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How Europe overtook the US in championing free markets

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The deregulation of major U.S. industries like telecom and energy in the 1970s and 80s sparked competition that lowered consumer prices and drove product innovation between competitors. Europe, on the other hand, lagged behind with more expensive internet, phone plans, airline tickets, and more until around 2000 when a major reversal of this trend began. Strikingly, when the EU strengthened deregulation and antitrust efforts to open its markets to more competition, it was the U.S. that reversed course.

According to a new book by French economist Thomas Philippon, Americans’ view of their country as the world’s beacon of free market competition and Europe as an over-regulated region of lethargic corporate giants is out of date, and may be inhibiting our ability to recognize growing corporatism at home. Philippon, a professor of finance at NYU Stern who earned a Ph.D. in Economics from MIT, was named one of the top 25 economists under age 45 by the International Monetary Fund.

“If you have nothing interesting or relevant to say, you can always take a jab at European bureaucrats. It’s the political equivalent of complaining about the weather…”

Based on Organization for Economic Cooperation and Development (OECD) data, the U.S. now has more regulations for opening a new business than every EU country except Greece and Poland — a complete reversal since 1998, when only the UK had fewer rules than the U.S. Per capita GDP growth in the EU outpaced that of the U.S. over 1999-2017. On a purchasing power parity basis, Americans have experienced a 7% increase in prices (relative to EU residents) for the same goods, due specifically to increased profit margins of companies with reduced competition.

The reason for this divergence? According to Philippon, corporate incumbents in the U.S. gained outsized political influence and have used it to a) smother potential antitrust reviews and b) implement regulations that inhibit startups from competing against them. As a result, the U.S. regulatory system prioritizes the interests of incumbents at the expense of free market competition, he says.

Philippon makes his case in “The Great Reversal: How America Gave Up on Free Markets,” released this past Tuesday by Harvard University Press. The book builds an argument from extensive data and pre-empts likely critiques by investigating numerous potential confounding variables or differences in research methodology. It is a compelling read for those interested in the dynamics of the overall innovation economy or the political debate over antitrust and Big Tech.

Incumbents over startups

Philippon, who was na states upfront that he isn’t claiming Europe is a bigger startup hub. In fact, he writes that “the U.S. has better universities and a stronger ecosystem for innovation from venture capital to technological expertise.”

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What he does do is ring the alarm about a systemic shift in market consolidation in the U.S. that results in a small number of large incumbents charging high prices, an economy-wide prioritization of share buybacks over investments in innovation and government policy that inhibits competition from new entrants.

An important take-away for readers: there’s a concerning trend toward more barriers to successful entrepreneurship, higher prices for countless goods and services that startups use, an overall decrease of corporate investment in new technologies and fewer potential startup acquirers.

There are half as many publicly-traded companies in the U.S. as there were in 1997, and turnover within rankings of the top five companies per industry has declined sharply since the late 1990s as well.

Market concentration isn’t due to superstars

“The Great Reversal” considers that increased market concentration could be the result of “superstar” firms whose increased productivity is a win-win for shareholders and consumers alike. This has indeed occurred during the 1990s but the correlation between increased concentration and increased productivity ended around 2000 (with the exception of the retail sector).

Corporate after-tax profits as a percent of U.S. GDP were stationary for decades at 6-7% but increased to 10% in the last two decades, highlighting increased “rent-seeking” that shouldn’t occur if the leaders in most industries were facing the same amount of domestic competition or increased international competition.

From the 1960s through the 1990s, American companies poured an average of 20 cents from each dollar of operating profit into investments (R&D, capital expenditures, etc.). Since 2000, that’s fallen to 10 cents per dollar. With reduced competition, large companies are focusing less on advancing their product offerings and more on extracting profits for shareholders out of existing business operations.

Big tech isn’t exempt

Major tech companies — specifically Alphabet (Google), Amazon, Facebook, Apple, and Microsoft — are the focus of multiple chapters of analysis by Philippon, who rejects the notion that these companies are somehow unprecedented relative to the leading companies of prior decades from an antitrust standpoint. They account for a smaller portion of U.S. GDP and stock market value, and they have similar profit margins. Network effects and accelerating economies of scales are not new concepts in economics — existing antitrust regulations are capable of dealing with these companies.

In our interview, Philippon said that leaders of monopolies typically claim they need to maintain their monopoly in order to have the means to invest in innovation. He calls it bogus — companies innovate when competition pushes them to find ways to offer a better product at lower cost. Admittedly, the tech community has perhaps bought in too much to the narrative that the dominance of Alphabet, Apple, and Facebook has provided more long-term R&D into endeavors that will advance humanity.

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These companies’ “moonshot” projects act as effective marketing for this narrative, distracting from the many billions more dollars that would be poured into innovation investments in the economy if the markets they are in were more competitive.

America’s most important industries are among its least competitive

Philippon acknowledges that the heart of America’s problem isn’t its failure to effectively regulate Silicon Valley; it’s the failure to stop increased concentration in the industries that most shape consumer spending: healthcare, energy, transportation and telecommunications.

During our interview, he estimated that this “great reversal” in the U.S. has cost the median household an additional $300 per month in markups on goods and services — reduced competition has allowed incumbents to increase profit margins at the expense of consumers.

The lack of competition in these industries contributes to America’s deteriorating infrastructure. More than 700,000 Californians experienced blackouts in recent weeks due to Pacific Gas & Electric’s failure to make capital expenditures that maintained and improved its assets. Most of the 15 million people who live inside the utility’s service area have no where else to turn.

What makes Europe different

A critical factor in Europe’s relative improvements over the U.S., Philippon argues, is the greater independence of EU regulatory agencies like the Directorate General for Competition from corporate or political influence. In negotiating over the creation of these agencies, European politicians were more fearful of agencies falling under the control of other member countries than they were fearful of lacking influence over the agencies. Regulators have frequently intervened in mergers even when politicians from the companies’ home countries lobbied to permit the deals. In the tech industry, the EU has insisted on consumers retaining ownership of their data and the freedom to take it with them in switching to a competing software service.

Less tied to election cycles and specific political parties, the independence of EU regulators enables them to iterate when new regulations have unintended consequences. Philippon argues that U.S. regulators fail to act in the first place because of concerns that if they don’t craft the perfect policy upfront, there will be political repercussions.

Regulatory influence is for sale in the U.S.

Philippon makes the case that politicians’ survival is the U.S. has become more heavily tied to fundraising and the overwhelming majority of that fundraising comes directly and indirectly from corporate interests. The top 1% of donors account for about 75% of all political contributions (and the top 0.01% for 40% of all political contributions). Business lobbies are by far the dominant source of money in American political campaigns according to statistics he cites from the Center for Responsive Politics.

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Benchmarked against antitrust reviews in the EU, Philippon finds that the decline in the number of antitrust actions in the U.S. (by the DOJ and FCC) has largely corresponded to increased lobbying spending that targets the DOJ and FCC. Each doubling of lobbying expenditures in the U.S. by a given industry corresponds with a 9% decrease in antitrust reviews in that industry, and such lobbying spend tripled overall from 1998 to 2008. He also cites a 2008 book by UVA professor Christine Mahoney finding that the majority of lobbying efforts in the U.S. by corporations and trade associations are successful whereas the majority of lobbying efforts by citizen groups and foundations fail.

What we should take away from “The Great Reversal”

I find “The Great Reversal” to be a timely analysis of the weakening of America’s regulatory regime for protecting free market competition. The recent rise of populism as the driving force in American politics has included resounding cries from activists in both parties that capitalism is broken, that free markets have failed us. Tying in the analysis from this book, the more accurate target for this criticism, however, should likely be the country’s embrace of corporatism over free market capitalism.

Citizens’ complaints about large companies abusing their power are often blamed on capitalism in general, when the issue is often regulatory capture that protects those companies from being held accountable by competitors. Companies that treat customers poorly don’t survive in competitive markets.

Within the circles of politicians and media pundits, policies are referred to as generically “pro-business.” The term brushes over the often conflicting interests of the country’s largest companies and the vast landscape of small and medium size businesses who compete with them. America’s political leadership has been pro-corporate at the expense of entrepreneurs.

It’s a case for political reform but also a case for the country’s entrepreneurs and venture capitalists to form a more unified voice in Washington separate from industry trade groups that primarily act on behalf of the largest companies in each industry.

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Amazon’s AWS logs third outage this month, affecting Slack, Epic Games Store, Asana and more

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Amazon’s crucial web services business AWS is experiencing problems today, with issues affecting services like Slack, Imgur, and the Epic Games store for some users. It’s not looking good if you’re working from home, with some Slack users unable to view or upload images, and work management tool Asana also hit by the outages. As of 6:13 AM PST, Amazon said it had restored power to affected servers, but users may still experience issues going forward.

In an incident update, Slack said its services were “experiencing issues with file uploads, message editing, and other services.” Asana said the problems constituted a “major outage,” with “many of our users unable to access Asana.” Epic Games Store said “Internet services outages” were “affecting logins, library, purchases, etc.”

It’s the third time in as many weeks that problems with AWS have had a significant effect on online services. Two incidents earlier this month involving AWS ended up knocking out a huge array of platforms and products, taking out streaming sites like Netflix and Disney Plus as well as smart home devices like security cameras from Ring and Wyze.

Today’s outages seem less widespread but still notable, with some users unable to access services entirely and others merely experiencing intermittent faults. DownDetector.com shows reports of issues with the platforms mentioned above, as well as news aggregator Flipboard, online learning site Udemy, dating app Grindr, streaming service Hulu, and IoT services from Honeywell, Life360, and Samsung’s SmartThings.

The official AWS service health dashboard blamed the issues on power outages in a single data center, affecting one Availability Zone (USE1-AZ4) within the US-EAST-1 Region. At 6:13 AM PST, the company said it had restored power to the data center and was making progress recovering the affected instances. However, users will likely continue to notice the effects of these outages for a while longer while systems are updated and restored.

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Update Wednesday, December 22nd, 8:36AM ET: Updated story to add responses from affected services.

Update Wednesday, December 22nd, 9: 34AM ET: Updated story to note that AWS has restored to power to the affected data center.

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The NLRB decision against Amazon was correct and shows the need for stronger labor laws

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The National Labor Relations Board (NLRB ruled last month that Amazon had cheated to defeat a high profile union organizing campaign.

It found that Amazon violated federal labor laws during its anti-union campaign at a Bessemer warehouse, Ala. earlier this year. This will result in a do-over election.

The NLRB criticized Amazon’s “flagrant disregard” for federal union election rules and stated that the management had “essentially highjacked” the process and given the impression that it was in control of the outcome.

Last week, Kirsten Swingingen, the head of the virulently antiunion Coalition for a Democratic Workplace, published a misleading op ed in The Hill about the NLRB ruling.

Let’s first be clear about the reasons why Amazon was ordered to rerun its election by the NLRB.
According to the op-ed, Amazon installed a mailbox in order to make voting easier. However, the NLRB repeatedly told Amazon that it couldn’t have onsite voting. After the company pushed for it, and then unsuccessfully appealed against the NLRB decision. In a stunning act of arrogance, Amazon’s top managers ignored these clear instructions and forced the United States Postal Service to install an onsite mailbox just before the election period. A senior USPS manager stated that this was the first instance in his many decades of service when it had set up a “cluster mailbox” for a single customer due to the upcoming NLRB elections.

After being told by the USPS to not place stickers on the mailbox, Amazon covered the mailbox with a marquee with large slogans. The USPS replied, ” Surprise” when asked how he felt about Amazon’s disregard for clear instructions. Moreover, the NLRB discovered that Amazon’s management engaged in illegal monitoring of workers’ voting intentions.

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These charges are serious, considering the overwhelming evidence of illegal activity. It would be surprising if NLRB did not reverse the tainted election. This would be a message to employees that the law doesn’t apply to them if they have the wealth, resources and ability to bully them if it was in the way of Amazon’s illegal conduct.

The NLRB Hearing officer and its Atlanta-based Regional director made the decision to reverse the tainted vote. Neither of these people are political appointees – instead, they are career lawyers or “former employees” as the op ed misleads. Swearingen instead resorts to misleading tropes regarding “Big Labor” in order to describe a small, but determined union, the Retail Wholesale & Department Store Union. This union is up against Amazon, one of the most powerful and wealthy corporations on the planet. Bessemer was not the first to find Amazon guilty of illegal anti-union behavior. The NLRB found Amazon in violation of its laws.

It is important to correct a blatant lie about the Protecting the Right to Organize legislation (PRO Act), currently pending before the U.S. Senate. Incorrectly, the op-ed states that the PRO Act “potentially eradicates secret ballot elections” but allows for “card certification” of unions. This is essentially recognizing unions only after authorization cards are signed by the majority of workers, as practiced in many rich democracies.

To be clear, the Pro Act does not mention card check certification. The author created this provision to support her extreme anti-union views. The PRO Act would ban mandatory anti-union “captive audience” meetings- forcible listening sessions. According to Amazon’s own testimony, these were conducted thousands of times at Bessemer. It also imposes harsher penalties on corporations like Amazon who violate workers’ right to choose a union.

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The op-ed also states that “Big Labor… succeeded in pushing Democrats to include PRO Act policies into the budget reconciliation bill.” However, the bill only contains the PRO Act provision. This includes the much-needed financial sanctions for corporations such as Amazon that repeatedly violate workers rights.

The NLRB was right to reverse the Bessemer election that was fundamentally tainted due to Amazon’s conduct. The Bessemer campaign demonstrates that the NLRB needs to have more options. As it stands, the law is too toothless for a massively powerful, incredibly wealthy, and frequently illegal corporate bully. The Senate should immediately pass the PRO Act.

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Amazon Alexa SEO Tools Is Closing

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Alexa.com announced that it will be retiring its marketing services after 25 years. Founded in 1996, Alexa was subsequently acquired by Amazon in 1999. It was initially known for providing rankings based on traffic measured through a toolbar but Alexa eventually expanded to provide a full suite of marketing products including site auditing and backlink checking.

Screenshot From Alexa Content Marketing

Alexa Rank

Alexa.com provides a full suite of search marketing tools. However what it’s mainly known for is their Alexa Rank.

Alexa Rank is a metric that offers a measurement of site popularity.

In the early 2000s the data was collected via an Alexa toolbar that users downloaded and surfed with. The toolbars collected web traffic information from the users which fed into the Alexa Rank site popularity metric.

Web publishers could also install a script on their site that reported traffic which could then be used to raise their Alexa Rank scores.

The Alexa Rank scores were generally viewed with suspicion because some people claimed that installing the toolbar and visiting ones own sites could result in dramatically raising the Alexa Rank score.

Another criticism of Alexa Rank was that the data was more relevant for Asian countries than in English speaking countries. This was based on the rumor that the Alexa toolbar use base was heavily weighted towards users in Korea and not users in English speaking countries like the United States, Canada, Australia, New Zealand and the UK.

The negative reputation of Alexa Rank and anything offered by Alexa was sealed by 2005.

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One search marketer in a 2005 forum discussion remarked:

“Isn’t it time for Amazon to throw in the towel on Alexa? For a company that does so many things well, Alexa is really a blight on their reputation. Why would they want to be associated with such garbage.”

Nevertheless, use of the Alexa Rank metric continued to be used by a dwindling amount of search marketers.

For example, to this day there are some companies that offer affiliate programs and use Alexa Rank to determine the popularity of potential affiliate partners and will not accept affiliates whose websites do not reach a minimum Alexa Rank popularity threshold.

Alexa Was More Than A Site Popularity Ranking Metric

It might come as a surprise to many that Alexa offered a complete suite of search marketing and analytics programs.

For some reason the Alexa suite of online marketing tools, which included a backlink checker, was almost kept as a secret, with apparently no outreach to the search marketing community or seemingly no promotional activity to speak of.

Alexa crawled the entire Internet and for many years provided snapshots of the Internet to Archive.org. It’s backlink information was extensive.

Because of that it was able to offer services like showing which backlinks competitors have in common, including as many as ten competitors at a time.

Screenshot Of An Alexa Backlink Information Page

The Alexa $149/month plan offered:

  • Content Exploration
  • Competitive Content Analysis
  • Topic Research
  • Top Publishers by Topic
  • Competitive Analysis
  • Competitor Keyword Matrix
  • Keyword Difficulty Tool
  • Keyword Share of Voice
  • Organic Keywords
  • Paid Keywords
  • Site Audits
  • On-Page SEO Checker
  • Competitor Backlink Checker
  • Backlink Checks
  • Audience Analysis
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Alexa.com Retired

Alexa announced that it will all be going away on May 1, 2022.

The announcement was short and with no explanation as to what led to the decision.

“Twenty-five years ago, we founded Alexa Internet. After two decades of helping you find, reach, and convert your digital audience, we’ve made the difficult decision to retire Alexa.com on May 1, 2022.

Thank you for making us your go-to resource for content research, competitive analysis, keyword research, and so much more.”

Alexa offered a powerful suite of SEO and marketing tools and it’s sad to see them go away.

Many people didn’t know about the tools and perhaps it might still be around if it had been promoted better.

Citations

Official Alexa.com Announcement

We will be retiring Alexa.com on May 1, 2022

Archive.org Snapshot of Alexa.com Search Marketing Offerings

Archive.org Snapshot of Alexa Backlink Checker Tool

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