A Fount of Bad Ideas

We have previously reported on the EU’s new digital commissar Mr. Oettinger, who has recently announced he wants to make an EU case against Google a “model case” for the EU’s approach to large companies serving the inter-tubes. Naturally, the entire convocation of busybodies in Brussels is all for this bizarre idea.

The today still widely accepted theory of monopoly has been throroughly refuted in its entirety by Murray Rothbard’s contribution in “Man, Economy and State” (pdf; see chapter 10: “Monopoly and Competition”). Naturally, this contribution has been widely ignored in spite of its originality and importance, mainly because it implies that there is no cause for government intervention to “rein in monopolies” whatsoever. In other words, the EU’s “competition commission” is really superfluous.

The idea to break up Google (GOOG) is moreover based on the utterly absurd notion that EU companies that don’t even exist need to be “protected”.

Reuters reports:

“The European Parliament is preparing a non-binding resolution that proposes splitting Google Inc’s search engine operations in Europe from the rest of its business as one possible option to rein in the Internet company’s dominance in the search market.

European politicians have grown increasingly concerned about Google’s and other American companies’ command of the Internet industry, and have sought ways to curb their power. A public call for a break-up would be the most far-reaching action proposed and a significant threat to Google’s business.

The draft motion does not mention Google or any specific search engine, though Google is by far the dominant provider of such services in Europe with an estimated 90 percent market share. Earlier on Friday, the Financial Times described a draft motion as calling for a break-up of Google. Google declined to comment.

The motion seen by Reuters “calls on the Commission to consider proposals with the aim of unbundling search engines from other commercial services as one potential long-term solution” to leveling the competitive playing field.

Parliament has no power to initiate legislation and lacks the authority to break up corporations, and while the draft motion is a non-binding resolution, it would step up the pressure on the European Commission to act against Google.

Google already faces stern criticism in Europe about everything from privacy to tax policies, and has been wrestling with a European court’s ruling that requires it to remove links from search results that individuals find objectionable. The company has grown so large as to inspire distrust in many corners, with a chorus of public criticism from politicians and business executives.”

Resentment, however, has been building in Europe for years.

(emphasis added)

It is of course always a great idea to base one’s economic policies on “resentment” and envy instead of facts. If EU politicians are so “concerned about American companies’ command of the Internet industry” they should reject socialism, remove regulations and lower taxes, so as to make capital accumulation for entrepreneurial upstarts once again possible.

We feel reminded of a recent report on German TV in which it was mentioned that Germany had the “second highest number of multi-millionaires (defined as people with a net worth exceeding $30 million) after the US”. However, the presenter noted wistfully, “while most of the US millionaires have actually earned the money themselves, the German ones have mostly inherited it”. This was not further questioned, but one should actually ask why this is the case. The fortunes inherited by German millionaires were made at a time when the economy was relatively free and unhampered. The reason why only few millionaires exist who have “made the money themselves” in modern-day Europe is due to the fact that no-one is able to accumulate capital under the current regulatory and tax regime.

There is absolutely no need to “level the competitive playing field” in the internet search space. There are a great many search engines besides Google, and consumers are perfectly free to use them. From Bing, to Yahoo, to ask.com, to recent upstart (of course an US upstart) DuckDuckgo, there is a wide variety of search engines available. If consumers use Google’s search engine instead, they do so voluntarily. Everybody is perfectly free to build a search engine that is superior to Google’s and every consumer is perfectly free to use one of the numerous already existing ones that are competing with it.

The fact that Google has other commercial services and that it might favor those in search results is nothing to worry about, on the contrary. Google offers countless services to consumers at no cost whatsoever: Gmail (which we personally believe is the best email application there is, in terms of searchability and other features), Google docs, Google drive, Google Earth, Google maps, Chrome (both as a browser and an operating system), the Android operating system, etc. – one can use all these things at a cost of a big fat zero. So where exactly is the consumer suffering injury?

On the contrary, if Google were dismantled so as to “help its competition”, it is a good bet consumers would end up having to pay for many of these services. The only criterion that is of importance is this: what do consumers get out of it? As far as we can tell, Google’s many free services force its competition to offer similar services for free as well. If politicians are allowed to throw a spanner into the works by legislating “for free” out of existence, we, the consumers, will suffer. The assertion that Google “stifles competition” is absurd. Does Apple “stifle competition” with i-tunes and its app marketplace? No, it just happens to have the best offerings – in fact, it spurs competition, as others have to try to match up to it. The same applies to Google.

The Real Motive: Protection of Inefficient Competitors

The “European court’s ruling that requires it to remove links from search results that individuals find objectionable” is really a travesty. It serves mainly to protect political and other public figures from public scrutiny and criticism by giving them the opportunity to erase proof of their past misdeeds. However, these are precisely the people who should not be shielded from such scrutiny.

As to the “chorus of public criticism from politicians and business executives” – the former regard hampering the market economy as their sacred duty, while the latter want to use the coercive power of the State to legislate their competition out of existence. Their motives have nothing to do with “consumer protection”. On the contrary, inefficient producers want to create a situation in which consumers are forced to pay for things that are now available for free.

The false notion that it is all done for the “protection of the consumer” is also propagated by a Californian so-called “consumer watchdog” organization where we read:

 “It’s long been clear that Google uses its search results to unfairly advantage its own services,” said John M. Simpson, Director of Consumer Watchdog’s privacy project. “We proposed the break-up remedy to the U.S. Department of Justice in April, 2010.”

“Such action could include breaking Google Inc. into multiple separate companies or regulating it as a public utility,” Consumer Watchdog’s 2010 letter said. “Google exerts monopoly power over Internet searches, controlling 70 percent of the U.S. market.  For most Americans – indeed, for most people in the world – Google is the gateway to the Internet. How it tweaks its proprietary search algorithms can ensure a business’s success or doom it to failure.”

(emphasis added)

Regulating an internet company as a “public utility”? Only socialist statists can come up with such abject nonsense. The idea that “Google exerts monopoly power over Internet searches” and “controls the market” is simply a lie, or at best an utterly false conclusion. One cannot charge a company with “monopolistic market control” just because its services happen to be popular. And it is not “unfair” if Google indeed “advantages its own services” – it is entirely normal business practice. Moreover, the search engine service cannot be overly abused for this purpose: if Google were to do that, it would soon fall prey to the competition from services that don’t rely on ad spending to the same extent, such as e.g. DuckDuckGo to name one.

“Robber baron” and “monopolist” – the erroneous portrayal of Google by the political left.

The same nonsensical argument is forwarded by EU politicians, even nominally “conservative” ones:

“Andreas Schwab, the German Christian Democrat lawmaker who co-sponsored the resolution, told Reuters it was “very likely” it would be adopted as both his own center-right group, the largest in parliament, and the main center-left group supported it. Schwab proposed the resolution along with Spanish centrist Ramon Tremosa earlier this week.

In a statement on Wednesday, the two said Google had failed to propose adequate remedies during the antitrust investigation by the commission. Vestager has said she wants time to study the dossier after her predecessor decided against a settlement with Google that would have ended the case. Google ”continued thereby to suppress competition to the detriment of European consumers and businesses,“ Schwab and Tremosa said.

In a position paper, they cited a number of possible solutions to what they saw as Google’s abusive dominant position in search engines and its ability to drive Internet traffic to favored sites. If these failed, then, they suggested, legislation should be tried.

“In case the proceedings against Google carry on without any satisfying decisions and the current anti-competitive behavior continues to exist, a regulation of the dominant online web search should be envisaged,” they said. Reflecting broad suspicion of Google, other parties in parliament may also support the non-binding resolution.”

(emphasis added)

Again, apart from resentment over Google’s success, it is not clear to us what this alleged “anti-competitive behavior” supposedly consists of. On the contrary, the very reason why Google is successful is that it is highly competitive. Moreover, the company does by no means succeed in all its endeavors, as the less than successful launch of its social media effort Google+ has shown.

Reuters further:

Jan Philipp Albrecht of the Greens said: “Search engines like Google should not be allowed to use their market power to push forward other commercial activities of the same company.”

 Why the hell not?

 Conclusion:

It is utterly absurd to assert that Google is an “evil monopolist” considering that consumers get the vast bulk of Google’s services for absolutely free and are moreover free to choose a different search service whenever they want. What this is really about is not the “protection of the consumer”, since there is really nothing he needs to be protected against in this case. It is all about pushing the fortunes of inefficient competitors and EU politicians trying to profile themselves by pretending that they are “fighting against a US-based robber baron”, allegedly on the consumer’s behalf. Last but by no means least, the entire monopoly theory on which the EU commission bases its “anti-trust” interventions is economic nonsense anyway.

Economist Murray Rothbard: he refuted the theory of monopoly which provides the scientific fig leaf for the EU’s “anti-trust” interventions.

(Photo via Mises Institute, via Wikimedia Commons)