Welcome to The Corner. In this issue, we discuss Big Tech’s response to Russia’s invasion of Ukraine; Sandeep Vaheesan’s testimony on how lax anti-merger policy has fueled ongoing inflation; and Barry Lynn’s testimony connecting consumer-focused competition philosophy and the demise of independent American businesses.

Google and Facebook Scramble to Clean Up Ties With Putin: A Talk With Justin Sherman

Luke Goldstein

In the days after Russia's invasion of Ukraine, Big Tech corporations swiftly froze Russia out of the global communications systems with far-reaching consequences for Russian users and President Vladimir Putin's regime. Under pressure from Biden administration sanctions, Google and Facebook cut off advertising to RT and other Russian state media, Apple suspended all product sales in the country, and other tech firms closed their offices in Moscow.

Justin Sherman is a fellow at the Atlantic Council's Cyber Statecraft Initiative and co-founder of Ethical Tech, a research initiative at Duke University. His work covers both the national security risks posed by Big Tech and these corporations' often close relationship with Putin’s government. Open Markets spoke with Sherman about why the U.S. tech industry cozied up to Russia before the conflict, the implications of its aggressive response to the invasion of Ukraine, and the national security threats posed by the centralization of data collection.

What's the backstory of Big Tech's relationship with Russia that set the stage for how these corporations responded to the war in Ukraine?

The Kremlin began to increasingly see the internet as a threat to the regime's security over the course of the 2010s, and moved to limit the open internet and place controls on foreign technology companies in Russia. Most relevant to today, the Maidan revolution of 2014 in Ukraine was heavily organized on Facebook and Twitter. That really put the nail in the coffin, and Putin now sees these platforms as tools of the U,S. government.

Could you explain Russia's "landing laws" and why they're so important as a tool for strong-arming the Big Tech companies?

The landing laws were passed last year and said that any foreign internet company operating in the Russian market with more than 500,000 daily users must open a representative branch within Russia's borders. It's been the main tool of state control. Once they put employees on the ground, the Russian intelligence services have been able to go after them aggressively and pressure these companies to do what they want.

What role did the tech companies play in Russia's most recent elections?

The Kremlin told Apple and Google to remove Alexei Navalny's opposition party app from the App Store, and both companies initially refused. Putin then called representatives from Apple and Google to the Russian parliament and threatened them by listing the people they would jail from their offices in Russia. The Kremlin sent armed masked thugs with guns to hang around the Google Moscow office until both companies removed the applications, which they did. The message was clear: If you don't get in line, we're going to put the pressure on where it hurts.

What's shocking is that after the intimidation tactics during the election, the general response from the companies was, do nothing, keep our heads down and it'll be fine. That was naive and stupid and puts its employees at physical risk.

What are the motivations and risks tech companies are balancing in their response to the war in Ukraine?

They're incredibly cautious about the sanctions and don't want to be seen as not complying with Washington's policies and face potential regulatory action. But I think we want to be careful about praising the individual decisions the companies made, such as shutting down ads to Russian state media, just because this time they aligned with the international community. The response has certainly shown just how much power the companies have over global communications when there's a conflict of this nature.

What national security risks does the U.S. have to manage with regards to the tech platforms and their data troves on U.S., European, and Ukrainian citizens?

The Russian security apparatus right now is already monitoring internet chatter, media posts, because they are fixated on figuring out who's organizing opposition online. The tech platforms are the gatekeepers deciding what information stays and what is taken down. Their policy decisions shape the communications space, and they can make good policies to reduce risks to Ukrainians or amplify them.

Then there's the problem of centralization. The risk is that these companies have a ton of data on people's lives. Data centralization of this scale is dangerous, and it would be far better if the ecosystem was more segmented.

Vaheesan Testifies on Monopolists’ Role in Driving Up Prices and Inflation

Open Markets Legal Director Sandeep Vaheesan testified Tuesday before the House Financial Services Committee in its hearing on “The Inflation Equation: Corporate Profiteering, Supply Chain Bottlenecks, and COVID-19.”

Vaheesan described the ongoing inflation in the U.S. as largely a story of corporate pricing power. In a range of industries, CEOs and CFOs have boasted that they have exercised their power to raise prices and boost profits and profit margins. Vaheesan blamed the problem on the radical relaxation of antitrust enforcement under President Ronald Reagan.

Vaheesan added that consolidation has also seriously degraded the U.S. industrial base in ways that threaten national security. He concluded the pandemic has exposed the exceptional pricing power of many corporations and the lack of spare production capacity to meet modest increases in demand for certain goods and services.

You can watch the hearing here or read Vaheesan’s written testimony here.

Lynn Testifies on Monopolists’ Role in Destroying Independent Business

Open Markets Executive Director Barry Lynn testified last week before the House Small Business Committee at its hearing on “Competition and the Small Business Landscape: Fair Competition and a Level Playing Field.”

Lynn detailed how the right to engage in independent business is fundamental to American democracy, and has been a primary aim of U.S. policy since the Declaration of Independence. He also discussed how the modern federal antitrust law — beginning with the Sherman Act of 1890 — was designed specifically to protect what Sen. John Sherman called the “industrial liberty” of the individual American.

Lynn explained how the consolidation of recent years resulted in the expropriation of the businesses of millions of America’s entrepreneurial families and farm families, and has disrupted basic political and social balances in our nation. He also detailed how such consolidation has radically reduced the opportunity to bring new and better ideas to market.

You can watch the hearing here or read Lynn’s written testimony here.

🔊 ANTI-MONOPOLY RISING:

Last week, Deputy Assistant Attorney General Richard Powers announced that the Department of Justice’s Antitrust Division would bring criminal charges for violations of Section 2 of the Sherman Act, which prohibits firms from monopolizing or attempting to monopolize markets. The change represents a significant departure from antitrust practice and policies, as a criminal charge for violation of Section 2 has not been pursued in over 50 years. Previously, the DOJ sought criminal penalties only for violations of Section 1 of the act, which involves price-fixing, bid-rigging, and customer/market allocation. (Mondaq)
Members of the House Judiciary Committee sent a request to the DOJ on Wednesday calling for an investigation into Amazon on charges that the company obstructed the committee’s 16-month antitrust investigation. According to the committee, Amazon lied about its practices involving third-party sellers and refused to submit information regarding those practices. The tech giant is accused of using data from third parties on its platform to give its own products an unfair advantage and unlawfully ranking its products above its competitors. (The New York Times)
The Wall Street Journal reported last week that the DOJ was investigating anticompetitive actions involving employment communications by poultry companies. The DOJ probe will focus on whether the actions by these companies were aimed at keeping worker wages down. Among the companies being investigated are Perdue Farms, Pilgrim’s Pride, Tyson Foods, George’s, and Sanderson Farms. (The Wall Street Journal)

📝 WHAT WE'VE BEEN UP TO:

Daniel Hanley authored a detailed report describing how 10 administrative agencies — besides the FTC and DOJ — can use their statutory powers to help prevent exclusionary, predatory, and unfair conduct in the marketplace. “In the face of congressional inaction continuing to impede comprehensive and long-lasting legislative solutions, this report aims to equip agencies … with clear guidance on their underutilized, but expansive, antimonopoly and fair competition powers. The regulatory scope of these agencies makes them essential facets of a robust antimonopoly agenda.”
Garphil Julien published a piece in The Washington Monthly about how Moscow’s control of supply chains could stymie America’s efforts to punish Putin for his war on Ukraine. “The problem with our sanctions regime is that Russia has crucial global monopolies, not only significant positions in energy, which are well known, but especially in the global fertilizer supply chain—which are considerably less well known.”
Barry Lynn was featured on a Wall Street Journal expert panel about global tech regulation, along with Larry Lessig, the author and Harvard professor. “If people have come to accept a certain platform as essential to their lives, then the conduct needs to be regulated to ensure that the platform treats everybody the same, provides them the same services at the same terms,” Lynn said.
The German magazine Zeit Online profiled Barry Lynn in a feature article titled “Ich Bin Ein Monopol!” The author of the article focused closely on Lynn’s pioneering efforts to shine a light on America’s monopoly crisis and to detail its origins in libertarian “Chicago School” economic theory.
Open Markets released a statement on a new report from the Treasury Department on the State of Labor Market Competition applauding the emphasis on the negative effects of coercive contracts but urging stronger action to protect workers. Common Dreams published the statement. “Now that the workshops and reports are finished, it is time for the administration to take concrete actions to protect America’s workers, such as a regulatory ban on non-compete clauses by the Federal Trade Commission.”
Open Markets signed a letter asking the FTC to closely monitor Microsoft's purchase of Activision Blizzard. The letter was mentioned by Law360, The Center for Digital Democracy, The Hill, and more. From GamesIndustry.Biz: "’Activision Blizzard is a substantial game publisher with an extremely popular roster of game franchises and a burgeoning customer base. Recent regulatory filings show that Activision has nearly 400 million monthly active users. If the FTC clears this merger, Microsoft will become the third largest gaming company in the world,’ [the statement] said.”
Phillip Longman and Garphil Julien were both mentioned in a Washington Monthly piece analyzing how stronger antitrust enforcement would strengthen communities. “Longman wrote, 'approximately 30 percent of the increase in hourly-wage equality that occurred in the United States between 1940 and 1980 was the result of the convergence in wage income among the different states.' In recent months, Garphil Julien, also of OMI, has noted in the Monthly that the fragility of global supply chains has come about mainly because of consolidation in the semiconductor industry that could have been prevented through regulation and antitrust enforcement.”
Open Markets’ report on monopolization of America’s food system from 2019 was cited in The New Republic. “According to a 2019 report by the Open Markets Institute, the Agriculture Department concluded in 2018 that JBS ‘ripped off U.S. cattle producers at three separate slaughter facilities by shorting them on payments for their cattle and, although the abuses were extensive, settled the claims for only a $50,000 penalty.’”
Garphil Julien spoke on Richard Levick’s “In House Warrior” podcast about the supply chain impacts that will result from sanctions on Russia. ““This is going to be challenging moving forward. We'll need to create an industrial policy that allows us to produce goods that make us less reliant on single nations — and we’ll need to come together with our allies across the globe to reduce international dependence on any one single country for any part of our supply chains.”
Johnny Ryan was interviewed on "’The Data Diva’ Talks Privacy” podcast by Debbie Reynolds. Discussion topics included “online publishing and the internet, holding organizations accountable for compliance with GDPR, explaining how ads on the internet work to policy makers and the role of enforcers, the need for litigation, the impact of lax Data Privacy and enforcement” and more.
Open Markets released a statement celebrating New York Attorney General Letitia James’ proposal for a rulemaking aimed at strengthening state-level prevention of price gouging. “Today the NY OAG underscored the severity and scope of predatory price gouging by monopolists and other actors exploiting concentrated power. This is true across the country and the New York state action illustrates the importance of strong state-based enforcement targeting such illegal behavior.”

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📈 VITAL STAT:

Second-Largest Ever

Google announced Tuesday its purchase of cybersecurity firm Mandiant for $5.4 billion. The proposed deal would be the tech giant’s second-largest ever, trailing only its $12.5 billion acquisition of Motorola a decade ago. (The New York Times)

📚 WHAT WE'RE READING:

Ukraine reveals nature of war in the age of weaponized networks (Financial Times, Rana Foroohar): Against the backdrop of the war between Russian and Ukraine, the author asserts how the power of interconnected networks in the digital world is speeding the pace of armed conflicts, and that private networks — e.g., Big Tech platforms — now have the capacity to selectively amplify or buck state power as it suits them, shaping the outcomes of today’s wars.

NIKKI USHER'S

NEW BOOK

News for the Rich, White, and Blue: How Place and Power Distort American Journalism

Nikki Usher, a senior fellow at Open Markets Institute’s Center for Journalism & Liberty, has released her third book, News for the Rich, White, and Blue: How Place and Power Distort American Journalism. In her latest work, Usher offers a frank examination of the inequalities driving not just America’s journalism crisis but also certain portions of the movement to save it.

“We need to radically rethink the core functions of journalism, leverage expertise, and consider how to take the best of what the newspaper ethos of journalism can offer to places that have lost geographically specific news, “ says Usher, an associate professor at the University of Illinois-Champaign. “The news that powers democracy can be more inclusive.”

Usher is also the author of Making News at The New York Times (2014) and Interactive Journalism: Hackers, Data, and Code (2016).

News for the Rich, White, and Blue, published by Columbia University Press, is available as a hardback, paperback and e-book. You can order your copy here.

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