Comment by mabbo | Hacker News Reader

Comment by mabbo | Hacker News Reader

There's precedent to this in the USA. The US Government once passed regulations that caused one of the largest companies in America to break up into three smaller companies. Today those, three companies are entirely independent, employ over 400,000 people combined, and have a combined net work of over $400B.

Those companies are Boeing Aircraft (153k employees, $244B market value), United Technologies (202k employees, $148B market value), and United Airlines (88k employees, $33B market value).[0]

What most people perceive as a threat to the market is when one company takes over an entire single market. And that is a problem, no doubt. But in the case of Boeing, the problem was that one company had such an advantage vertically- lose money on planes in order to make money on shipping, or vice versa, as needed. It meant it could win in whichever market it wanted to and slowly come to dominate all of those markets. The synergies of doing it all internally meant it could win at everything.

If one uses that situation as a precedent, one can start to see the parallels in many of the FAANG companies today.

[0] "The Air Mail Act of 1934 prohibited airlines and manufacturers from being under the same corporate umbrella, so the company split into three smaller companies – Boeing Airplane Company, United Airlines, and United Aircraft Corporation, the precursor to United Technologies." https://en.wikipedia.org/wiki/Boeing

The problem is this type of vertical splitting doesn't solve the problem of large tech companies. It's like treating a burst appendix with a kidney transplant.

The problem of Amazon is that it is effectively the only online shopping place, and thus can act as a Monopsony in hiring it's workers for warehouses, splitting AWS out of that doesn't fix that problem. Maybe you could require that distribution centers be owned by separate companies. This might work but locally each Center would still be a Monopsony and thus cause the same problem. Maybe if you capped the size of distribution center you could force lots of smaller ones to be built, but at this point I worry that you are going to end up making shipping slower and more expensive.

The problem of Google is they are very dominate in the Ads space splitting out the Ads portion into another company would not solve that. Facebook's problems is everyone has put their data in Facebook has friends in Facebook and feel compelled to keep using it. I don't see how splitting up the company into, Instagram, What's App, and Facebook solves the network effects of those apps.

Splitting up tech companies is not a punishment to make the CEO feel bad or change their ways. It is a technique to change how we need the market works to benefit the large population. As such we need to think about how to split them, the effects, and most importantly if the effect achieves the intended result.

If we had a progressive corporate tax, I think all the problems would sort themselves out.

You want to build a trillion dollar company? Fine. Corporate tax rate of 50%. You're a small business with less than $1M in revenue. Cool. Corporate tax rate of 0%.

Big companies will break up to take advantage of the tax code. Problem solved.

Instead, the bigger you are, the harder you can lobby for tax breaks. Currently, if you're a $1M company, that sucks. You pay 20%+. If you're Amazon, you pay $0.

I agree 100% and have long felt this is the right approach. Basically the bigger you get, the harder it gets to keep getting bigger.

I feel like all that will create is "partnership contracts" where a large company will be split into the "ideal" size tax-wise while still being run by an "advisory board". Compensation gets interesting at that point though, so many its an interesting idea.

a constellation of partnerships happening through more tangible corporate boundaries sounds much better. right now it seems to happen in unclear ways, and I assume is much less observable from outside forces (e.g. Sidewalk Labs & Google & Intersection, etc.)

What you propose break economies of scale which are often needed to do something cheaply.

Netflix, Amazon, Boeing, Verizon, these companies are already dodging the regressive taxation we have. How will we enforce progressive taxes?

Perhaps actually funding and staffing the agencies that enforce it?

The IRS is pretty awesome and incredibly underfunded, yes.

But we could simplify the tax code... The bigger the surface area, the easier it is to find a vulnerability / loophole. And anymore, the tax code is basically being written by BigCos to protect their interests and provide breaks for themselves.

Enforcing a tax code that's 20-feet tall when printed out when companies are as complicated as they are -- it's a wonder anyone pays taxes. It would take years in court to figure out what a company honestly owes.

If it's simple -- you make x profit or y revenue -- then you pay z dollars -- for any public company, good luck grossly cheating that.

People always ask this as if it's impossible to change laws or have agencies that actually want to follow through on their missions. As if corporations are so devious and brilliant they are unfindable. It's just not true. If you vote for people who actually want taxes, the enforcement takes care of itself. It works the exact same the other way, because these people gut agencies and replace them.

The issue is not enforcement. That would suggest the issue is tax evasion; which it's not.

I agree it should be harder the bigger you are, but it's not the tax rate. Right now, FAANGs either run a 0% profit margin, or book their profits to Ireland.

Changing tax rates don't fix either of those.

Tax on worldwide profits, credit foreign taxes paid. You know, the same rules as for mortal non corporate persons.

Sales/Use/VAT tax for payments to wholly owned subsidiaries.

I think this is an absolutely incredible idea if it could actually be made in a way such that the taxation and other factors could not be easily avoided. But there's one unspoken problem with taxes and particularly corporate taxes.

Large companies are perceived as being proportionally beneficial to the US economy. If you made the US a place that was meaningfully undesirable for corporations, they can leave. And even if these companies did not leave, you would strongly deter new companies. For instance imagine you were able to create your system such that it could not be simply avoided through various typical methods. So big companies really did risk losing up to 50% of their net. How long would it take before e.g. YCombinator started requiring new companies to incorporate in e.g. Hong Kong (or wherever) instead of the US? Perhaps even moving the entire operation abroad.

So even though I think this would be an absolutely incredible idea, I do not think it would work or be meaningfully considered in practice.

generally, large corporations (and wealthy people) do not, and will not, leave the US because of taxes. people want to live here and companies want to do business here. badly. but they also want an unfair advantage and will say anything (like "we'll just take our toys and leave!") to try to get it.

It was actually common, they still do business here, before the tax law change they would do an inversion so they'd no longer be taxed by the US on their foreign profits (US had worldwide taxation while most every other country did not).

Here's an article about 2016: https://www.bloomberg.com/graphics/tax-inversion-tracker/

US citizens can't avoid worldwide taxation, but they certainly move states to avoid taxes.

yes, our tilted tax system let them do that without any repercussion. not only can they keep doing business as they always have, they get extra incentive on top. let's just equalize the tax treatment of individuals and corporations already.

Only profits are taxed, and they're only vaguely related to revenue, and both profit and revenue are vaguely related to whether a company is a monopoly or not. Profit is an okay-ish measure of how much a monopoly a company is, but not great. Comcast and Amazon turn profits of ~10 billion. Apple is 60 billion, microsoft is 16 billion. Amazon is much more of a monopoly than either of those, and Comcast enjoys a much stronger natural monopoly as well. The industries are just different sizes and the supply/demand curves are different, and for some reason people are just super willing to pay an absurd premium for Apple products.

A progressive corporate tax still makes some sense, and there's basically no excuse for their taxes being less simple than a citizen's. However active management is still required. Markets are fast and efficient but they are often dumb.

> Amazon is much more of a monopoly than either of those

In what market are they a monopoly? Seriously. Amazon retail competes with walmart and target both of which offer online sales and AWS competes heavily with Azure and Google cloud. In what way is Amazon a monopoly?

Wow. I've never seen this solution before and am a fan. I'm a big proponent of taxing negative externalities and this is definitely an easy one.

I don't think the relationship between monopoly behavior is directly correlated with size. Your solution is a "one size fits all" approach will would probably cause problems for big markets with non-monopoly players.

A million of revenue isn't a lot.

Taxes don't solve these problems. In your setup, companies would "break up" but only on paper to take advantage of tax code. Outside of papers filed in Delaware no one would even know these were separate companies. Many billionaires often have few 100s LLCs filed in such a complex graph of ownerships that would take days to decipher.

> Taxes don't solve these problems. In your setup, companies would "break up" but only on paper to take advantage of tax code. Outside of papers filed in Delaware no one would even know these were separate companies. Many billionaires often have few 100s LLCs filed in such a complex graph of ownerships that would take days to decipher.

An essential point any plan like the GP's would be to make conduct like you describe illegal, and make sure those laws are adequately enforced and have enough teeth to be a deterrent.

Taking morality out of it for the time-being, taxes serve as an additional barrier to entry for smaller companies; these tech giants have hordes of lawyers and accountants to make sure they pay very minimal taxes (if any). These companies are also multinational, so they can keep money overseas and search for tax havens globally---a choice smaller companies don't have.

The point is: you can give big companies whatever rate you want, but they're in the strongest position to circumvent it, and they will. The better choice is to lower taxes substantially and give the smaller companies a chance to accumulate capital faster, so they can compete.

https://en.wikipedia.org/wiki/Laffer_curve

Splitting AWS out of Amazon isn't the thing that really matters though so much as preventing Amazon from operating a store AND a marketplace on the same site, not to mention having its own product lines. If you want to sell something online and you're not already a household name then you're at a big disadvantage if you're not on Amazon, but if you do sell there then the price is giving Amazon insight into your business. And if Amazon chooses it can basically bury you by promoting your competitors or worse, selling its own copy of your product.

This is very insightful. When one considers how a monolith application could be split into a collection of microservices but STILL serve the same user experience, it becomes evident how trust-busting won't affect meaningful change.

> Splitting up tech companies is not a punishment to make the CEO feel bad or change their ways. It is a technique to change how we need the market works to benefit the large population. As such we need to think about how to split them, the effects, and most importantly if the effect achieves the intended result.

What exactly is that intended result?

In my opinion, Amazon as a platform has leveraged network effects to be both a monopsony and a monopoly: in essence by aggregating both consumers and suppliers, both sides of the transaction feel compelled to use Amazon as a middle man.

We also broke up Ma Bell back in 84 and it looks like they are on their way to fully reuniting as an even larger monopoly.

https://i.imgur.com/rMFqmbt.jpg

https://www.motherjones.com/politics/2019/03/att-time-warner...

That's a different failure. The government should have never allowed for the subsequent mergers.

The price of liberty is eternal vigilance.

I agree. I don't understand the point of temporarily busting monopolies. With Bell, forcing them to diversify seems to have only made them stronger.

Ma Bell wasn't created naturally at all. It's monopoly status was granted by the federal government. This is fundamentally different from Facebook, Amazon, etc. If anything, the large ISPs like ATT, Verizon, and Spectrum should be looked at, but solving the problems of ISP monopolization will take a lot more than just breaking up territorial monopolies into smaller territorial monopolies.

Why does it matter whether a monopoly is "natural" or not, let alone that the definition of "naturally" is sort of laughable given the legal framework put in place for our government is the economy in the first place? Just as you get a lot of government run monopolies with pure socialism, you get a lot of "market-driven" monopolies with pure capitalism. Both should be broken up.

The point is that they're caused by different processes, and the steps to ensure that it doesn't happen again after you break them up are also very different because of that.

Imagine how much of a larger monopoly they would be now if they were never broken up in the first place.

The US also broke up Ma Bell in 1956, forcing the spinoff of Bell Canada and Caribbean operations, and before that in 1925, breaking off other international operations into ITT.

How would this work in practice though? Eg Amazon. Bezos is a major shareholder. Imagine splitting AWS from the retail arm, which I guess would be a sensible split point. If Bezos controls both, then what would really change?

I'm not critical to the idea nor supportive - I'm just curious to learn more.

That was the case when Standard Oil was broken up and it's not a problem. The retail arm becomes free to get their cloud computing needs from others -- say Azure or Google. Bezos can't force them to get a worse deal at AWS simply because he owns the AWS. A lot of the arguments for breaking up companies come from this. It can make the components more efficient once they're freed from the shackles of being locked in. Likewise, the crappy parts of the big conglomerate can't coast on having a guaranteed customer. This is the whole point of capitalism. Monopolies are the anti-thesis of capitalism.

Except the Standard Oil break-up was considered a failure. The new companies all reported back to Rockefeller.

https://www.npr.org/sections/money/2019/02/15/695131832/anti...

I don't think it's fair to say the break-up was a failure even if in the near term they still coordinated. In the long term, the oil companies competed with each other. Even if Rockefeller became wealthier, it only adds to the original point: breaking up monopolies unlock value for shareholders and increases efficiency. I highly doubt anyone in the main stream schools of economics would call the Standard Oil breakup a failure. That Rockefeller wasn't punished is immaterial to the breakup itself. The point here isn't to punish Bezos or anyone else. It's about efficiency and fairness. In that sense, that goal was accomplished. No single oil company today wields the power that SO once did.

Also, those guys meeting up together at Rockefeller's house to coordinate would likely be illegal today and probably was back then too.

Did you read her proposal? There would be a structural separation from distribution and first party goods. Just like railroads couldn't own interests in the commodities they were transporting, Amazon couldn't operate a market place and also own private label brands.

https://medium.com/@teamwarren/heres-how-we-can-break-up-big...

So what about Walmart who does double Amazon in revenue AND has their own private label brands? They have so much retail power they are known to get manufacturers by the balls and make manufacturers accept the cost they want instead.

or Costco? $130B in revenue and I dont hear clamor for Costco to be split from Kirkland.

By this logic Apple shouldnt be allowed to have Apps in its App store, right? Or are they banned from selling first and third party phone cases in store?

CVS shouldnt be allowed its own generic drugs.

At what point does this become "companies arent allowed to make/sell their own products if they also resell other companies products."

And lets be serious: you want to take away Google's ability to choose the ranking of results? Thats their entire company's purpose. People go to google because they like the order the results come in. If google starts delivering bad results, that opens opportunity for other companies.

> Warren's team said that the proposal would also apply to Apple. "They would have to structurally separate -- choosing between, for example, running the App Store or offering their own apps,

Since multiple people are asking this: it would apply to Walmart and Costco under her proposal because they both have $25B in revenues.

This is just the first step in a new conversation about confronting monopoly in America. There hasn't been a bill written yet.

Walmart isn't a platform (excluding Jet.com). They purchase goods (take on risk) prior to selling them.

Amazon is a marketplace meaning the seller takes on all of the risk and pays Amazon for the privilege. Amazon then uses the data that marketplace generates to undercut the sellers with their private labels.

Relevant text:

> ... legislation that requires large tech platforms to be designated as “Platform Utilities” and broken apart from any participant on that platform. Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as “platform utilities.” These companies would be prohibited from owning both the platform utility and any participants on that platform. Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties.

Where is the demonstrated consumer harm that warrants monopoly treatment? Adding private labels increases the amount of selection consumers have.

You’d think we would hear more about it since basically every physical retailer owns their own brands that they sell in their own marketplaces already.

As Elizabeth Warren makes clear in her post, "demonstrated consumer harm" isn't the only justification for antitrust action. We can't demonstrate the innovation that would occur in a competitive marketplace, but we break up monopolies with the faith that it will. This was the prevailing view until the late 20th century. Hopefully we'll get back to it.

How would this be applied? I feel like nearly every grocery store chain in the USA has it's own brand competing with same 3rd party brands they carry. Whole Foods had "360", Walgreens has "Nice". It's been too long since I've been to a Safeway, a Lucky's, a Ralph's, etc but it became pretty clear that each one had it's own brand. And let's not forget Trader Joe's which is almost 90% all it's own brand.

From the Warren post:

Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as "platform utilities." … These companies would be prohibited from owning both the platform utility and any participants on that platform.

Thus Safeway would be exempt from the regulation because (a) they do not offer an online marketplace and (b) they do not connect third parties (but instead act as an intermediary).

Similarly, it appears that only Amazon Marketplace, not the retail arm of Amazon, would be affected by this regulation.

That sucks because every company that actually cares enough about its customer experience eventually vertically integrates, and it results in a better experience.

For instance, Apple makes hardware, software, services and they all fit together perfectly. Tesla distributes cars in addition to making them, leading to a better buying experience.

Everything Amazon does is in-line with this principle as well.

Is the end game laws similar to what we have for alcoholic beverages and cars? Where distribution and manufacturing are artificially separated?

One of the perceived risks of breaking up the tech giants is that they will be at a competitive disadvantage to their foreign peers. The degree of competitive risk at the time of Boeing's split was perceived as lower. As long as Americans are ok with losing some areas of advantages, they should move forward.

There are other regulatory tools to level the playing field with foreign companies.

Dems/libs are fools when it comes to this. They never have the backbone to take on foreign Govts. I'm totally against this because we are in a globalized world and these companies need to be large and strong to out-compete with others across the world.

Saying "we are in a globalized world" makes it seem like that is just the nature of things and not the outcome of specific policies taken by primarily the US in the post-WW2 era. Corporate concentration is against capitalism, and dealing with global competitors can be dealt with with the tools we already have, like the current administration is with trade policy.

It is not as simple as it looks. Some degree of globalization already existed for tens of thousands of years, whether through colonialism, Asia-MiddleEast-Europe trade and many more. Even though there are ups and downs in the cycle of regional/global trade, it has continued to move towards more integration, especially due to technological innovations seen in the past 500 years.

Nations that decide to close down in certain areas, may find themselves in a competitive disadvantage to peers making use of data, economies of scale, technology, labour, etc. This is something we have seen happen in history.

In the US yes, but the US companies would be at a disadvantage to their foreign conglomerate counterparts in foreign markets.

Anti-competition law and it's interpretation has changed drastically in the US after Robert Bork's book 'The Antitrust Paradox' (1978). Reagan administration used it as their bible.

Laws are fluid and can change back to respond to new situations.

Yes. Broadly speaking, the law went from looking at concentration as a bad thing on its own to only looking at whether consumer prices would be impacted. The prevalent idea now is that mega-mergers will reduce prices because of economies of scale.

It also doesn't help that there seems to be academic corruption or at least conflicts of interest driving the new interpretation. https://www.propublica.org/article/these-professors-make-mor...

The law was not changed. The interpretation of the law was changed, as you describe, initially by Republicans but Clinton and Obama maintained the Republican interpretation.

Probably why a company like amazon has achieved elusive scrutiny is that they give consumers cheapest prices but squeeze suppliers. Suppliers most definitely hate amazons dominant position.

This is classic example of short term optimization. Sure, prices can be lower now but it might stagnate there for long time because there is no competition allowed. If it is technologically feasible, competition would find the global optimal point eventually in longer term but monopolies will settle in local minima.

I think it was Stigler, the nobel laureate, that had done quite a bit or research on monopolys and the effect of mergers and acquisitions on jobs.

https://promarket.org/stigler-monopolies-competition-tough-w...

It was back in 2001 that I remember reading a newspaper article on this

But the companies will all still have the same owners. So one wonders if splitting them actually helps with anything?

I don’t know about “help”, but it will still change something - over time the different management teams will diverge (in some sense), even if the shareholders stay mostly the same.

Per Das Wiki [1]: "The government had little choice but to return service to the commercial airlines, but did so with several new conditions. The Air Mail Act of June 12, 1934, drafted at the height of the crisis by Black (and known as the "Black-McKellar bill"), restored competitive bidding, closely regulated airmail labor operations,[n 28] dissolved the holding companies that brought together airlines and aircraft manufacturers, and prevented companies that held the old contracts from obtaining new ones."

[1] https://en.wikipedia.org/wiki/Air_Mail_scandal#Effects_on_th...

It's a legitimate concern. After Standard Oil was split up, Rockefeller still arranged meetings of the heads of the now-separated companies.

However as long as the companies are well regulated and publicly traded, I think the concern diminishes over time. Each manager has an incentive to look out for their own shareholders, their own bonuses. And if activist shareholders suspect one company is subsidizing another, they can happily buy the undervalued company, raise a ruckus (and maybe some lawsuits), and profit when the subsidies end.

What about Ma Bell?

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