The Facebook Monster... What Do We Do About It?

Let's not wait for President Beto to get to the White House before taking action on Facebook

First a caveat: I don't really "get" Facebook and my page is pathetic and 95% of the time I just use it to promote my DWT posts. I kind of feel sorry for people who think Facebook posts are a reliable source of information about politics or, for that matter, for anything of substance. Last week, Politico published a feature by my old pal, Matt Stoller, who formerly worked for Alan Grayson and then Bernie Sanders and now works at the Open Markets Institute-- Democrats Need to Tame the Facebook Monster They Helped Create. "Breaking up the social networking behemoth is one option," he wrote. "But first, Democrats need to start pointing the finger at regulators who won’t admit there’s a problem." We'll go further, but first let me put something in the back of your mind about the money Facebook spreads around in Congress.

The top graphic-- lobbying isn't what I want to get into, aside from noting it. The bottom graphic is the one I want to draw more attention to. In the last cycle, Facebook spent over a million and a half dollars in bribes-- legalistic bribes disguised as campaign contributions, $308,600 to Republicans and $1,232,217 to Democrats. These were the dozen top recipients among House members and House candidates:

• Beto O'Rourke (New Dem-TX)- $75,005
• Jacky Rosen (New Dem-NV)- $29,387
• Kim Schrier (New Dem-WA)- $27,022
• Max Rose (Blue Dog-NY)- $24,385
• Josh Harder (New Dem-CA)- $21,883
• Josh Gottheimer (Blue Dog-NJ)- $18,000
• Steny Hoyer (New Dem Daddy-MD)- $16,400
• Lauren Baer (D-FL-- lost election)- $16,320
• Kirsten Sinema (Blue Dog-AZ)- $16,185)
• Zoe Lofgren (D-CA)- $15,400
• Nancy Pelosi (D-CA)- $15,400
• Kevin McCarthy (R-CA)- $15,000

One Republican: the House minority leader-- and an awful lot of Democrats with reputations for selling votes and influence. Also... no progressives; just arguable corruptible conservatives. So why was Facebook ready to spend so much money to buy friends in Congress? Stoller gets right to it: "If you are thinking about Facebook or questions of political economy, an important and telling hearing took place recently in the House Energy and Commerce Committee. Democratic leaders Frank Pallone and Jan Schakowsky did an oversight review of Facebook’s regulator, the Federal Trade Commission, with all five commissioners, including Chairman Joe Simons, advancing ideas on how to address privacy rules in America today. And yet, sitting in that room, you’d have no idea, except for a few people in the audience holding protest signs sharply dismissed by Schakowsky, that there is deep anger from all over the world toward Facebook. This includes calls from multiple former corporate insiders, such as co-founder Chris Hughes, to break up the company as a monopoly. FTC Chairman Joe Simons didn’t seem to notice. He offered a self-satisfied observation about his commission’s work, its 'vigorous and effective' programs, and its 'significant' impact to keep markets open and free. But it wasn’t just Simons who was out of touch. The Democrats offered little criticism of the commission, and actually called for the FTC to get more money and more authority. 'Too often,' Pallone lamented, 'the FTC can do little more than give a slap on the wrist to companies the first time they violate the law.' What Pallone ignored is that Facebook has broken the law, multiple times, and the FTC has authority to act. But the commission just won’t. Instead of acknowledging the unwillingness of regulators to do their jobs, Pallone is rewarding the agency for failure."

Pallone is a notorious crook, one of the most corrupt men creeping around Congress. He takes immense sums of money from the companies and industries his committee oversees, more, in some cases, than anyone else in the history of Congress. Pallone should be rotting in prison, not chairing hearings. He'd taken $12,000 from Facebook since 2012. Yet he didn't think it necessary to recuse himself from chairing the hearing.

Pallone and Schakowsky are sophisticated policymakers who understand there are serious problems with Facebook, yet even they cannot seem to recognize that the problem is the regulators in charge of the problem aren’t doing their job. How did we get to the point where people who could actually do something about this problem don’t seem to realize their own power to address the situation in the first place?

The rationale for Pallone to avoid FTC failures is clear. For one thing, Democrats want to pass a federal privacy bill which would place rules on companies that handle personal data. They need new authorities and a regulator to implement such a bill, and the regulator on hand is the FTC. So they can’t very well acknowledge that the regulator is an institutional catastrophe, and at the same time call for more of it. (It brings to mind the old joke, “this restaurant’s terrible, and the portions are so small.”) The second reason Democrats have a problem pointing the finger at the FTC is because the failures at the agency largely happened under the Obama administration.

And yet, recognizing that the privacy problem is really because of failures at the FTC is an essential first step to solving it. Facebook doesn’t encompass everything that’s wrong with our privacy regime, and clear rules around privacy wouldn’t address all of what people fear about Facebook. But generally speaking, Facebook and Google are the best examples of how business models based on pervasive surveillance structure our culture.

Facebook makes its money from behavioral targeted advertising. This means tailoring ads to each user based on what it knows about them, generating traffic through incendiary content so it can have a lot of ad slots, and then placing ads in the least expensive ad slot possible. This means the company has the incentive to collect as much personal information about each user as possible, and it has the incentive to prioritize poor quality content. Users and advertisers have nowhere else to go to an increasingly poor quality product, because Facebook has bought up its competition. Addressing a broken market structure like this one is the kind of problem the FTC was set up to address.

A a result, Facebook is now dominant in the social networking market. If you don’t like Facebook’s main product, which is an increasingly bad consumer experience, there is, as Senator Lindsey Graham made clear when questioning Mark Zuckerberg, no alternative not owned by Facebook.

The FTC is in charge of blocking anti-competitive mergers, and perhaps the most consequential failures had to do with the mergers that enabled Facebook to become a monopoly. It bought Instagram in 2011 and WhatsApp in 2014. It bought Onavo, a spyware tool that allowed the company to surveil its competitors, watch their traffic and copy their best features. The FTC blocked none of these. The Democrats had a monopoly friendly posture during the Obama-era Democrats; it was an open secret that Sheryl Sandberg was likely to be in Hillary Clinton’s Cabinet.

Facebook’s model is also the result of lax regulatory choices that also happened under previous administrations. Facebook users weren’t always so apathetic about privacy. In the mid-2000s, there were broad, vibrant debates on the site about privacy. As tech entrepreneur Dina Srinivasan reminds us, Facebook beat its competitor MySpace by portraying its site as a safe space for college students, in contrast to the anything goes mantra of the existing social networking systems of the time.

From 2007 onward, in both the Bush and Obama eras, Facebook abused the privacy of its users and did not disclose its terms and conditions. In response to a massive user group titled “Facebook Users Against the New Terms of Service,” the company banned the use of Facebook in the title of groups. Marc Rotenberg from the Electronic Privacy Information Center routinely issued complaints and sued the FTC to get the commission to enforce the law. Finally, in 2011, the FTC and Facebook signed a consent decree, settling charges that the company’s practices were “unfair and deceptive, and violated federal law.”

Joe Simons, when he was appointed to run the commission in May 2018 by President Donald Trump, pledged to look back at mergers, to see if the FTC’s merger policy made sense. So far, Simons hasn’t bothered to follow through on his promise, though the FTC does have economists who spend their time attacking critics who engage in merger retrospectives.

Democrats are right that the FTC does have regulatory gaps, like the ability to issue fines on the first offense. And courts are often hostile. But they are wrong to chalk up failures to resource and authority limits. Violations of consent decrees have teeth. As Commissioner Rohit Chopra has noted, the FTC has powerful tools to address repeat offenders, including fines of roughly $40,000 per violation. Given that privacy violations usually number in the millions, a repeat offender that has signed a consent decree with the FTC is basically at the mercy of the commission. But since 2011, the commission has done virtually no follow-up or enforcement on Facebook (or Google, which signed a decree in 2011, as well). There are other levers, such as research capacity, and so-called Section Five authority to bar unfair methods of competition, but it hasn’t used those either.

The reason the FTC has done little is not because it lacks authority, but because its officials simply do not believe there is a problem to be solved. As the New York Times reported last year, the official in charge of the Facebook investigation, James Kohm, sees Facebook as a legitimate business offering free services, and doesn’t believe the company has violated its promises to the commission. And far from holding him accountable, Chairman Simons gave Kohm a Presidential Rank award. The FTC might kick a scam artist once in awhile, but when it comes to big companies, FTC officials don’t want to use the authority they have. They see themselves not as cops but as deal-makers.

...Unless Democrats are willing to take on this rotten philosophy at the FTC, offering more authority and funding without changing the leadership of the agency will make the problem only worse, for two reasons. One, suggesting the problem is a lack of money and authority is a built-in excuse for inaction to use what authority the commission does have. And as I’ve shown, it has a lot. If it didn’t, Facebook wouldn’t be willing to pay a large fine just for public relations purposes. Two, if the FTC gets extra money and authority, it won’t do anything with it. It doesn‘t believe in standing up to powerful businesses, and that’s not going to change until Congress starts kicking it in the teeth.

Democrats have been here before. In the 1920s, the FTC spent its time organizing price-fixing cartels among big businesses, angering anti-monopolists. And yet Democrats wanted to extend regulatory authority over the stock market, with no institution that could handle the rule-making and administration, except for a degraded FTC.

They pursued a two-party strategy. They were critical and hostile. In 1933, populist Democratic Congressman Wright Patman organized enough members of Congress to cut $100,000 from the FTC’s proposed budget (a significant sum back then). But they extended, grudgingly, its authority. Congress tasked the FTC with regulating the stock market, but micromanaged the agency by giving the commission virtually no discretion over how to do it. The next year, Congress further humiliated the FTC, creating the Securities and Exchange Commission to take power from the commission.

By 1936, the strategy worked. The FTC had nearly doubled the percentage of its budget dedicated to anti-monopoly work, and it pursued price discrimination cases against the most powerful chain store in the economy at the time, A&P, all the way to the Supreme Court.

This assertive anti-sloth posture became a core part of the Democratic Party mantra. Before and during World War II, leaders like Senator Harry Truman used aggressive oversight to humiliate and undermine badly performing regulators and cheating business leaders. They encountered much of the same nonsense we hear today about the difficulty of acting, but they didn’t fall for it. As Clifford Durr, a key actor involved in building war plants capacity to defeat the Nazis put it, “Complexity was not nearly so great a problem as reluctance to do the obvious and simple things.”

We don’t have to go back 70 years to find good examples of institutional creativity. In the 1990s, it was state attorneys general in Iowa and Texas who brought the first case against Microsoft. The FTC had earlier deadlocked on whether to do anything about the company, and the DOJ had negotiated a useless settlement in 1994. In 1998, the Senate, in a hearing chaired by Orrin Hatch (and organized by Trump’s current antitrust chief), helped encourage the Department of Justice to join the states and bring the famous case that nearly split apart the company.

Today, there are officials acting to constrain Facebook, both abroad and in Washington. They just aren’t located at the Federal Trade Commission. Washington, D.C. Attorney General Karl Racine recently brought a consumer protection lawsuit against the social networking giant for its breaches of privacy. I was in the courtroom listening to some of the arguments last month, and I watched Facebook’s lawyer argue the prosecutor was out of step with the key regulator of privacy in America, the FTC. There are more state officials investigating, and you can be sure Facebook will continue to point to the FTC as its shield.

There’s a crisis right now, and Congress must step in.

On an institutional level, it can move money to Racine or other state attorneys general who have the willpower but not the resources. It can and should investigate the crisis of legitimacy at the commission, perhaps cutting the budget for travel so commissioners don’t jet off to Europe or Japan for fancy antitrust conferences, or increasing the budget for honoring Freedom of Information Act requests the commission ignores. To address the problem the FTC won’t, Congress should break up Facebook through statute, or be detailed and explicit about what to do to the social networking space rather than deferring to failed regulators. More broadly, it’s time to start imagining what a functional FTC, a functional government, and in turn, a manageable Facebook, might look like.