Remarks

Net Neutrality Isn’t the End of Silicon Valley’s Washington Problems

A great year for tech stocks can’t erase the concerns about broader industry practices.

Silicon Valley is once again raising a cry to save net neutrality, the policy that prevents internet service providers from picking and choosing how they treat content online. Assuming it passes a Federal Communications Commission vote on Dec. 14, FCC Chairman Ajit Pai’s proposed rule change could allow internet providers to bill in the same inscrutable way they bill for cable, asking customers to buy bundles of services rather than just charging a flat fee to get online. They could also block or slow delivery of any web pages or apps they choose, shifting the balance of power to the big telecom companies and away from the likes of Google Inc., Facebook Inc., Amazon.com Inc., and Netflix Inc.

On Monday, 200 tech companies—including Airbnb Inc., Twitter Inc., and Reddit Inc.—published a letter warning about the costs of the planned rollback, which was announced last week. Protests are in the works. But Pai, who in a speech Tuesday called the internet companies “a much bigger actual threat to an open internet than broadband providers,” has the votes he needs to kill the current rules, and many of the most committed pro-neutrality advocates have already conceded defeat. The “end of net neutrality as we know it,” as the venture capitalist Fred Wilson put it bleakly last week, is the latest chapter in what has been a politically disastrous year for U.S. tech companies.

Throughout 2017, President Trump has repeatedly flouted the tech industry’s priorities and, for good measure, humiliated its executives. Besides appointing Pai, a longtime foe of net neutrality, Trump has hurled insults at Amazon and Facebook and ignored the industry’s pleas to amend his bellicose stances on immigration and climate change. Those chief executives who have dared to try to bring Trump around have been subjected to consumer boycotts or worse. It’s hard to remember, but one of the catalysts that led to the downfall of Uber Chief Executive Officer Travis Kalanick was his decision to join Trump’s business advisory council. Not wanting to miss out on the fun, Congress spent much of last month publicly spanking Facebook, Google, and Twitter over their failure to prevent Russian agents from meddling in the 2016 election.

Investors haven’t minded any of this. Since January, the stock prices of the big tech companies have wildly outpaced broader market gains. Google parent Alphabet Inc. is up more than 30 percent, and Apple, Facebook, and Amazon have each seen gains of around 50 percent or more. On Black Friday, Amazon founder Jeff Bezos’s personal net worth surpassed $100 billion. “Tech is winning the Trump era,” Politico declared on Monday, arguing that the stock gains, and the prospect of tech wins in a tax cut bill, mean that the industry’s Washington struggles are just a matter of indigestion as software eats the world.

While many tech companies’ bottom lines have done well in the first year of Trump’s presidency, the events of the past year bode poorly for Silicon Valley’s fortunes in 2018. The industry’s profits have soared not in spite of the backlash-inducing moral compromises they’ve made, but because of them. Trump’s attacks on Amazon are possible in part because Amazon has long resisted collecting sales tax for some purchases, and Republicans have been able to ignore the tech industry’s arguments in favor of increased immigration in part because the industry has routinely pushed the limits of immigration law in order to find cheap labor. This moral calculus long predates Trump, but pressure in Washington and elsewhere is only going to intensify as long as the companies resist reform.

So far, the industry’s setbacks have been mostly matters of perception and dignity, but more substantive regulatory crackdowns are on the horizon. In September, former White House strategist Steve Bannon, the chairman of Breitbart News Network LLC, suggested in a speech that the White House might try to regulate Google and Facebook like utilities. If this happened, it would represent a dramatic shift, potentially putting limits on profits and forcing the companies to radically change their business models.

That outcome is unlikely, but some sort of antitrust crackdown is inevitable. On Nov. 13, Missouri Attorney General Josh Hawley announced that he was investigating Google. Hawley is a Republican and a 2018 Senate candidate, but Democrats, too, are beginning to see tech skepticism as a winning issue. Mississippi Attorney General Jim Hood, a Democrat, has backed a complaint against Google brought by Yelp Inc., the online reviews site. It’s likely that other state prosecutors will attempt to bring cases, which in a politically charged environment could cause the Federal Trade Commission to take another look at Google. A similar scenario gave rise to the federal government’s antitrust case against Microsoft Corp. in the late 1990s.

Tech companies are aware of these risks, and have tried harder to emphasize the ways in which their work creates jobs and improves people’s lives, while stressing that their business practices are responsible. Increasingly, members of Congress are rejecting that last bit. “I think you do enormous good,” said Louisiana Senator John Kennedy, a Republican, addressing representatives of Facebook, Google, and Twitter. “But your power sometimes scares me.”

Indeed, Google’s assurances about security and privacy ring a little hollow at a moment when so many Silicon Valley companies seem to treat user data so carelessly. Amazon is widely trusted by consumers, but that trust could be eroded by the company’s handling of sexual harassment allegations against one of its executives. And it’s hard not to be suspicious of Facebook, given its apparent tendency to reflexively dismiss any criticism and to conduct hugely disruptive “tests” on unwitting populations. For a sense of the costs of this lack of seriousness, I recommend this op-ed by the editor of a Serbian news outlet that he says was crippled by a little-noticed decision out of Menlo Park, Calif.

Perhaps because the tech companies are still broadly popular, the conventional wisdom in the industry, especially among the upper ranks of these companies, is that they’re the victims of a political moment that will eventually lose steam. It’s become common to dismiss the criticism of the Valley darlings as a “political storm.” That’s certainly part of it: Guys with a three-digit number before their three commas make appealing political targets. But the tech industry has made things incredibly easy for its critics. Now it would do well to take them more seriously.

    Max Chafkin
    Bloomberg Businessweek Columnist
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