Notes on Pasquale, “Tech Platforms and the Knowledge Problem”, 2018

by Sebastian Benthall

I’ve taken a close look at Frank Pasquale’s recent article, “Tech Platforms and the Knowledge Problem” in American Affairs. This is a topic that Pasquale has had his finger on the pulse of for a long time, and I think with this recent articulation he’s really on to something. It’s an area that’s a bit of an attractor state in tech policy thinking at the moment, and as I appear to be in that mix more than ever before, I wanted to take a minute to parse out Frank’s view of the state of the art.

Here’s the setup: In 1945, Hayek points out that the economy needs to be managed somehow, and that this is the main economic use of information/knowledge. Hayek sees the knowledge as distributed and coordination accomplished through the price mechanism. Today we have giant centralizing organizations like Google and Amazon mediating markets, and it’s possible that these have the kind of ‘central planning’ role that Hayek didn’t want. There is a status quo where these companies run things in an unregulated way. Pasquale, being a bit of a regulatory hawk, not unreasonably thinks this may be disappointing and traces out two different modes of regulatory action that could respond to the alleged tech company dominance.

He does this with a nice binary opposition between Jeffersonians, who want to break up the big companies into smaller ones, and Hamiltonians, who want to keep the companies big but regulate them as utilities. His choice of Proper Nouns is a little odd to me, since many of his Hamiltonians are socialists and that doesn’t sound very Hamiltonian to me, but whatever: what can you do, writing for Americans? This table sums up some of the contrasts. Where I’m introducing new components I’m putting in a question mark (?).

Jeffersonian Hamiltonian
Classical competition Schumpeterian competition
Open Markets Institute, Lina Khan Big is Beautiful, Rob Atkinson, Evgeny Morozov
Fully automated luxury communism
Regulatory capture (?) Natural monopoly
Block mergers: unfair bargaining power Encourage mergers: better service quality
Allow data flows to third parties to reduce market barriers Security feudalism to prevent runaway data
Regulate to increase market barriers
Absentee ownership reduces corporate responsibility Many small companies, each unaccountable with little to lose, reduces corporate responsibility
Bargaining power of massive firms a problem Lobbying power of massive firms a problem (?)
Exit Voice
Monopoly reduces consumer choice Centralized paternalistic AI is better than consumer choice
Monopoly abuses fixed by competition Monopoly abuses fixed by regulation
Distrust complex, obscure corporate accountability Distrust small companies and entrepreneurs
Platforms lower quality; killing competition Platforms improve quality via data size, AI advances; economies of scale
Antitrust law Public utility law
FTC Federal Search Commission?
Libertarianism Technocracy
Capitalism Socialism
Smallholding entrepreneur is hero Responsible regulator/executive is hero

There is a lot going on here, but I think the article does a good job of developing two sides of a dialectic about tech companies and their regulation that’s been emerging. These framings extend beyond the context of the article. A lot of blockchain proponents are Jeffersonian, and their opponents are Hamiltonian, in this schema.

I don’t have much to add at this point except for the observation that it’s very hard to judge the “natural” amount of industrial concentration in these areas in part because of the crudeness of the way we measure concentration. We easily pay attention to the top five or ten companies in a sector. But we do so by ignoring the hundred or thousand or more very small companies. It’s just incorrect to say that there is only one search engine or social network; it’s just that the size distribution for the many many search engines and social networks is very skewed, like a heavy tail or log normal distribution. There may be perfectly neutral, “complex systems” oriented explanations for this distribution that make it very robust even with a number of possible interventions.

If that’s true, there will always be many many small companies and a few market leaders in the tech sector. The small companies will benefit from Jeffersonian policies, and those invested in the market leaders will benefit (in some sense) from Hamiltonian policies. The question of which strategy to take then becomes a political matter: it depends on the self-interest of differently positioned people in the socio-economic matrix. Or, alternatively, there is no tension between pursuing both kinds of policy agenda, because they target different groups that will persist no matter hat regime is in place.