The Huge Hidden Public Costs (>$1.5T) of U.S. Internet Industrial Policy

This post introduces a new white paper here with a first-of-its-kind, cost-estimation model of the cumulative hidden public costs of U.S. Internet industrial policy* entitled: “Internet Platform Corporate Welfare and Leechonomics.” *U.S. Internet-first, industrial policy in the 1996 Telecom Act, effectively exempted only Internet companies from: all U.S. communications law, regulation, and public responsibilities; normal non-communications Federal/State regulation; and normal civil liability for what happens via their platforms and business models.

Nutshell Summary: Sweeping Government exemptions and immunities from risks and costs overwhelmingly favor zero-sum, parasitic policy arbitrage and corporate welfare, which perversely fosters unproductive “leechonomics.” U.S. Internet policy most incents platform business that maximizes arbitrage spreads, i.e. taking maximal societal risk that un-immunized competitors can’t take, where the benefits can be capitalized by platforms, and the costs socialized to the public (>$1.5T), because the government has only exempted and immunized platforms from normal accountability and responsibility for consumer welfare. 

White Paper’s Executive Summary: This white paper’s estimation of the hidden public costs of U.S. Internet industrial policy shows that Internet platforms are far from free of public costs and risks to the consumer. It also shows that Internet platforms are not predicated on free market economics, but on a pernicious policy of corporate welfare and zero-sum, parasitic policy arbitrage that fosters unproductive “leechonomics.”

The evidence here quantifies how the online space is not what many think it is, a free market, but a favored market, where U.S. Government policy effectively stands on scales of competition to favor winner-take-all Internet platforms over everyone else.

This initial estimate starts an ongoing estimation process of the hidden public costs of U.S. Internet policy, by just focusing first on America’s best-known, dominant Internet platforms: Amazon, Google, and Facebook, to prove that they are not really as free, or as low cost to the public, as conventional wisdom has been led to believe.

A conservative estimate of the hidden risks and costs that U.S. Internet policy affords Amazon, Google and Facebook to non-transparently and effectively offload to the public, consumers, taxpayers, competitors and suppliers, as hidden off-ledger, unacknowledged public liabilities, is roughly $1.5 trillion over the last two decades. That would be about $4,900 for every American, or the equivalent of over 70% of these platforms’ 1-1-2018 market cap value. In short, U.S. Internet policy causes exceptional anticompetitive distortions in the economy.

The public-fact baseline of the hidden $1,472b public cost estimate was: $1,544b in Amazon, Google, Facebook total cumulative revenues and $1,375b in total cumulative publicly booked costs; $2,058b in combined market capitalization on 1-1-2018; and U.S. consumer spending, i.e. ~.7 of USGDP.

·        $31b   Exemption from all FCC economic & public interest regulation as pure info services [2% of cumulative revenues]

·        $510b   Riskless disruptive innovation per immunity from civil liability (Sect. 230) [33% of cumulative revenues]

·        $755b   Socialized costs of platforms' uneconomic riskless disruptions (Sect. 230) [1% of '2012-17 U.S. consumer spending]

·        $103b   Government-granted anticompetitive asymmetric accountability advantages [5% of cumulative revenues]

·        $31b   Implicit government infrastructure subsidies [2% of cumulative revenues]

·        $42b Systemic state and local sales and property tax arbitrage [5% of Amazon's cumulative revenues]

·        $1,472b Estimated total special 1996-2018 Government benefits that shift platforms' risks-costs to consumers and taxpayers.

This is intended to be an initial, replicable, and conservative estimate, because it purposefully excluded the risk/cost impact of:

·        The 40 other companies in the Internet Association, most notably Uber and Airbnb, which pursued Section 230 arbitrage strategies; and

·        Disruptive: fintech, including, BitCoin, cryptocurrencies, blockchain, etc.; autonomous transportation; health-tech; robotization, AI; AR; etc.

***

Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an internetization consultancy specializing in how the Internet affects competition, markets, the economy, and policy, for Fortune 500 companies, some of which are Internet platform competitors. He is also Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. Cleland has testified seven times before the Senate and House Antitrust Subcommittees on antitrust matters. Overall, eight different congressional subcommittees have sought his expert testimony a total of sixteen times. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.”

Asymmetric Accountability Harms Series:

Part 1:   The Internet Association Proves Extreme U.S. Internet Market Concentration [6-15-17]

Part 2:   Why US Antitrust Non-Enforcement Produces Online Winner-Take-All Platforms [6-22-17]

Part 3:   Why Aren’t Google Amazon & Facebook’s Winner-Take-All Networks Neutral? [7-11-17]

Part 4:   How the Google-Facebook Ad Cartel Harms Advertisers, Publishers & Consumers [7-20-17]

Part 5:   Why Amazon and Google Are Two Peas from the Same Monopolist Pod [7-25-17]

Part 6:   Google-Facebook Ad Cartel’s Collusion Crushing Competition Comprehensively [8-1-17]

Part 7:   How the Internet Cartel Won the Internet and The Internet Competition Myth [8-9-17]

Part 8:   Debunking Edge Competition Myth Predicate in FCC Title II Broadband Order [8-21-17]

Part 9:   The Power of Facebook, Google & Amazon Is an Issue for Left & Right; BuzzFeed Op-Ed[9-7-17]

Part 10: Google Amazon & Facebook’s Section 230 Immunity Destructive Double Standard [9-18-17]

Part 11: Online-Offline Asymmetric Regulation Is Winner-Take-All Government Policy [9-22-17] 

Part 12: CDA Section 230’s Asymmetric Accountability Produces Predictable Problems [10-3-17]

Part 13: Asymmetric Absurdity in Communications Law & Regulation [10-12-17]  

Part 14: Google’s Government Influence Nixed Competition for Winner-Take All Results[10-25-17]

Part 15: Google Amazon & Facebook are Standard Monopoly Distribution Networks [11-10-17]

Part 16: Net Neutrality’s Masters of Misdirection[11-28-17]

Part 17: America’s Antitrust Enforcement Credibility Crisis – White Paper [12-12-17]

Part 18: The U.S. Internet Isn’t a Free Market or Competitive It’s Industrial Policy [1-4-18]

Part 19: Remedy for the Government-Sanctioned Monopolies: Google Facebook & Amazon [1-17-18]

Part 20: America Needs a Consumer-First Internet Policy, Not Tech-First[1-24-18]

Part 21: How U.S. Internet Policy Sabotages America’s National Security [2-9-18]

Part 22: Google’s Chrome Ad Blocker Shows Why the Ungoverned Shouldn’t Govern Others [2-21-18]

Part 23: The Beginning of the End of America’s Bad “No Rules” Internet Policy [3-2-18]

Part 24: Unregulated Google Facebook Amazon Want Their Competitors Utility Regulated [3-7-18]

Part 25: US Internet Policy’s Anticompetitive Asymmetric Accountability - DOJ Filing [3-13-18]

Part 26: Congress Learns Sect 230 Is Linchpin of Internet Platform Unaccountability [3-22-18]

Part 27: Facebook Fiasco Is Exactly What US Internet Law Incents Protects & Produces [3-26-18]

Part 28: How Did Americans Lose Their Right to Privacy? [4-14-18]