Mark Zuckerberg is ambling around the world calling for greater regulation of social media companies. The way to understand this is that Mark Zuckerberg runs a very well-established social media company — established companies love regulation because it kills competitors.
This is not to be excessively or unduly cynical. After all, the correct question when viewing the intersection of business and politics is always, “Am I being cynical enough?”
The go-to guy in business valuations is the most successful investor of our times, Warren Buffett. He insists that he likes a business with a moat — a crocodile-filled ditch protecting the profits from any invasion of competing forces. One reason he’s in auto insurance (GEICO) is because state-by-state regulation makes building a national competitor extremely difficult. When such a regulatory moat exists, it’s difficult to enter the industry; the incumbents thus wax fat off the captive market.
Uber is, for example, little other than a concerted assault on the regulations that surrounded and protected the profits in the taxi market. It’s even there, right in their own regulatory documents, that the New York City cab license was to restrict competition so that drivers could make a profit. As we can see from the losses Uber has made, it takes significant economic resources to overcome that sort of regulatory moat.
Zuckerberg is, therefore, arguing that now that he’s established, no one should be able to come in and compete with him. As he says, Facebook has “35,000 people to review online content.“ You, you darling little startup you, if regulations now say you’ve got to monitor all content, you’d better have tens of thousands of people on day one to do that monitoring. As Zuckerberg goes on to boast, “Our budget is bigger today than the whole revenue of the company when we went public in 2012, when we had a billion users.” So, when you hit up the angel investors, you’re going to be asking for how many billions in that first year to be able to meet the regulatory demands of competing with Facebook?
One of the reasons (only one of many) for slow economic growth in the rich countries is that there are an awful lot of people with those moats to defend. You need a state license to do some one-third of all jobs these days. Most of which are barriers to entry — for example, it takes 500 hours of cosmetology lessons to braid hair. In the majority of the country, to expand a medical facility requires a certificate of need — essentially, asking all your potential competitors whether they’d mind someone coming in and competing with them. What do you think their answer is going to be?
It’s entirely natural that people insist that they’ve got theirs, and why should anyone be allowed to take it away? The art of economic management is to allow people to do just that as long as they’re doing it fair and square.
It’s also true that one reason for the explosive growth of the tech sector has been that they’ve been doing entirely new things. There just haven’t been many moats to have to cross. They’ve not been held back by that regulatory tangle as there were no incumbents being protected.
Zuckerberg is, therefore, asking that his company be legally protected from competition in the manner that MySpace, Bebo, Friends Reunited, and all the rest of Facebook’s initial competitors weren’t protected. Hey, don’t blame him, we’d all do the same thing in his position. We do, though, need the correct and robust response to his pleading for special privilege: Heck no.
Unfortunately, the supply of politicians willing to tell it like it should be is a little low at present.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
