10 Reasons Why Nationalizing Facebook Would Be Ridiculous

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Would our Facebook experiences improve if the federal government owned and operated the popular social networking site? Philip N. Howard thinks so. In a Slatecolumn this week entitled “Let’s Nationalize Facebook,” Howard, a professor of communications at the University of Washington, says that Facebook “is now public infrastructure, and it should be treated as such.”

Calling Facebook a “monopoly” and a “public good,” Howard says that we need “public ownership and at least a majority share at first” so that the federal government can “restore the public trust” and ensure the site protects user privacy while also ensuring it can “fulfill its true potential for providing social good.”

A common response to Howard’s essay in both the comments left on Slate as well as on Twitter was to ask: Is this a gag from The Onion? It’s tempting to dismiss the column as a parody or just a desperate effort to grab attention—and here I am writing about it, so it worked!—yet calls for some sort of public utility-like regulation of social networking services, and Facebook in particular, have been growing among Ivory Tower elites.

In a paper I penned early this year about “The Perils of Classifying Social Media Platforms as Public Utilities,” I outlined several objections to the idea of regulating social media services in the fashion Howard suggests. Building on that piece, here are 10 reasons nationalizing Facebook is a moronic and dangerous idea.

1)      Facebook is neither a natural monopoly nor a public good

Howard claims that Facebook “is already a monopoly,” “has become a public good” and represents “public infrastructure.” He seems to misunderstand these terms.

Facebook is not a public good, which economists define as goods or services that are nonexcludable and nonrivalrous. Access to such goods cannot be easily controlled, and charging for such services can be challenging and sometimes even impossible. National defense and law enforcement services are prime examples. Clearly, Facebook does not qualify as a public good. Facebook can easily control who is part of the service, and although it does not charge a direct fee for its service, it has been able to monetize its service through advertising support.

By contrast, Howard seems to believe a public good represents any good or service that becomes popular and is in widespread use by the general public. He implies that once it is, we suddenly collectively own it and nationalization is sensible. By that logic, every shopping mall and supermarket should be government-owned! Regardless, Howard misunderstands the true meaning of the term.

Facebook is also not a monopoly. Howard claims the firm controls 80% of the market but never tells us where he gets that number or how he determines what the relevant market should be for purposes of antitrust analysis. Determining the extent of the “social networking” market is challenging. Clearly, Google, LinkedIn, and MySpace represent direct competitors—and their existence alone makes it clear that Facebook is not a monopoly.

But what about Twitter, Pinterest, Yelp, and so on? These and the countless other interactive services that we enjoy each day represent a challenge to Facebook. Even older forms of “social networking”—email, instant messaging, blogs, message boards, and even phone calls—compete with Facebook for user attention. Moreover, almost all these services are competing with Facebook for the same advertising dollars to cross-subsidize their services.

2)      Social networking markets are evolving rapidly

Related to the previous point, Facebook operates in a highly dynamic environment. The breakneck pace of change in social media makes these sites and services distinct from traditional monopolies and public utilities. Not only are most of these services relatively new, but they keep displacing each other in fairly rapid fashion. In the Web’s short history, we’ve witnessed creative destruction on steroids.

Today’s social networking platforms evolved from a market we called “web portals” just 15 years ago. Social networks and algorithmic search engines quickly overtook the giants of the web portal era—AOL, AltaVista, CompuServe, and Prodigy. Meanwhile, the first generation of social networks has already largely come and gone. In the early and mid-2000s, Six Degrees, Friendster, Live Journal, and MySpace were the leading social networking sites, but they faded quickly from the spotlight. Just five years ago, MySpace’s dominance of social networking had The Guardian wondering, “Will MySpace Ever Lose Its Monopoly?” A short time later, MySpace lost its early lead and became a major liability for owner Rupert Murdoch. Murdoch paid $580 million for MySpace in 2005 only to sell it for $35 million in June 2011.

Could Facebook be disrupted in a similar fashion? It seems ludicrous to suggest that today since the site remains tremendously popular. Yet, considering how turbulent digital markets have been, it is entirely possible users could bolt to a superior service in short order. Investors seem to have less faith in the firm with each passing day. Facebook’s stock has been declining steadily, down roughly 50% from its IPO.

3)      Public utility regulation could stifle innovation and raise prices

Howard seems to believe that privacy is the only value that people care about it when it comes to Facebook. But what about the convenience that comes from instantaneous connectivity and information sharing, and what about the cost of service? Facebook provides its services at no charge to users.

Amazingly, Howard doesn’t mention any of these considerations, apparently assuming there are no trade-offs at stake here. Nationalization of Facebook would likely hurt all these variables, however. When governments intervene and seek to provide such goods—consider the U.S. Postal Service andmunicipally-owned utilities—the results usually aren’t pretty. Regulated utilities tend not to be as innovative as other industries because regulation distorts incentives. The command-and-control mechanisms used to control utilities guarantee consumers access to a plain vanilla service at a “fair” price—but without any incentive for utility providers to earn a greater return, innovation typically suffers.

 

4)      Government entities don’t have a good track record of protecting privacy

Howard’s nationalization proposal is built on the flawed premise that government entities have a better track record of protecting privacy. This is a stretch, to say the least. You can take your pick of just about any of the alphabet soup of government agencies—IRS, TSA, FDA, SSA, NSA, CIA—and find privacy violations galore. A day after Howard’s essay appeared, The Washington Post ran a front-page story about how “Stepped-up Computer Monitoring of Federal Workers Worries Privacy Advocates.” It documented the growing digital surveillance of government workers by various federal agencies.

It’s hard to believe that a new Federal Facebook Administration would have a better track record. Nationalization opens the door to even more and easier government surveillance of the online communications of private citizens.

5)      Nationalization could backfire and become quite costly since many users would likely flee

Howard believes that “nationalizing the company [will] restore the public trust,” mostly by enhancing privacy, but why should we assume that a government takeover of a speech platform would increase public trust? As noted above, it is just as likely that federal control of Facebook would scare many existing users away for fear of what the government might be accessing. If users flee, nationalization would become a costly gambit that left taxpayers picking up the tab.

Moreover, Facebook’s usefulness would likely diminish rapidly after nationalization since many of the other third-party sites and services that interact with the site would stop doing so. Would you want a Facebook plug-in on your website or blog after the site was nationalized? Would app developers want to develop services for a government-owned and operated Facebook? Would they even be allowed to do so?

6)      Better ways exist to deal with privacy concerns

Howard essentially admits that his radical proposal is a Hail Mary pass to better protect privacy on Facebook. Like many other privacy regulation advocates, he’s angry that America has not adopted a more comprehensive regulatory regime like Europe, complete with top-down data directives and centralized privacy bureaucracies.

But the ends (privacy protection) don’t justify the means (nationalization). Privacy regulation remains a possibility and the Federal Trade Commission (FTC) hasn’t had any problem handing down huge sanctions against Facebook for supposed privacy violations, including government-mandated privacy audits for the next 20 years. No new law was needed to accomplish this. The FTC’s plenary authority was more than sufficient.

Howard never mentions public pressure and personal responsibility as a possible solution to privacy concerns. Millions of Americans are Facebook-resistors and never bother joining the site or, like me, rarely use their accounts at all. With so many other ways to engage with friends, family, and the public, it is unclear why the first order solution should not be to expect privacy-sensitive individuals to take matters into their own hands and abandon Facebook or limit the information they place on the site.

Of course, this may not even be as big of a problem as Howard suggests. It’s hard to believe, for example, that the over 900 million users that have Facebook accounts today all have the same privacy sensitivities that Howard does or else the site would have never grown so popular.

7)      Nationalizing Facebook constitutes a massive confiscation of wealth

This is America, not Argentina or Venezuela. We generally don’t allow government to just casually takeover private entities after insisting it’s all for “the social good.” When government does move against firms or private property, we at least require some basic due process and just compensation. Nationalizing Facebook would constitute a massive exercise in wealth confiscation and Facebook and its shareholders would rightly be entitled to compensation. Who knows what would be fair compensation, but it represents another cost that taxpayers would be on the hook for.

8)      The risk of regulatory capture is real

Howard assumes that nationalization will unambiguously “serve the public interest.” For the reasons already noted, that seems to be wishful thinking at best. But the more powerful reason to be skeptical is that the sad history of much public utility regulation is one of cronyism and regulatory capture.

Countless economists and political scientists have documented capture as a reoccurring problem in regulated industries and concur with UCLA Emeritus Professor of Business Economics Harold Demsetz that “in utility industries, regulation has often been sought because of the inconvenience of competition.” If the feds took over Facebook but left some of it in private control, it could be that the firm eventually becomes a creature of the regulatory state and learns to use the system to its advantage to exclude rivals, raise prices, or receive favorable treatment and bailouts.

9)      Government could always create its own social networking platform

OK, don’t laugh, but it is certainly possible that the government could create a new social networking service that (at least in theory) embodies the values Howard desires. While it might be a tremendous flop and a huge waste of taxpayer dollars, it represents a somewhat more reasonable solution when compared to the nationalization of a popular private service.

10)   Nationalizing speech platforms raises First Amendment concerns

 

Since its inception, the censorial urge has been omnipresent at the Federal Communications Commission, and only recently have courts blocked agency efforts to regulate what it deemed “indecent” broadcasts. Is there any doubt that a nationalized Facebook would have policymakers pressuring it to curb certain forms of speech and expression as well?

 

For these reasons, it should be clear why it would be a mistake to convert Facebook into Fedbook. Nationalizing Facebook would set a dangerous precedent for government control over speech-producing and distributing networks and resources. With “social networking” in a state of constant flux, such a radical intervention would be particularly misguided.

We need to have a little faith in the entrepreneurial spirit and the dynamic nature of markets built upon code, which have the uncanny ability to evolve and upend incumbent “tech titans” seemingly every few years. Facebook won’t likely be around forever, and even if it is, we should not want it in the hands of the federal government.

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