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Umpires, Not Kings

Scott Galloway@profgalloway

Published on April 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.

Common Thread

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.

Winner’s Circle

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.

Comments

39 Comments

  1. Jasl says:

    Going back a step, the more fundamental cause of growth (personal or technologic) is challenge. Competition against other people is one potential source of challenge, but no the only one.

  2. Peter Karamitsos says:

    We should cheer and encourage competition and the idea of an “umpire” for free speech sounds good in theory but while it’s easy to agree on rules in sports – is the tennis ball in, is the field goal, good, etc. who determines what “hate speech” is for instance? Is it saying something like “all lives matter”? I’m no fan of Joe Rogan but he was correct when he pointed out that a number of comments about Covid that would have you knocked off social media later turned out to be accurate. Limit the influence of bots & such but it’s always better to counter bad or false arguments than to suppress them. Also remember complexity is a subsidy–the more complexity regulations create in a market, the more that favors the big players who can afford to comply.

  3. John Cooper says:

    Great visuals & article on COMPETITION

  4. Manish Singh says:

    Prof Galloway another fantastic piece No Mercy No Malice

  5. James says:

    Insightful and spot on. It’s funny to me that the same people who get all upset over athletes cheating on sports (like MLB steroid scandal) have no problem with Amazon, Apple, Google etc cheating in the name of “free market” policy.

  6. Paul says:

    You nailed this problem Scot. Thanks for your perspective.
    It seems that Congress is bought and hogtied except for a few senators whose voices are in the wilderness.

  7. Neil says:

    The umpire strikes back ……not

  8. Jimmy says:

    A thought experiment… how about we remove some key regulations. Let’s start with international aviation rules – just scrap the whole lot. Let the market fight it out. Or traffic – remove all speed limits, lane markings, traffic signals etc. They’re so bothersome.

    How could we best measure success of our new free for all? Perhaps who has the cheapest fares and fastest times from A to B? Or how many people die trying?

    Lastly, we should de-regulate water services. Those sewage treatment plants are so costly to run! Just let the market mix up waste water and drinking water as it used to be in the good old days.

    We can forget the fact that all these regulations that have been finessed over decades, sometimes centuries, have made a massive contribution to human well-being and life expectancy (which is twice as long now as it was in 1800).

    So to all the “no regulation” commentators, think about that when you’re taking a shit, and before you make policy on regulation, get an education (‘out way’ should be ‘outweigh’ surely), particularly in economics and statistics.

    Publishing on the web is still publishing, and like most technology and its enabling processes, should be regulated, whatever it is, and whoever is publishing. Otherwise, like most technology, it can do harm as well as good.

  9. Jon carson says:

    The technical term is regulatory capture. The flaw in our current system is the .1% are Increasingly capturing the government and re-writing the rules of the game.

    Tax cuts and regulatory rollback anyone?

  10. Bob Wyman says:

    Regulation restores the restraints that are lost when competition is weakened or eliminated. The problem isn’t Capitalism, it is that we have a Congress that is unwilling to do the job of regulating Capitalism wisely.

  11. James says:

    When I reboot my PC to update it from MSFT malware it always blocks Google Chrome and “suggests” Bing! Then it takes an hour to fix. Two titans wasting my time.

  12. John Crane says:

    Interesting the comment about Tesla and Twitter. FB, Twitter, CNN, etc. are all guilty of being anything but fair and objective. Recent excellent Vanity Fair article about origin of Covid reports a host of facts (yes, facts) previously dismissed by all these media platforms as “misinformation” ….which is code for “real information which contradicts our preferred narrative”. FB et al should be regulated as broadcast media….they are not genuine platforms where opposing viewpoints are freely accessible…. they suppress any info they / their corporate sponsors dislike.

  13. Sri Vihar says:

    This is Not really accurate – “Competition over scarce resources is at the heart of our evolution as a species and the success of Western democracies”
    It’s more of war and colonialism.

  14. Bill says:

    I kid you not, at :58.7 seconds left in the Oilers game at MN April 12th, just as the ref is about the drop the puck, a fan wearing a referee jersey stood up and applauded until the puck was dropped then sat down.
    It was brilliant and so timely due to this post.
    In every game there are three teams. This is the first time I have seen someone cheer for team Referee.

    • Bill says:

      Scott, if you are interested in seeing the video clip, let me know…it’s…so…good!

  15. Gunnar S. Cordsen says:

    None of us are surprised by the contents and context of this article. Since we as N.A conusmers are naively stumbling into ever higher prices, allowed and available to these companies by compliant government trade agencies. This will not not end well for the US.

  16. Dale Tingley says:

    We see unparalleled levels of political corruption daily. They manipulate and control our children, universities, healthcare, media, platforms like Twitter, Facebook, ect., judges, police, DOJ, FBI, House, Senate, ect. without fear of retribution. Umpires have already called the game before it’s played. Yet somehow Musk is a worse choice then the pirates we serve daily?
    We only have conditional free speech with twitter management now but some “hope” with Musk. At the very least we’ll see much needed improvements in the platform.

    If not him, who? Another Zuckerberg or worse? Better the Devil you know…!

  17. Dave Van der Linden says:

    Actually my Siri annoyingly does the opposite and will default to Spotify, even though I am an Apple Music subscriber and not a Spotify subscriber. I have been unable to fix it without deleting the Spotify app.

  18. Jill says:

    The best twitter thread I’ve read in a long time on this topic by Yishan, from the perspective of someone who actually ran a social media platform. It’s much more complicated than most people imagine. You did a great job of providing context as to why.

  19. Claire says:

    Great article. Everyone should read it.

  20. Jeffrey says:

    You state… “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.”

    So you recognize the superiority of Capitalism as compared to all other socioeconomic systems. Kudos.

    Yet, you judge the competition as unfair. Stepping back one can see that in most cases their is no consumer harm- mostly just benefits. US Antitrust viewed through that lens advances aggregate wealth faster than the EU’s approach which protects competition while largely ignoring consumer impact.

    And- in technology history has shown that in time- no monopoly is secure.

    You also ignore the costs of regulation in how they retard growth slowing down advancements. An invisible cost that to many out ways the benefits of such regulation. Move fast and break things may be sloppy and cause short term collateral damage- while also driving great consumer benefits.

    Everything must be weighed through a cost/ benefit approach.

    Perfection is the enemy of the good. Careful.

    • Nick says:

      “Move fast and break things” can absolutely bring consumer benefits, provided those same consumer have viable options. That keeps a practical lid on how much breakage is tolerable. Breaking things, while buying up competitors to limit choices, is harmful.

      You seem to think there’s little or no consumer harm in (just to pick one area) a 30% tax on app revenues, and a consequential squelching of app innovation. I’d disagree. Loss of innovation is a direct harm to consumers.

      Regulation can indeed – and often is – burdensome. But it doesn’t have to be. The greatest burden comes from regulation that forces even those companies that are compliant to produce reams of documentation and absorb other overhead costs, or that requires (or disallows) specific features or capabilities that consumers may or may not want (or that technology may make obsolete). A better approach is to properly fund the enforcement side of those regulations, so we can go after the egregious violators.

      • Jeffrey says:

        In most cases- The market self policies just fine- capital flows where it’s treated best- always.

        Excessive regulation frequently strengthens the largest companies as they have the financial resources to follow complex rules. It frequently retards competition.

        Importantly- Technolgy moves so quickly most regulation is obsolete by the time it becomes law.

        If one observes technolgy markets a logical conclusion is that those that are more unfettered create more advancements than those that are over regulated. Just look to Europe for comparison.

        Apple created the app market. It’s their invention- they deserve their profits as they have enabled more businesses and created more value than possibly any other business in all of existence. Google is a competitor and Apple will encourage competition if their profits are too high- as that’s how capitalism works. Excess profits attract competition and capital. All elementary.

  21. Kenneth Goldman says:

    Yeah true but prefer what we have to Europe and China where how many great tech companies do you see Scott?

    • Jeffrey says:

      Agreed.

    • Bill says:

      Because regulation is but the 123rd or so most important factor in your equation?
      Might I suggest painting with something other than a broom…

  22. Jamie Shafer says:

    Spot on! To bad many will now consider you a dreaded “Socialist”!😎

  23. Andrew Uerling says:

    Awesome, it would be beneficial for everyone to read this whether you agree or not. I agree 100%

  24. Reindeer61 says:

    Brilliant–should be in every Econ 101 course. Now, why are Canada’s Competition Bureau and DOJ’s Antitrust Division so flaccid and supine? Surely can’t be regulatory capture, can it?

  25. LukeTheDuke says:

    Scott, I enjoyed this article and the point of lack of innovation from these big companies is something I think about often. What was the last iPhone that really impressed people?

    I am curious how if the algorithm were on the blockchain (one of Elon’s ideas) will protect/promote him/his companies? Admittedly I have a weak understanding of the blockchain but if the algorithm was on the blockchain open for all to see, how could he possibly protect/promote himself? Wouldn’t someone easily be able to call him out for doing such a thing? That would be the day all trust would be lost from this Elon enthusiast. Same as the last article I am questioning your disdain for Elon.

  26. Giovanni Mello says:

    Laika – the little Russian dog – was sent in the space in November 1957: Sputnik the first Russian satellite that started the “space race” was launched in October 4 1957

  27. Patrick Fekula says:

    Scott,
    Thank you for your fresh insight on this complicated and misunderstood issue.

  28. Neets says:

    you’re such a great teacher, you make an old Southern lady like me understand things i never thought about before. you the Dawg, i don’t care what Kara says, LOL.

  29. Sergio Mirensky says:

    Another very often example: is governments that win democratically and then eliminate the umpires/institutions that grant future democratic processes, so that they can perpetuate in power.

    • Al KHAN says:

      A new approach to tackling monopolies in Digital from likes of FTC head Lina Khan need updated Federal Legislation to make them competitive.

      • GGArnie says:

        Yes there needs to better balance AND Enforcem’t of the “rules which are already on the books”. Moreover, the “Government and it’s unelected appointees across its Agencies” have a very spotty history of success. For example, the CDC (Centers for Disease Control). Out of control.
        So, be careful what you wish for from Ms. Khan.
        This attached article asserts rightly that often it is the political egos within these agencies which take on a life of their own via appointed “Heads”:
        https://americansforprosperity.org/ftc-khan-consumer-welfare-standard/

    • GGArnie says:

      Article speaks w/truth. The BigGov’t-BigCorp Cabal SUCKS.
      Not only across the tech sector/other innovation sectors, but they are destroying AMERICAN Culture. Big Gov’t represents the 1% at the expense of all the rest of us. Big globalist anti-American corporations FUND LOBBYISTS to harangue the Congressional whores and the unelected incompetent bureaucrats to support legislation which benefits certain Corporations and NGO’s. I am f-in SICK OF IT.
      Congressional TERM LIMITS is a start.
      I love “America First” policies, because they benefit every who makes an effort.

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