech changes lives for the better: it has made working from home possible and enabled grandparents and grandchildren to have some sort of contact in the last six months. We have three million people working in the sector.“But it now needs proper regulation. Tim Berners-Lee says so, as does the NSPCC, even Facebook admits it needs it. There is too much power in unaccountable bodies and COVID has provided a tipping point. The internet of things is coming fast and its impact will be profound.“The opposite of regulation is bad regulation. We had a best in class regulator in OFCOM but the government missed the chance to do any forward-looking to strengthen it in 2013. The world is online and the automatic nature of possible harms - with algorithms and bias - makes it different from other sectors where humans make decisions.

"Digital is at the heart of almost every policy area - so we need principles to apply to make it safer, fairer and more inclusive"

“Digital is at the heart of almost every policy area - so we need principles to apply to make it safer, fairer and more inclusive. This regulation needs to be agile and robust. It cannot be a reactive ‘whack-a-mole’ approach addressing harms only when they arise. We now need a principled framework which addresses future possible harms. It must work for all of us.”

Chi’s contention goes to the heart of how regulation and competition law work. Competition law generally works on the principle of “ex-post” enforcement rather than what lawyers term “ex-ante” regulation. Broad rules are applied across sectors; antitrust authorities investigate and fine companies that breach them. However, many now contend that for a sector as big, and fast-moving as tech, this simply no longer works. Harms are hard to prove, and in any case, companies just pay up and move on. Fines are priced in. A new UK regime, which complements the existing one, might create “ex-ante” rules specific to online platforms such as Google and Facebook (and potentially Apple and Amazon). Thus they prevent harms rather than deal with them “post” or after they have occurred.

"We’re now in a data saturated world and you can sensibly ask 'what is a non-digital company?' The ICO is in the game and the scope is huge"

Simon McDougall is Deputy Commissioner - Regulatory Innovation and Technology - at the Information Commissioner's Office (ICO), having previously worked in the private sector. “We’re now in a data-saturated world and you can sensibly ask 'what is a non-digital company?' The ICO is in the game and the scope is huge,” he said. “We look at everything from Facebook and Cambridge Analytica to Google and Ad Tech plus real-time bidding. Data protection has gone massive on us but it’s also true though that the scale of large digital platforms has value. The government has said that after Brexit the UK will pursue its own data protection policies.”

Although he was keen not to complain about resources he made a significant point that the ICO is comprised of 700 people with three-quarters of a million organisations on its register. By contrast, the FCA has 3,500 people looking at 59,000 firms. “Something has to give and change is now inevitable,” he continued. “But it needs to be bespoke for the different potential harms. We now overlap with and consult with OFCOM and the Competition and Markets Authority far more than used to be the case. In 2-5 years it will have to be a portfolio approach as change for the regulators becomes inevitable and it’s welcome. The ICO can’t regulate on its own.”

He also worried that we suffer from a lack of experts in the area in the UK. “What regulators of tech have to deal with is huge and it’s daunting. But it’s no longer in the too hard box. We’re getting there. We’re making proper progress on market dominance, online harms, disinformation and illegal information. GDPR can be built on and that may happen. But here in the UK when it comes to policymakers, experts and politicians there are very varied levels of engagement and sophistication among that community. Some get it. Many others don’t.

So I would make a plea - we need more experts, more brains in this area.” Andrew Beckett is Kroll’s leader for its Cyber Risk practice in EMEA and began his career at GCHQ. He wondered if the modus operandi of the traditional UK regulator works with Big Tech: “When it comes to stovepiped monopolies such as the utilities, our system can be effective. But tech is different. It concerns me that regulators must work out how to support the new, disruptive tech businesses. It should be far easier for them to reach the market quickly and make a difference than it currently is.”

Luciano Floridi is Professor of Philosophy and Ethics of Information and Director of the Digital Ethics Lab at Oxford University. He is one of the leading thinkers considering the effects of tech in our lives and is clear about its all-encompassing nature. He agreed that tech is sui generis when it comes to regulation and believes Big Tech is taking over 20th-century sovereign power but without any true accountability. The counterpart of political accountability - voting in a democracy - is competition in business and that is lacking. “It’s a habitat, an ecosystem, a landscape,” he said. “You don’t lean on tech and the internet the way you do on radio, TV or a newspaper. Mark Zuckerberg wants us to think of him as half newspaper, half telco. No. That’s just too convenient. What he provides is a public square and that’s a different story. You cannot shout whatever you want in public space."We cannot accept that it’s a matter of online versus offline harms. That is so 1990s. It’s not bullying in the school classroom as opposed to bullying on Facebook. There is no longer any divide." He even provided an equation to illustrate this - “Online+Offline=Onlife.”

“The regulatory baseline is what kind of a society do you want to live in,” he continued. “So these are ethical questions. Basic principles. The answer when Big Tech says it’s moving too fast to regulate and that we’ll never catch up is we are going to tell you where to go. Well, great if you can get there fast - the speed is up to you - but we want a say in the direction.”Benjamin Barnard, head of Tech Policy at the Policy Exchange think tank also wondered about how the government had its own house in order when it came to tech and use of its vast troves of data. “Government has a role as a regulator but what is its proper role in all this as far as its own huge data store is concerned?” he asked. “There’s a newly published National Data Strategy and DCMS has lost responsibility for cross-government data to the Cabinet Office but the implications of this for the private sector are not yet clear.” There was a sense, expressed by several panel members that the pace of true innovation from Big Tech was now slowing as they sought to consolidate their dominant positions. In short, the tech revolution of the last twenty years has brought a tide of competition and innovation that has disrupted many industries.

However that tide is now starting to go out, and the new landscape is less competitive than what went before. “They want to slow things down now,” said one-panel member. “They put up kill zones, dig moats, erect barriers. A lot of the real innovation is now coming from China - such as in the area of facial recognition - and it’s scary. But they don’t have to worry about regulation.”

"People actually trust tech companies more with their data than they do government"

Kathryn Parsons was one of the founders of Decoded which aims to increase digital literacy. She seemed a lone voice in the defence of the tech world. “What worries me is you really don’t want policy made in a fearful way that hits three years too late,” she said. “People actually trust tech companies more with their data than they do government. I sit on the board as a non-executive at BEIS (Business Energy and Industrial Strategy, a government department) and people in government are among the least digitally skilled groups of individuals. Certainly, big tech companies want growth, scale and as much data as they can get. But it won’t do just to write them off as evil.”

Don’t Be Evil

One thing is for sure. Big Tech will not be a passive agent in any new regulatory environment. Eric Schmidt - when he chaired Google - famously noted: “I wake up in the morning and I fight regulation. It’s what I do. It’s my job.”

Google, Amazon, Microsoft, Facebook, and Apple are among the biggest individual corporate lobby spenders in Brussels. Their most recent lobby declarations show a combined €21 million spent lobbying the EU. This outspends the automotive sector - traditionally the one with deep pockets - by 300% Schmidt also famously boasted of Google: “We know where you are. We know where you’ve been. We can more or less know what you’re thinking about. ” Not even an authoritarian and efficient government like the one in China could say it actually wields that power, as much as it may wish it did. But in the West such levels of power tend to be accountable via the ballot box.

It’s fascinating to wade through the 450 odd pages of responses to Professor Furman’s request for evidence to his Digital Competition Expert Panel. Rarely a light read it explores the deep complexities of the debate very well and it must be said makes alarming reading for a layperson relatively unconcerned by what is happening beneath the digital surface as he/she shops on Amazon while working from home or posts some amusing pictures on Instagram. You can read it here.

At opposite ends of the spectrum are the contentions of the Daily Mail’s owner DMG Media and the American Chamber of Commerce in Europe. On the one side are accusations of predatory and destructive business behaviour that threatens plurality of speech and the foundations of our democracy on the other a “there is no problem here.” If the ex-editor of the Daily Mail, Paul Dacre, really does become the chairman of OFCOM, as has been mooted, it could make for very interesting times.

Meanwhile, to return Stateside, the US House Judiciary Committee produced its report in early October. Its conclusion included the following: "To put it simply, companies that once were scrappy, underdog start-ups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons."

The discussion was attended by:

• Benjamin Barnard, Head of Technology Policy, Policy Exchange

• Andrew Beckett, Managing Director and EMEA Cyber Risk, Kroll

• Kate Davies, Director of Strategy & Policy, Ofcom

• Erickson Davis, Managing Director, Head of European Equities, KBW Europe

• Dr Karen Elliott, Associate Professor, Newcastle University

• Luciano Floridi, Professor of Philosophy and Ethics of Information and Director of the Digital Ethics Lab University of Oxford

• Matthew Gwyther, Partner, Jericho Chambers (Rapporteur)

• Simon McDougall, Deputy Commissioner – Regulatory Innovation and Technology, Information Commissioner’s Office

• Eithne O’Leary, CEO, Stifel Europe (Host)

• Chi Onwurah, Labour MP for Newcastle upon Tyne Central and Shadow Minister Digital, Science & Technology

• Kathryn Parsons, Founder and CEO, Decoded

• Robert Phillips, Founder, Jericho Chambers (Chair)

• Zahra Thomas, Banking Standard Board