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Jan Eeckhout: “Google, Amazon or Facebook have strangled wages around the world” | Technology | The USA Print


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Although productivity has more than tripled in the United States since 1980, wages have only grown by 50%. This wage stagnation is the starting point of the research by the economist Jan Eeckhout (Aalst, Belgium, 1970), who has analyzed comparable data from all the companies registered in the US between 1997 and 2017. The explanation that the researcher has found has to do with two factors. Companies, as logic dictates, are in a constant struggle to tighten the wages of their employees. But on top of that, there are a number of big companies that have such enormous market power that they drag everyone else down to lower wages. They are about 400 and represent around 40% of world GDP.

Technological companies play a prominent role in this select group. “60% of the growth of the Stock Exchange in recent years responds to only five Big Tech“, Explain. For this reason, the professor of the ICREA program at the Pompeu Fabra University of Barcelona (UPF) advocates increasing the regulation of these companies. In his opinion, they suffocate the population’s remuneration and rely on technology, the great differential element that has contributed to increasing the market power of the top of the corporate pyramid. Eeckhout, author of The Profit Paradox (The benefit paradoxPrinceton University Press), presented the results of his research at a conference at the BBVA Foundation.

Ask. Can it be inferred from your study that the power that Google, Amazon or Facebook have acquired has strangled wages around the world?

Response. The answer is yes. But not only the GAFAM (Google, Amazon, Facebook, Apple and Microsoft), other companies, not necessarily technology companies, with great market power, must also be included in that list. I estimate that some 400 global companies control between 30% and 40% of global GDP. Five o’clock Big Tech they have been responsible for 60% of the growth of the stock market in recent years. They have contributed a lot to wage stagnation, but they are not the only ones responsible.

P. Do we have to accept that we live in a new era of monopolies?

R. I always say that our situation is comparable to what happened at the end of the 19th century and the beginning of the 20th. Great changes were produced by the hand of electricity, oil and the railway. Large monopolies and economies of scale were configured. In fact, we are still talking today about how to regulate the energy sector. A year ago, in Texas, where the market is super unregulated, there was a big snowfall that caused kilowatt prices to increase by 400 times. The free market only works if a series of conditions are satisfied. Technology is altering them. If you have economies of scale and monopoly, the market economy doesn’t work. If you have network effects, as many of these technologies do, either.

P. What are network effects?

R. It is when the user benefits from more users. You like to be in the social networks where your friends are, not in the minority ones. This also exerts market power: you want to consume and offer your products where others are, even if it means paying a little more. On Ebay the rate is a little higher than on other portals, but you know that everyone sees it.

Eeckhout is a professor at the Universitat Pompeu Fabra (UPF) in Barcelona.
Eeckhout is a professor at the Universitat Pompeu Fabra (UPF) in Barcelona.

P. Unlike nineteenth-century monopolies, technology companies operate in several sectors at the same time.

R. It is often said that what a market does is aggregate the private information that people have. Today, Google, or Alphabet, knows much more than the market knows, because in the market, at the end of the day, there is only one price. Google knows the price that you are willing to pay, the price that I am willing to consider, and so on. It works better than the market. And that is worrying, because that information is not for the people, but for their own benefit. The market has a problem. If Google closed an agreement with Madrid or New York to organize public transport or logistics, there would be less congestion and more efficiency, because they have a lot of information. The problem is that there is no market here, there is a monopoly. And the monopoly only works if it is regulated. We have to recognize that we cannot live without monopolies, that is a reality.

P. When the technology companies began to operate, there were hardly any regulations that affected them. Uber is a paradigmatic case. Do you think it’s too late to put them on the sidewalk?

R. The regulation is far behind what is happening. If you ask the European Commission, they tell you that perhaps they had not seen the implications of Facebook buying WhatsApp. But two years later they did know. Well, it’s been nine and nothing has happened here. As Zuckerberg says, once the omelet is made, I cannot separate the eggs. I think we can be much faster, do things other than prosecute cases, which is what companies like because it takes three or four years and while they continue to operate.

P. And why is it not done?

R. I think it is not a problem of intention, nor that legal tools are not available, much less knowledge, there are very capable people in the Commission and in the FTC [Federal Trade Comission, el regulador estadounidense]. I think the main problem is that there are no resources. I talk a lot with those who are dedicated to this, both in the US and in Europe. If there are 100 cases, 90 are not even looked at. Of the remaining 10, we decided to go for one. But of course, the other 99 also deserve some attention. Too many cases escape us that shouldn’t. And that is expensive. Some estimate that the cost of market power is between 8% and 10% of GDP.

P. What do you mean by that?

R. We try to measure the welfare cost that could have been produced if market power did not exist. Compare it to inflation: its cost is about 0.5% of GDP, versus 10% of market power. How many resources are dedicated to control it? The independent central banks move about 5,000 million. What we dedicate to antitrust measures, regulation, etc. is 500 million, one tenth. That is, we would have to spend 20 times more. Why? In part, obviously, it is because large companies are not interested in touching the market. It’s like spending on tax fraud: it makes perfect sense, and it’s better in the long run. What you earn is much higher than what it costs, but the voter often looks at the short term. Brexit also put pressure on spending. The Commission is open to proposals, but the first thing they ask of you is that it doesn’t cost money.

P. It is said that, during the pandemic, 40% of traffic on-line night in the US was Netflix. Should technology companies pay for the bandwidth they use?

R. It is complex, but I think it could be better regulated. One of the success stories of interoperability has to do with the way the internet is organized. If we had had a private company to manage the infrastructure in the 1960s, everything would have developed more slowly and at much higher costs. There wouldn’t have been as many network effects. If you pay for it, monopolistic islands are created. And the platforms would want to pay for it, because that way they could close it down and control it. Self-regulation does not work: in the end it is about touching things that make them win or lose money. And you can’t justify that to shareholders. Regulation has to come from someone else, from an independent institution

P. In Europe we like regular. But what about in the US?

R. There’s a bit of momentum there too. Here we have the Digital Markets Regulation (DMA) and the Digital Services Regulation (DSA). What those who work on this on the other side of the Atlantic tell me is that they recognize that they are several years behind, but that they are looking closely at what we do in Europe. It so happens that both Democrats and Republicans trumpists they want to limit the power of technology, although for different reasons. The former because market power must be limited; the second, because they believe that the platforms are liberal and politically controlled. Something could come out of it.

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Mark NT
Mark NT
Mark NT was born and raised in the India. He worked at a literary development company as a publisher. He is a creative website writer for teens and a good book reviewer.


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