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Neglected challenge of the 4IR debate

- Eleanor Fox and Imraan Valodia

The roles and practices of companies like Google and Facebook must be investigated.

There has been a lot of talk among policymakers and within society about the so-called Fourth Industrial Revolution (4IR) — the rapid growth in digital and artificial intelligence technologies that are fundamentally changing our lives.

Most recently, President Cyril Ramaphosa launched the 4IRSA initiative to focus attention on adapting our economy to these technological changes. Much of the discussion on this has focused on two issues: how technological change can boost economic growth; and what the likely impacts of the new technologies may be on employment. These are, of course, very important issues for SA.

There is, however, a third issue in this debate, related to issues of competition and economic power, that is equally important for SA, and this issue has, to date, received very little, if any, consideration. The issues we need to start thinking about include:

  • New technologies make it possible for some companies to gain dominance in some markets because more and more people use the product of one platform, to link up with their friends, customers and supplies. We all use Google for searching and that makes all of our lives a lot easier, but it is worth recalling that not too long ago we used a lot of different search engines, including some South African ones such as Ananzi. Is it acceptable that Google’s leveraging of its technological leadership has pushed domestic search engines such as Ananzi out of the market? No doubt, Google makes life a lot easier and it does so at no out-of-pocket costs to us. Might we be paying for this in other ways?
  • Is it acceptable that Google collects data on our searches (we pay nothing for using its search technology) but then directs particular advertising at us? Is it acceptable that the advertising that is directed to us when we search is biased in a manner that maximises income for Google? Or, more problematically, is it acceptable for Facebook to collect information from our Facebook posts and friendship networks and sell this information to political parties so that parties can more effectively target their election campaigns? New digital technologies and artificial intelligence-based algorithms are now making information a very valuable resource which is shaping our economy, and our brains, in very fundamental ways — much of this is information that is collected while we use so-called “free” services such as Google and Facebook. 
  • Is it acceptable that companies like Google and Facebook can and sometimes do use their power as “gatekeepers” of their platforms to disable rival companies who use their platforms? Given how much power they have, should they be required to carry information of their rivals?

The 4IR is forcing us to ask some quite fundamental questions about market power, big firms and market dominance, fair prices, whether something that is free is indeed free.

These questions have been the subject of quite intense debate in competition law and economics, and even in the political sphere — where the answers to these questions differ quite fundamentally in the US and the EU.

In the EU, its competition authority recently fined Google €2.4bn for anticompetitive behaviour in its comparative shopping service. Over 90% of all searches on the internet are done using Google. Google also has interests in goods and services that people purchase when they search, including shopping.

Google was fined because it changed the algorithm that displays search results from a neutral algorithm to one that favours search results that it has interests in — essentially, the search results now prioritises Google’s own shopping companies, and demotes that of its rivals much lower in search results. Since no one looks beyond the first page of two in a Google search, Google’s rivals are effectively excluded in the search results. The EU competition authority argued that this behaviour is anticompetitive and illegal.

Google was also fined €4.3bn — the largest competition law fine in history — in another case for forcing cellphone manufactures who use its Android software to preload its browser (Chrome) and search facility (Google Search). These, and a third case have had significant political implications with US President Trump accusing the European authorities of bias against American companies. All of these cases are on appeal and it will be very interesting to see what the final outcome will be.

Last week the EU competition authority announced that it is now investigating Amazon for possible anticompetitive conduct. Amazon uses its online platform to sell its own products. Its platform is also used by independent sellers. The essence of the allegation against Amazon is that it collects information about these independent retailers, and may be using this information against its rivals.

There are similar cases against Facebook about how it accumulates and sells information — in some cases of people who don’t even use Facebook. 

Another interesting question is how large digital companies are purchasing virtually all smaller tech companies that may blossom into being competitors. The economic question here is whether these mergers and acquisitions entrench power over information and remove small companies from the market before they become competitive rivals.

A good example of this is Facebook’s purchase of WhatsApp. How many other startups, which may provide much better goods at cheaper prices, or may compete on terms such as data privacy, are being removed from the market by these “killer acquisitions” before they can grow and compete against the dominant players?

Public debates about new technology and the 4IR should be paying much greater attention to these questions. We have not yet had any big cases of this sort related specifically to the domestic market, but these issues will become more and more important as technology changes how we live and how the economy operates.

• Eleanor Fox is the Walter J Derenberg Professor of trade regulation at New York University School of Law. She is an expert in antitrust and competition policy. Professor Imraan Valodia is Dean of the Faculty of Commerce, Law and Management at Wits University and a member of the Competition Tribunal of SA. This article was first published in Business Day.