Maverick economist Tommaso Valletti: ‘It’s time to fight the tech titans’

Valletti is a leading expert on industrial and competition economics. He spoke with Follow the Money during a break in a workshop in Brussels where he was talking to regulators about the business model of Big Tech platforms. In the afternoon, he would be taking the train back to London, where he lives with his wife and children and works as Head of the Department of Economics and Public Policy at the Imperial College London.

Besides his academic duties, Valletti is currently on the board of the U.K.’s Payment Systems Regulator. He is an advisor to the U.K.’s communications regulator Ofcom and has just finished a three-year term on the board of the Financial Conduct Authority.

Between 2016 and 2019, the Italian professor served as chief economist at the European Commission’s competition department – a period he describes as ‘very important’ for his personal development. In Brussels, he worked on many cases, three of which led to rulings that saw Google fined more than a total of 8 billion euros for abusing its dominant position.

When Valletti first voiced these ideas, he was pushing at the limits of his office

His directness does not always go down well with the competition establishment. For instance, he did not shy away from criticising his Commission colleagues’ record of approving the acquisitions of promising start-ups by Big Tech, such as Facebook’s purchase of Instagram and Whatsapp.

More critical views on Big Tech are now being embraced by policymakers around the world, including U.S. President Joe Biden, as the market power of the digital giants has continued to increase, along with the astronomical fortunes of their billionaire owners.

But when Valletti first voiced these ideas, he was pushing at the limits of his office.

Personal awakening

According to Valletti, the period when he worked for the European Commission was ‘very important for me’. The position of chief economist was introduced in 2003 to ‘offer an independent economic viewpoint’ in competition investigations and making rules. Valletti’s successor Pierre Régibeau now leads a team of 30 people.

‘It catapults you to the top of the hierarchy. You speak directly to the Commissioner, who is your boss. The role also gave critical thinking a boost at the institution. Until then, there was too much groupthink, which you tend to have in big bureaucracies. People will ignore some things because their boss is telling them they’re not important. But those things turn out to be important after all. So the idea of having an independent person is great.’

Valletti says that there were ‘different views’ on whether his personality was in line with how an EU official was supposed to behave. ‘I was always very loyal to the decisions of the Commission,’ he says, adding that he also understands that his access to confidential information came with restrictions, even if the occasional misstep was unavoidable.

He recalls an incident in which he was instantly reprimanded over a slip of the tongue. It occurred at a conference hosted by the University of Oxford, weeks before Competition Commissioner Margrethe Vestager slapped Google with a first fine of 2.42 billion euros over its shopping comparison service. 

‘I had said that Google Shopping will be decided “in the next few months”. And that was not the typical jargon, the jargon was “as soon as possible’’.’ News agency Reuters picked up on what he said and the chief economist soon got a phone call from DG COMP chief Johannes Laitenberger.’

Valletti recounts the conversation: ‘He asked, “Did you say that?” I said,“Yes, Johannes, I did. What’s the problem?” “You should have said, ‘the decision will come out as soon as possible’.” And then I even said, “Johannes, which one comes first: as soon as possible or within the next few months?’’’

Apart from these incidents, which may be more revealing of bureaucratic culture, Valletti became increasingly outspoken about the dangers of Big Tech. He felt that those dangers were not sufficiently highlighted because conversations in Brussels were being hijacked by the paid advisors of the firms that were under scrutiny.

‘This Brussels bubble had to burst. It was always the same guys, the same big law firms, and the same consultants who wouldn’t disclose their own conflicts of interest. Academia, by and large, was not present in these discussions. There were some think tanks saying ‘academic research is showing this’, but that wasn't true. So I was there in a sense to pull out the bullshit, and I had the credentials to do that. We academics are in a good position. But let’s do something that is also meaningful.’

Did anything in your younger years suggest you would become a dissident voice? Were you a rebel at school?

‘On the contrary, I was a very good, talented student. I had too many talents. That was my problem. I was a very good musician. I was the best engineer in my engineering school. Then I started work as a consultant, which I hated. But I never decided who I wanted to be. I had an embarrassment of riches. But I was studying a lot, and I worked my ass off. It wasn’t just that I had natural talent.’ 

What made you become so vocal about Big Tech? 

‘I had to ask myself at some stage: why am I doing this job? I was coming from my own bubble, the academic bubble, the ivory tower, where you say, “Oh, this is a very curious argument, how interesting. I never thought about it.” I had to quickly change and say, “What is relevant? What do I believe in?” My own system of values and beliefs returned, which had been sleeping for too long. It was my own personal reawakening, which I’m very grateful for because it’s keeping me alive.’

What was the trigger?

‘That was something personal. My father died a few months after I started the job at the European Commission. He was diagnosed with dementia and died six months later. Those were very intense and chaotic months, with my wife and kids in London, my dad in Turin and me in Brussels. That was also important for me as a man. I had to ask myself who I was, where I came from, what I’d learned and what I thought was important.’

Platforms are ‘impossible to get out of’

Tommaso Valletti has since become one of the most vocal critics of Big Tech globally, tirelessly testifying in front of the U.S. Congress, the European Parliament and at conferences around the world. During the interview in Brussels, he highlighted two periods in the evolution of the five ‘GAFAM’ firms: Google, Amazon, Facebook (now Meta), Apple, and Microsoft. 

‘Most of these firms started out in the mid 90s. Microsoft was the super dominant company back then and Windows had a total monopoly when it came to operating systems. But when Microsoft tried to leverage Windows to force consumers to use its browser, Internet Explorer, or the Windows Media Player, it was stopped by competition authorities.

That gave oxygen to a new generation of entrepreneurs: Google founders Sergey Brin and Larry Page, Facebook’s Mark Zuckerberg, Jeff Bezos of Amazon, and all those other guys. It can be difficult to establish causation, but it’s no coincidence that there was a big monopoly back then and that stopping it created opportunities. So I see the first ten or fifteen years of unprecedented growth and disruptive technology in Silicon Valley, this promise of democracy because the internet would be a source of infinite information for all of us, a big step up the ladder of human knowledge. Some of these things have indeed happened, but we didn’t notice that at a certain point, around the years 2010-2012, monopolisation kicked in.

Since then, Google has had 95 percent of all searches in Europe, which is huge. Facebook was already telling its investors in 2011 that it had 90 percent of the advertising on social media in the United States. During the pandemic, we were all purchasing from only one electronic platform: Amazon. And I could go on. The dream of universal knowledge they were selling turned out to be a lie. Instead, they created an ecosystem that they don't allow us to leave.

They created a moat to make it very easy to get into the platform and impossible to get out. On Google, for instance, two thirds of the searches we make are “zero-click searches”, meaning you don’t leave the platform until you get what you’re looking for. This has so many consequences. Dynamism has plummeted in these markets, which means it crushes competitors and offers no alternative for consumers, who just have to take whatever the settings give them and who have to accept privacy terms that they don’t understand.’

What makes these companies different from other monopolies?

‘We’ve had giants in the past. The antitrust movement started with Rockefeller and Standard Oil. What has changed in my view is the scale and the speed. Google has three billion users every day, Facebook about two and a half billion. That scale is unprecedented. Four of the top five companies by market capitalization are these tech companies. We’re talking about trillions of dollars. 

Fake news is as old as the history of the media industry, but things used to be written in newspapers. It did not spread as fast as it does now. Now, it can really blow up

The second thing is the speed at which information spreads. Fake news is as old as the history of the media industry, but things used to be written in newspapers, which had perhaps a readership of 10,000. This meant information did not spread as fast as it does now. Now, it can really blow up.

A third thing is their supranational dimension. In the past, a problem was contained within national boundaries, which meant that the jurisdiction was clear. But these companies with three billion users are not just active in Europe or the U.S. but globally. They are big enough in size to threaten governments. This is what Facebook is doing in Canada, where the government is considering making platforms pay news publishers for their content. Facebook is saying, “We’re gonna cut you off, so that all the media in Canada will not be shown to Facebook users any more.”’

Will the European Commission’s new rules, the Digital Markets Act (DMA), succeed at reining in these companies?

‘Overall, I am positive about the DMA. Take mobile phones, for instance. If you want to change your operator in Belgium or the Netherlands, you change your SIM card, but you can keep your phone number and you can still talk to everybody. But with a new messaging service, you cannot text anyone else because they are closed systems. So the DMA orders social network giants like Facebook to open themselves up. 

The rules also contain a prohibition for Big Tech platforms to give advantages to their own services. This is based on experience from competition cases: Google favoured its own shopping comparison service, Apple gave Apple Music advantages against Spotify, and Amazon gave better placement to its own products. 

So these are fine principles. But the proof of the pudding will be in the eating – in how the Commission is going to implement and enforce these rules. They need much more resources. The DG Competition can’t do it with its current staff. It would have to at least have people with technical expertise: computer scientists, software engineers, etc. And there needs to be a change of culture. The typical legalistic aspect of just checking compliance is important, of course, but the tech firms can do this while bypassing the spirit of the law.

A couple of years ago, after I left the Commission, I tried together with a coalition of academics, consumer groups and privacy advocates to spur the Commission into analysing the privacy concerns raised by Google’s acquisition of wearables firm Fitbit and how Google could leverage the data generated by Fitbit’s devices. But the Commission did not want to interact with us. It is sometimes difficult to talk to the Commission without going through the formal channels. The Commission needs to be a bit more open. Not to me necessarily, but to civil society in general, because there are a lot of important discussions happening for our future. 

Another important metric for the success of the DMA will be to see if the engineers at Apple, Google and other tech companies start designing products differently, in a way that does not deliberately keep competitors out.’

Will these new rules suffice to contain the dangers these platforms pose?

‘To answer that question, we should take a step back from the DMA, sit down with journalists, academics, companies, enforcers, politicians, and civil society, and ask ourselves: “In twenty years time, what is the digital world we want to live in?” We always try to fix Apple here, fix Google there, but that approach is a bit reductionist, intellectually speaking. We have to think as a society: how do we want to be informed? How do we want to educate ourselves? How do we want to communicate about our health, our social interactions, including purchasing? Can we imagine a healthy digital future to achieve this?

We always try to fix Apple here, fix Google there, but that approach is a bit reductionist, intellectually speaking

This discussion is not happening enough, at least not at the technocratic level here in Brussels, because we’re only trying to fix problems once we have realised that they exist. I’m sure there will be different views. Some people will want to stay on their couches and order everything with a single click, while others will still want to go out onto the streets and talk to people in the corner shops. But this is the discussion that we should be having, because only when we can imagine our digital future, can we see how to get there. There will still be Apple and Google of course, but we don’t have to accept it as a fait accompli that we will always depend on them.’

Valletti illustrates this different approach by describing a project in the city of Barcelona, where data generated in the city is made available to everybody in anonymised form. He also gives the example of a health data authority set up in Denmark – an approach he contrasts with that of Google’s AI firm DeepMind, which mismanaged health data in the U.K.

Economy-wide problem

According to Valletti, the monopoly power of the GAFAM companies is the exponent of the broader problem of our economy being increasingly concentrated in the hands of a few parties. 

‘Our industries have become increasingly concentrated over the past thirty years. Margins, the ability of firms to set the price above the costs, have been going up, starting in the 1980s. Innovation is also more difficult than in the past: firms still leave the markets, still die, but they are not born at the same rate. The downside of these margins and profits ending up in fewer and fewer hands is that the workforce’s share of the GDP gets smaller. So money is being made, but it is not trickling down in a uniform way, which perhaps also drives inequality. This is what economists have been finding recently. The initial response was: “this is not true”. Every study was dissected and, as usual, no study is perfect. But if you put all the elements together, they always point in one direction and one direction only.

With the pandemic and the war in Ukraine, we have unfortunately also noticed how this market concentration has big consequences for our daily bills. The cost of living went up because of disruptions in the economy. These disruptions have a bigger impact if there are very few suppliers of those goods: gas or other stuff. So we need resilience, which means having alternatives, different suppliers. Because if you are instead dependent on perhaps some super efficient firm and something goes wrong, then you end up facing the consequences. Competition policy may be only one tool, but it’s a tool which is going in the right direction when it comes to having a more resilient European economy.’

What were the causes for this concentration? And what should be done about it? 

‘The first question is more difficult, because I think it’s due to several factors: technological change, globalisation, and perhaps also the lack of antitrust enforcement, which hasn’t been as vigorous as it could have been. I tend to believe we should have done more in the past.

But whatever may have happened in the past, the consequences now are that if you find yourself facing more dominant firms, you have to enforce antitrust laws more vigorously because the harm that these companies can do to the economy is much greater than it was in the past.’

Jesse Pinster contributed to this article