Regulating Facebook: a process, not an event – Leighton Andrews

28 09 2019

The Governor of the Bank of England, Mark Carney, recently flew half-way across the world to meet Mark Zuckerberg. While the Bank of England is being rather coy about what was discussed, a number of recent speeches by the Governor have raised questions about Facebook’s move into crypto-currency with its plans for its Libra system.

Libra marks Zuckerberg’s next stage plan for the development of Facebook, building a private e-commerce business on the WhatsApp platform, using the Chinese app Wechat as its basic model. Facebook is testing payments on WhatsApp in India, as he said on the company’s most recent earnings call for analysts.

Mark Carney has warned that there are ‘a host of fundamental issues that Libra must address’ and that its operation ‘could have substantial implications for both monetary and financial stability’. He was clear that  ‘unlike in social media, for which standards and regulations are only now being developed after the technologies have been adopted by billions of users, the terms of engagement for any new systemic private payments system must be in force well in advance of any launch.’ France and Germany are said to be sceptical of Libra, and there are anti-trust concerns in the EU.

Why couldn’t Carney meet Zuckerberg in the UK? Well, the simple truth is that Mark Zuckerberg can’t set foot there without giving evidence to the House of Commons Select Committee on Digital, Culture, Media and Sport. That’s a gig his minders consider too tough for him to undertake, unlike his hearings in Congress and the European Parliament. Other Parliamentarians from a growing number of jurisdictions, now regularly meeting as the International Grand Committee, would also like to question Zuckerberg. These legislatures now include Argentina, Canada, Chile, Estonia, Germany, Ireland, Singapore, Ecuador, Mexico, Morocco, Trinidad and Tobago, and the United Kingdom.

It’s an indicator that legislators understand the need to band together across borders if they are to tackle Facebook.

Meanwhile, the European Union’s re-appointed Competition Commissioner, Margrethe Vestager, has said that data use by tech companies may need further regulation, and Ireland’s Data Protection Commissioner (DPC), who leads on EU data regulation for Facebook in particular, has warned that it may face huge fines as a result of the many investigations the DPC has underway against the company. Last week Mark Zuckerberg met lawmakers in Washington and met President Trump in the White House. There’s a reason he was in Washington: lawmakers on the House of Representatives’ Judiciary Committee have set up a sub-committee on anti-trust which has just demanded extensive range of documents from Facebook and other Big Tech companies.

Facebook is now under regulatory and political scrutiny around the world. Belatedly, Mark Zuckerberg has become a convert to further regulation. posted ideas for regulation on his Facebook page and in the Washington Post in March 2019. However, within weeks, Facebook lobbyists were telling Congress Zuckerberg’s comments were for international consumption.

The political and regulatory interest in Facebook now extends across a range of policy fields: data protection, data agglomeration, algorithmic regulation, competition policy including mergers, abuse of dominant position and anti-trust, consumer protection and advertising including electoral and political advertising, hate speech, protection of minors, terrorist abuse of the platform and hostile state disinformation dissemination. It is difficult for researchers to keep track, which is why the work of Dwayne Winseck and Manuel Puppis in collating the different reports is so useful.

In the United States, Facebook has been hit by a $5 billion fine from the Federal Trade Commission and a $100 million fine from the Securities and Exchanges Commission over Cambridge Analytica data abuses. Some wanted regulatory action to go further, with personal penalties and obligations imposed on named Facebook executives like Zuckerberg. Law enforcement agencies have also been on Facebook’s case. 38 state attorneys in the US are investigating Facebook. In July Facebook confirmed that federal-level anti-trust investigations were underway.

Facebook was fined more than €100 million by the European Commission in 2017 for breaking commitments against data-sharing given when it bought WhatsApp. Fines have taken place in other member states including the UK.

Democratic presidential contender Senator Elizabeth Warren has called for break-up of what she calls the ‘Platform Utilities’ with clear restrictions on their vertical integration.

The online advertising model which drives the Facebook/Google duopoly is now under scrutiny globally. The Australian Competition and Consumer Commission said platforms like Facebook and Google need scrutiny because their dominant businesses are vertically integrated, that is, present at multiple levels of the same supply chain. Facebook is vertically integrated through the Facebook audience network and the services offered on Facebook platforms.

The German Cartel Authority, the Bundeskartellamt, has called Facebook’s combination of data on individual users, drawn from a variety of data sources, ‘an exploitative abuse’ of its dominant position. If its judgement is confirmed, Facebook’s advertising model, based on the massive accumulation of data which makes it so attractive to advertisers, will be called into question, unless it gets direct consent from users. Facebook is challenging this. The UK’s Information Commissioner has also begun serious work on online advertising, with research indicating how little it is understood by users and how more understanding of its nature results in greater concern about it. The UK Competition and Markets Authority is now carrying out a market study into online platforms and the digital advertising industry. The Canadian Competition Bureau has asked for evidence of anti-competitive activity in the digital economy.

It is sometimes argued that the most effective way to regulate Facebook would be some form of structural separation – to break it up, stripping it of WhatsApp and Instagram or Facebook Messenger. However, some legal scholars like Harold Feld warn of the ‘starfish problem’:

“If you tear up a starfish, the pieces regrow and instead of one starfish you have five starfish,” says Feld. “If you’re going to split up Facebook, what’s to prevent it becoming three Facebooks, each one dominant in its particular market segment?”

Arguably, the real power centre of Facebook is its vertical integration as a social media network, a media distribution company, a media buying company, an advertising exchange or platform, an advertising agency, and a data analytics company; its horizontally integrated data exchanges between Facebook, WhatsApp, Messenger and Instagram; and the ability of advertisers to sell across the Facebook companies. Structural separation of these functions might be a powerful solution.

Legislators also want action on political advertising on Facebook. In a number of these areas Facebook has decided to change its own rules. Other legislative proposals  have included suspending micro-targeting of political advertising; aligning rules on television and online advertising; ensuring that online materials produced by parties, candidates and campaigners reveal their source and funding; stronger internal procedures to check eligibility of spending and ensure that it is monitored; tightening of rules to prevent foreign donations being used in elections and referendums, including by subsidiary companies of foreign-controlled companies; and regulated online databases of political adverts.

Countries around the world, including Australia, India and Singapore, have developed new measures around the takedown of illegal content or disinformation: as with the UK proposals announced in April 2019, many questions remain, including around due process, precision in definition of prohibited material, and satisfaction of human rights principles.

Facebook responds by pointing to the amount of material posted on its platform every day, with billions of posts and hundreds of millions of photographs. Others argue that Facebook is effectively being subsidised for the costs of its own failures by users, media organisations and others who flag up problem materials. Instead, it should be investing sufficiently to address the online pollution that it is causing, as with the ‘polluter pays’ principle that underpins much environmental legislation.

Facebook’s lobbyist-in-chief, former UK Deputy Prime Minister Nick Clegg, recently announced Facebook’s proposed Oversight Board for Content Decisions. But doubts have been raised about the effectiveness and independence of Facebook’s internal structures. Facebook now commands little confidence, because it has been found wanting before, and because its decisions on content moderation have appeared inconsistent, contradictory, capricious, and compromised by the profit motive. Legislative and regulatory frustration with Facebook and other platforms has turned to the question of criminal penalties on the senior managements of platform companies.

Pressure is also on to make platform companies pay more tax. In his October 2018 budget, the former UK Chancellor of the Exchequer, Philip Hammond, announced a new Digital Services Tax which would be levied on the revenues of the ‘Big Tech’ companies from 2020. Some have suggested levies on the advertising revenues of companies such as Facebook. Taxation is one way to address the negative externalities of platforms such as Facebook or to fund social goods such as independent news.

Facebook, for some, is now an empire. But the fight-back has begun. Fixing Facebook will take coordinated international regulation. We need legislators to move fast and fix Facebook, before it fixes us.

Leighton Andrews is the author of Facebook, the Media and Democracy published by Routledge, on which this article is based. He is Professor of Public Service Leadership and Innovation at Cardiff Business School.


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