Neoliberal economic and competition policy has made it easy for companies to expand their market power since the 1980s. However, the negative effects of monopolisation on politics and society were already evident at the beginning of the 20th century. At that time, large companies such as John D. Rockefeller’s Standard Oil were broken up. A new paper by the Balanced Economy Project makes the case for making greater use of the instrument of break-up again. Using historical examples, it shows how companies can be separated, what objectives should be pursued and what principles should be adhered to.
Companies with a monopoly-like position are endangering our democracy, exacerbating inequality, driving the climate crisis and increasingly evading state control.
In view of Google, Amazon and the like, which are constantly expanding and tapping into new business areas, it is logical and necessary to unbundle these companies. In fact, there are now several proceedings by competition authorities that could lead to the spin-off of parts of companies such as Google. This is because previous attempts to limit the market power of Big Tech through penalties or behavioral requirements are proving increasingly inadequate.
Why break-ups make sense today
With its new study “Breaking the Giants of Harm“, the Balanced Economy Project provides a comprehensive introduction to the instrument of break-ups. In view of the high level of concentration in recent decades, it is necessary to raise awareness of company break-ups again and to apply them.
To this end, the paper briefly presents previous corporate break-ups, such as John D. Rockefeller’s Standard Oil (1911), IG Farben after the Nazi regime (1945) or AT&T (1982). The main part of the paper, however, focuses on the question of how and for what purposes demergers can be applied today.
The Balanced Economy Project names one possible goal:
- Avoid conflicts of interest,
- eliminate economic (and geopolitical) bottlenecks,
- protect media diversity and democracy,
- Restore personal freedoms and freedom of speech,
- promote fair competition,
- bring global systems more under local control,
- tackle the problem of “too big to fail”,
- Protecting and promoting small businesses, broad-based prosperity and a balanced, diversified economy,
- Promotion of economic resilience and
- stop the accelerating “flywheel” of monopolization.
All in all, it is about promoting a diverse and democratic economy and politics as well as protecting fairness, security and human rights, which are coming under pressure from increasing monopolization.
Break lines for break-ups
The introduction describes various issues that need to be clarified before a break-up. For example, clear objectives and an understanding of how the company has grown and how market power contributes to problematic behavior are needed. There are also cases in which break-ups do not make sense, for example in the case of natural monopolies. There also needs to be a clear framework for the parts of the company after a break-up.
For practical implementation, the Balanced Economy Project has identified various fault lines along which companies can be broken up. These include, among others:
- Reversing mergers: Company takeovers that have already been approved can be reversed following a renewed and extended review.
- Counteract conflicts of interest: Business areas between which there are conflicts of interest can be separated. For example, traditional banking business and investment banking or Amazon’s marketplace from Amazon’s retail arm, which itself offers products on the marketplace.
- Separation of levels: Big tech in particular uses several levels to provide a service. For example, there is the storage of the data, the analysis of the data and the application software of the service. Companies can be broken up between these levels.
- Spin-off of the “defective” parts: Particular damage is often caused by individual business units, such as Google AdTech. This business unit can be separated out to put an end to abuse of power.
There are certainly legal bases for such unbundling, for example in the EU following proceedings for abuse of dominance or multiple violations of the Digital Markets Act. In Germany, since the reform of antitrust law last year, there is also the option of unbundling dominant companies in the event of permanent competition problems without proof of abuse break up.
The study briefly presents these legal options and addresses possible points of criticism of unbundling in an FAQ. Overall, it clearly shows why and how unbundling can be carried out. It therefore fits in well with the current debates on the unbundling of powerful companies.
Balanced Economy Project: “Breaking up the giants of harm. To protect democracy and have a resilient economy, we must tackle corporate power. Again. ” (pdf)
Further information:
- Maarten Pieter Schinkel and Ruben van Oosten from the University of Amsterdam recently presented proposals on how Amazon, Google and Apple could be split up: Breaking Up Big Tech: Scissor Line Suggestions For Smart Cuts
- Legal opinion in favor of breaking up Amazon, LobbyControl 2023