Silicon Valley’s Challenge: Antitrust as a Shield for Democracy
by Stavros Makris (UCL)
As markets become increasingly concentrated, geopolitical tensions intensify, and several governments grow more welcoming toward Big Tech, it is essential to consider whether new technologies pose threats to democracy. It is widely understood that democracy (‘demos’ & ‘kratos’) signifies a system of governance in which the people hold the authority. What is usually less obvious is that democracy does not simply refer to regimes where people elect their government or the majority rules (NB the tyranny of majority), but to that state of affairs where people are self-governed (i.e. democracy as collective autonomy). Democratic autonomyrequires arriving at reasonable compromises through fair, truth-oriented processes of deliberation.
Such processes of deliberation are at stake when public debates are predominantly channelled and shaped by digital platforms that have skin in the game. Such platforms dispose surveillance power and can collect an enormous amount of data from citizens to cognitively or emotionally manipulate them. In other words, if democracy is to be understood as a process of collective decision-making facilitated by meaningful conversations and as a distributed, decentralized information network with various independent self-correcting mechanisms, it may be compromised when a small number of powerful digital ecosystems dominate information processing and undermine the conditions for meaningful large-scale conversations.
As Harari put it democracy is a process of dialogue that depends on the available information technology. Historically, democratic systems were limited to small city-states (the Greek polis) or tribal groups due to the lack of means to facilitate extensive discussions among large populations. The emergence of large0scale democracies became possible only with the advent of modern information technologies (e.g. newspapers, telegraphs, radios) that allowed for the spread of information and ideas across large populations, enabling large-scale conversations. However, the current information technologies have paradoxically made large scale conversations more difficult since competition for attention has led to an influx of harmful information and algorithms, ingrained in specific business models, promote misinformation, disinformation and polarizing views.
Thwarting democracy in this way does not require a deliberate plan or an evil human mastermind. AI-powered tools can through trial- and-error learn to fake intimacy and lead individuals to decisions that they wouldn’t have made otherwise. In 2016-2017, Facebook algorithms played a determining role in an ethnic-cleansing campaign as they facilitated content inciting violence, hatred, and discrimination against the Rohingya. In 2017 only humans could compose such content and the platform would only be liable for promoting it or for ‘not doing enough to prevent it’. But by the early 2020s, computers had already demonstrated a remarkable ability to analyse, manipulate, and generate language. AI algorithms can now learn by themselves things that no human engineer programmed such as composing and disseminating sophisticated, untrue and polarizing political messages. Therefore, a platform’s algorithm that has as a goal to maximise user engagement could decide to deliberately spread or even compose outrageous conspiracy theories to achieve this goal. Hence, AI bots can become independent agents that might ‘accomplish goals which may not have been concretely specified and which have not appeared in training’.
In that regard, the Silicon Valley challenge to democracy becomes apparent. BigTech have enormous technoeconomic power and they can use that power to shape the political landscape. Such technoeconomic power allows its holders to exercise significant political influence while their deep pockets enable them to engage in unprecedented lobbying. In doing so, they can shape citizens’ political preferences and democratic decision-making, and mould regulatory efforts in ways that promote their interests and not that of the general public. Importantly, such noneconomic activities can help them further entrench their technoeconomic power. This mutual reinforcement could undermine both economic and political democracy leading oligarchy. In the present context, this would be a tech oligarchy namely a regime where a handful of tech billionaires (Elon Musk, Mark Zuckerberg, Jeff Bezos, Sam Altman) control vast among of data and digital capabilities and have the ability to shape public discourse and influence political outcomes (e.g. via information manipulation, election interference or erosion of privacy), and resist to regulation and government oversight. Tech oligarchs can extend their power beyond national borders by opposing regulatory attempts of foreign jurisdictions (in their own territory), by engaging in digital colonialism, and by challenging the authority of governments and traditional media
In the 1930s, a group of German economists and legal scholars, the ordoliberals, (Walter Eucken, Franz Böhm, Alfred Müller-Armack, Wilhelm Röpke, Leonhard Miksch, Ludwig Erhard) developed a distinct approach to economic policy as a reaction to the economic crises of the Weimar Republic and Nazi interventionism. Having experienced the rise of Nazism – which in abstract terms could be perceived as a process of centralizing both economic and political networks –, the ordoliberals recognised that a lack of economic competition and increasing market concentration can have negative spillover effects to democracy understood as political competition, and facilitate the rise of totalitarianism. They also observed that safeguarding robust economic competition could serve as a crucial defense against totalitarianism. These scholars saw a nexusbetween political and economic democracy. This nexus consisted in the idea of competition and an economic constitution that revolves around the notion of social-market economy.
According to ordoliberals, the weak Weimar state and laissez-faire liberalism failed to curb the concentration of private economic power, which ultimately facilitated the emergence of a centrally planned economy under the Nazi Regime. Since the 1880s, trends of cartelisation and monopolisation within the German economyempowered powerful private actors to exert coercive control over others, infringing upon their rights and freedoms, while unduly excluding them from the market. These powerful market players successfully transformed their economic influence into political power, corrupting various political institutions through interest capture. The escalating economic concentration, coupled with hostility toward competition precipitated a profound crisis in the German economy and led to what was termed ‘group anarchy’ among powerful interest groups. This dynamic effectively reshaped the Weimar economic and political system into a ‘neo-feudal’ system, triggering a legitimacy crisis.
In response, there was a growing demand for a more active role of the state in the economy and for robust political leadership. Consequently, a growing number of private cartels and monopolies came under the control of the state or were directly socialized. However, rather than solving the issue of excessive market power concentration, these measures fostered a coalition between private and public economic power, paving the way for the establishment of a centrally planned economy.
For this reason, ordoliberals concluded that laissez-faire capitalism is inherently unstable and that competition law should prevent economic freedom from undermining its own prerequisites. They argued that competition, as an organising principle, necessitates decentralised networks in both the economic and the political sphere. In that way competition can safeguard both economic and political democracy.
The ordoliberals identified welfare maximisation, economic freedom and procedural justice as key benchmarks for assessing the effectiveness of competition. In contrast to the conventional wisdom (see here and here) the ordoliberals were not oblivious to welfare considerations nor were they proponents of hollow of formalism; rather, they recognised the value of competition for its capacity to enhance welfare and protect freedom. And they emphasized the importance of reconciling the welfare-enhancing aspects of competition with other objectives that ensure a humane, free and democratic economic order.
Another significant figure in the pre-history of antitrust recognised a profound connection between competition and democracy. For Adam Smith, the ‘chief virtue’ of market-based societies was not merely efficiency but their capacity to dismantle relationships of ‘servile dependency’ (WN, 260). Such relationships were prevalent in the preceding feudal order, where socio-economic hierarchies were entrenching relations of dependence(WN, 265-266). In that context, Smith lauded the market as a public domain where free and equal agents engage in voluntary exchanges (WN, 8-30).
Contrary to the Chicagoan perspective (see here, here and here), the renowned Scottish philosopher argued that markets should be valued not only for their potential to generate wealth but also for their ability to instill order and ensure ‘republican freedom’ (freedom as non-domination) (WN, 260, 265-266, 391-392). Most literature emphasises Smith’s views on the welfare-enhancing properties of competition (WN, 8, 11-16, 18-30, 376) and neglects the freedom-related concerns (WN, 374-392). For example, it is well known that Smith observed that in markets each participant even when driven by ‘self-love’ (enlightened self-interest) inadvertently serves the public interest through an invisible hand (WN, 291-292). It is also known, even though much less recognised, that when Smith describes well-functioning markets, he refers to markets where numerous suppliers competing vigorously, consumers are well informed and there are no significant barriers to entry and exit (WN, 259-273, 352).
What is, however, almost neglected is that for Smith preserving economic competition is worthy not solely for the sake of general opulence but because it can dismantle relationships of ‘servile dependency’. Unlike in feudal societies (a system of strict social hierarchies), in the commercial society, ‘each tradesman or artificer derives his subsistence from the employment, not of one, but of a hundred or a thousand different customers’, and, therefore, while being ‘in some measure obliged to them all, is not absolutely dependent upon any of them’ (WN, 265-266). For Smith, this is ‘by far the most important of all the effects’ of commerce and the main reason for preferring it to other economic systems (WN, 265-266).
Consequently, for Smith competition is not a given or a natural, spontaneous ordering. Instead, competition is a fragile ideal (WN, 299) that can be suppressed by public and private barriers to trade (WN, 288-301, 338-352, 429-420). And competition is to be valued both for its welfare-enhancing and freedom-safeguarding properties (and assessed on this basis). Furthermore, investment in public infrastructure and regulations that promote trade, and competition might be necessary for competitive markets to exist (WN, 413-419, 451-454) while governmental intervention might be necessary to protect markets also against geopolitical challenges (e.g. tariffs or subsidies from other countries supporting their market actors) (WN, 288-301).
Importantly, for Smith, markets work well where the market price (the price charged in the market) ‘gravitates towards the natural price’ which reflects ‘what it really costs the person who brings it to market’ (WN, 53-56). This alignment occurs when: a) there are public spaces that facilitate genuine interaction between suppliers and buyers; b) participants in the market are free and relatively equal agents; c) there are no public and private barriers to trade such as cartels and other restraints of trade or monopolies, whether created by private entities or state intervention, that could distort market dynamics (WN, 53-62, 129).
Bringing these threads together, we can see that, for Adam Smith, markets and competition function as tools to secure and uphold freedom as non-domination, breaking down the power structures and dependencies that defined feudal society, while for the ordoliberals, competition is regarded as a constitutional principle, essential for ensuring both economic and political democracy by promoting the deconcentration and decentralization of markets. Such concerns have found there way in competition law adjudication.
For example, in United States v. Columbia Steel Company (1948) William O. Douglas in his dissenting opinion noted that
‘power that controls the economy should be in the hands of elected representatives of the people, not in the hands of an industrial oligarchy. Industrial power should be decentralized. It should be scattered into many hands so that the fortunes of the people will not be dependent on the whim or caprice, the political prejudices, the emotional stability of a few self-appointed men. The fact that they are not vicious men but respectable and social minded is irrelevant. That is the philosophy and the command of the Sherman Act. It is founded on a theory of hostility to the concentration in private hands of power so great that only a government of the people should have it’ (italics added).
In a similar vein, the Court of Justice (CJ) has consistently upheld the view that competition is a public good that deserves protection in its own right , and as guarantor of equality of opportunity and freedom as non-domination. For example, in GlaxoSmithKline the CJ ruled that Article 101 TFEU ‘aims to protect not only the interests of competitors or of consumers, but also the structure of the market and, in so doing, competition as such’ and in Super League it held that ‘the purpose of that provision [Art. 102 TFEU] is to prevent competition from being restricted to the detriment of the public interest, individual undertakings and consumers, by sanctioning the conduct of undertakings in a dominant position that has the effect of hindering competition on the merits and is thus likely to cause direct harm to consumers, or which causes them harm indirectly by hindering or distorting that competition’ (italics added). Hence, both the US and the EU competition law systems have sought to preserve competition as a public good and as a process of rivalry capable of ensuring equality of opportunity and freedom as non-domination.
This public nature of markets and their freedom-safeguarding function is exactly what is at stake in modern digital markets. When a handful of powerful digital ecosystems control the cloud capital (i.e. a new form of capital emerging from the ownership and control of digital platforms, data, and algorithms; such capital enables new forms of value extraction via cloud rents) and exert architectural or quasi-regulatory power through chokepoints and digital bottlenecks, they effectively replace ‘Smithian markets’ with algorithmic simulations of markets. In these curated environments, consumers often struggle to make meaningful choices, as they receive information that is specifically tailored to them. The algorithms that drive these ecosystems not only learn from user behaviour but also influence and modify user preferences in return. In that way ordinary users of platforms (‘cloud serfs’) provide unpaid labor (e.g., generating data through clicks, posts, or searches) enriching the owners of cloud capital, while the actual employees of these platforms are today’s proles (‘cloud proles’).
Furthermore, the use of algorithms and big data enables the central nodes within these networks to exercise panopticon power, to control the competitive process by picking winners and losers, and dictate the direction, quality and nature of innovation. In that way, digital ecosystems are replacing markets as public institutions – where Smithian sellers and buyers once interacted – into entirely privatised and privately controlled digital transaction spaces dominated by single entities (‘cloud fiefs’). Behavioural manipulation (e.g. dark patterns) and enclosure strategies (platform envelopment) are the key means through which the coudalists consolidate their ‘power to command’. Through these strategies traditional industrial capitalists become subservient “vassals” to cloudalists. In this context, relationships of ‘servile dependency’ emerge with digital baronsreinforcing hierarchies and dictating the ‘rules of the game’ while maintaining the façade of competition.
To avoid or reverse these troubling trends a singular focus on consumer welfare – defined solely in terms of prices and output – is inadequate. If competition law were to prioritize only consumer welfare, it would fail to tackle behaviours that, while consumer welfare-enhancing, undermine effective competition and entrench relations of servile dependency. One might object that ‘consumer welfare’ could be understood more broadly as encompassing quality, choice and innovation. While this is true, a consumer welfare-minded competition law will still fail to grasp the form of economic power (where ‘control over information and digital capabilities’ and not ‘ability to influence price’ is key) and will downplay the structural effects that such power might have for markets and political decision-making process. In other words, a consumer welfare-minded competition law turns a blind eye to the ongoing transition of market capitalism to technofeudalism. Such an oversight would hinder digital environments’ ability to generate and distribute value fairly, as well as to foster both sustaining and disruptive innovation. Most critically though, given the connection and the multi-faceted nature of Big Tech’s power, such a failure would allow distortions of competition to adversely affect democratic decision-making processes and lead to oligarchy (see also here).
If competition authorities remained captivated by the consumer welfare orthodoxy and the neoclassical economics paradigm, they risk overlooking how digital ecosystems can amass significant techno-economic and political power, ultimately threatening both industrial and political democracy (see here, here and here). Therefore, a serious revaluation (see for example here and here) is necessary to explore how competition law can better promote economic democracy (in that regard see also this fascinating monograph). In this context, the ordoliberal competition-democracy nexus and the Smithian ideal of republican freedom regain relevance. These concepts could serve as animating principles for competition authorities as they seek to refine their analytical framework and recalibrate their enforcement strategies to protect effective competition.
*Stavros Makris is Lecturer in Law at UCL
**All references to The Wealth of Nations are derived from the edition titled An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith, published in 1776 by Oxford University Press in 1993.
