Umpires, Not KingsApril 15, 2022
Competition over scarce resources is at the heart of our evolution as a species and the success of Western democracies. We are the product of millions of generations of survivors who bested their rivals for food, shelter, and mates. From two single-celled organisms competing over an energy source to a pair of sisters grinding through practices in pursuit of Grand Slam trophies, competition has inspired endless effort and innovation.
Charles Darwin kept his work private for 20 years before learning a colleague was advancing a similar theory, prompting him to write On the Origins of Species. Nikola Tesla and Thomas Edison feuded bitterly on their way to establishing the building blocks of our electrically powered economy. Hemingway and Fitzgerald pushed one another to invent modern American literature, and Jay-Z and Nas mined their disdain for each other to spin lyrical and literal gold.
From flame-broiled burgers to retina displays, companies are spurred to improve their products not by ideals or curiosity, but because if they don’t, the other guy will eat their lunch. Avis made an entire ad campaign out of the premise: “When you’re only No. 2, you try harder.”
Business history is a tale of competition, redoubled effort, and greater innovation. In 1869, Central Pacific laid 10 miles of railroad in less than 12 hours from fear that Union Pacific would get there first. In 1978, Airbus entered the U.S. market for the first time; Boeing responded with three historic aircraft in five years (the single-aisle 757, the twin-aisle 767, and a revamped 737). It took a near-death experience at the hands of Japanese manufacturers to wake Detroit from its victory coma.
Silicon Valley was birthed from the “space race” competition between the U.S. and the USSR. In October 1957 the Soviets launched a dog into orbit. Within a year, the U.S. founded NASA and ARPA and authorized the investment of millions of dollars in math and science education, all of which funded the first generation of Valley firms. Competition has been in tech’s DNA ever since. Steve Jobs founded Apple 362 days after Bill Gates founded Microsoft.
The most prosperous societies are built around free-market competition. It’s uncomfortable — harsh even — so we’ve tried to design societies based on planning and enforced economic equality. But communism leads to stagnation, repression, and economic collapse. China’s economy went from starving its people to minting self-made female billionaires after Deng Xiaoping embraced private enterprise and competitive markets. “To get rich is glorious,” he proclaimed.
However … winners’ lust for competition wanes after they’ve won. Why let anybody on the medals podium if you can occupy higher ground and repel anybody who gets near the stage?
Imagine if the team that won the Super Bowl automatically qualified for the playoffs the next season, or started every game with a 10-point lead? In fact, the opposite happens: the best teams get the worst draft picks. The NFL may be the most successful league in the world because it doesn’t let the largest market teams leverage their scale to collect more of the lucrative TV contract: The Green Bay Packers get the same share as the New York Giants. Do well in professional soccer, and you get moved up a division to face tougher opponents — and play for greater rewards.
No field sees winners try to retract the ladder behind them more aggressively than business. From Cecil Rhodes using the power of the state to turn diamond mining into a cartel, to Martin Shkreli blocking generic manufacturers so he could raise the price of a life-saving drug 56x, nothing threatens today’s competition more than yesterday’s winners.
John D. Rockefeller was upfront about his distaste for competition, once saying that he was engaged in the “the battle of the new idea of cooperation against competition.” And later: “The day of individual competition in large affairs is past and gone.” Though Rockefeller’s idea of “cooperation” was rather one-sided: To bring down the price of a refinery he wanted to buy, he’d first buy the pipeline that transported oil to it and cut off the supply.
Starting in the late 19th century, U.S. lawmakers realized that centralized economic power wasn’t just bad for business, it was bad for the country. Senator John Sherman, who sponsored the first major U.S. antitrust legislation, said, “If we will not endure a king as a political power we should not endure a king over the production, transportation, and sale of any of the necessaries of life.” We broke up Standard Oil and American Tobacco and stopped the consolidation of the railroads. The economy roared as competition oxygenated the ecosystem.
Today’s largest companies offer a masterclass in anticompetitive behavior. Amazon bars sellers on its platform from offering lower prices elsewhere, then uses the information it gleans from them to design and market its own, lower-priced products. It gives favorable search results placement to vendors that use Amazon fulfillment services (for which it’s been fined $1.3 billion by the Italian government). Defenders of the company say this is all business as usual … yet Amazon lied to Congress, repeatedly, about all of it.
Apple takes a 30% cut of app revenue, which it says it needs to run the app store, but it books billions in profit instead of cleaning up obvious frauds or copycats, while giving preference to its own products over competitors. (Can you get your iPhone to stop trying to play music through Apple Music instead of Spotify?) Microsoft charges more for its applications when users run them on a competing cloud provider. Google doesn’t merely sit on both sides of the digital advertising negotiation, it owns the negotiating table. And Facebook has stated that it acquired Instagram to eliminate a competitor.
This is hardly new for Big Tech. In the 2000s tech titans conspired to suppress competition for employees. For example, when Steve Jobs learned that Google was recruiting an Apple engineer in 2007, he emailed CEO Eric Schmidt: “I would be very pleased if your recruiting department would stop doing this.” Schmidt forwarded the email to an underling: “Can you get this stopped and let me know why this is happening?” He was told the recruiter would be “terminated within the hour” and to “please extend my apologies as appropriate to Steve Jobs.” Then a Google SVP chimed in: “Please make a public example of this termination with the group.” (We only know about Jobs and Schmidt channeling their inner Rockefellers thanks to a class action lawsuit former employees brought against the companies, which led to a $415 million settlement.)
Another favorite Big Tech trick is demanding competitors obey the rules they ignored when they were starting out. Amazon used to have a price advantage over physical retailers because it didn’t collect sales tax, and it fought to maintain that edge, even closing down a warehouse in Texas to avoid having to charge tax there. But once other online innovators became more of a threat to Amazon than brick & mortar ones, the company flipped the script, invested in the infrastructure necessary to collect sales taxes nationwide, and announced its support for a federal sales-tax-collection framework. Now Uber is following the Bezos playbook. After building its business by ignoring livery laws that regulated the hired-car market — and protected the incumbent taxi companies — Uber is embracing traditional cab companies and listing them on its app, thereby building a moat against incursions by Lyft and other digital-native competitors.
“Free speech” is a trending topic because of debates about how to police online forums, chiefly Twitter and Facebook. The leader of the supposed free speech movement, Elon Musk, says he wants Twitter to be an open playing field for competitive speech. And he’s right, that’s a great goal. But a competitive field is not an unfettered, uncontrolled one. Serena Williams has won 23 Grand Slam titles because she’s the best player in history. She’s won only 23 Grand Slam titles because she’s not allowed to use her winnings to buy a pack of tennis playing automatons and bring them onto the court with her. The rules are the same for her and each opponent, and those rules are enforced by an umpire.
In an unmoderated online forum, all speakers do not play by the same rules or have the same tools. University of Maryland professor David Kirsch has found that automated pro-Tesla Twitter accounts are responsible for 20% of the tweets about Tesla, and that the launching of these bots correlates with increases in the company’s stock price. It’s not just bots. Say something negative about Elon online, and I’ll vouch for this, the Tesla Taliban comes for you. Anyone who tells you this is “free speech” doesn’t want freedom, they want power via elimination of competitive speech.
As much as competition is natural, it’s not inevitable.
In Praise of Umpires
Competition depends on rules, and rules depend on umpires. We should fight to protect competition — not winners. Because winners subvert the process. In the name of competition, they demand that their anticompetitive acts go unpunished. In the name of freedom, they insist on their right to shout down the dissenter’s voice. In the U.S., winners have funded “think tanks” and politicians, bought newspapers and cable news stations, and convinced us the umpire is our enemy.
Our failure to police Big Tech’s anticompetitive conduct is suppressing innovation. Despite an explosion in VC funding, the growth rate of innovative young companies has actually slowed. For startups in developing sectors, a Big Tech acquisition is a kiss of death. Yes, the folks who get acquired can take the money and run, but the sector itself dries up. Research shows that when Google and Facebook purchase a company, VC investment in that sector drops 40% within three years. When Google enters an app market category, innovation among competing apps drops 5.1% and developers flock to other categories. Apple the underdog produced the Mac, the iPod, and the iPhone. Apple the colossus charges 30% for the privilege of being on the App Store. When you’re only No. 2, you try harder.
The standard term for the government’s role in ensuring competition is “antitrust.” It’s an unfortunate anachronism, from the Teddy Roosevelt era. Today, Senator Klobuchar gets it right when she calls antitrust “competition policy.” The point of rules and referees isn’t to stop people from winning. It’s to keep the game alive.
Capitalism is full-body contact violence at a corporate level. On the way up and down. Winners will always seek to entrench themselves, buying up competitors or starving them of resources and seizing control of political power and forums for speech and debate. Misconceptions about censorship and free speech are false flags distracting us from power grabs by those who don’t want their speech to compete, but to be promoted/protected by algorithms. Just as complaints about competition policy “picking winners and losers” or “punishing winners” are cover for letting those winners rig the next round of competition in their favor. It’s long past time to replace the idolatry of innovators with a reinvigorated respect for the rules and the umpires who enforce them.
Life is so rich,
P.S. Speaking of winning, No Mercy / No Malice has been nominated for a Webby, and we could use your vote to help us win: http://wbby.co/web-email-business. Help put us one-fifth of the way toward a WEGOT.
P.P.S. Another thing about those “genius innovators”? A lot of them are terrible to work for. Don’t be that person. The Complete Manager Sprint closes soon.