How big business exploits small business

Companies like Facebook and Uber say they’re supporting small businesses while squashing them.

Major corporations really want you to know how much they care about small businesses — as long as those small businesses don’t compete with them or cause them too much trouble.

During the pandemic, big companies were sure to draw attention to the ways they were supporting the little guy. Facebook highlighted all sorts of ways it says it helps small business and warned that regulations for the social media giant would actually come at a cost to the little guy. Uber, likewise, emphasized its help to restaurants. And now that the economy is rebounding, powerful business interests say they’re still looking out for the up-and-comers on issues such as wages, unemployment, and regulation, a common talking point being that any changes might put smaller operations at a competitive disadvantage.

What can get lost in this is that small businesses already are at a competitive disadvantage, often because of the bigger players that purport to support them. Large corporations are happy to invoke small business when convenient, especially when it helps them keep power. It’s essentially reputational laundering. But what can be less obvious is that these same entities are constantly finding new ways to stunt small-business growth to keep new entrants and potential competitors at bay. They also create roadblocks and find ways to extract money and power from small businesses in order to maintain their positions and increase profits.

“They use their power as gatekeeper to reach customers as a way to extract fees and unfair terms on small businesses, yet they will still use and create PR and claim that any regulation of them would hurt small businesses because they are this platform that has enabled all these small businesses to exist,” said Sally Hubbard, director of enforcement strategy at the Open Markets Institute, an anti-monopoly think tank, who focuses on Big Tech.

Anyone who wants to pay to reach customers online is at the mercy of Facebook and Google, which essentially are a cartel that controls the internet ad market. Just four companies — Uber Eats, GrubHub, Postmates, and DoorDash — control the majority of the restaurant food delivery market; restaurants have little choice but to pay whatever fees and commissions they charge. Banks are constantly telling us how they love to work with up-and-comers and help get entrepreneurs on their feet. But as we saw with pandemic-related small-business loans, many were much more eager to help out larger operations and businesses they already had relationships with.

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Some companies have been able to go unchecked by the federal government for so long that, in many ways, they’re now monopolies that run pseudo-private governments of their own. They set their own rules and regulations for who gets to use their products and services and how; they set their own tolls and taxes.

The mantra isn’t so much “move fast and break things.” It’s “grow as fast and as big as you can so that you can then act as a gatekeeper and make others bend to your will.” But do it with a smile, and pretend you’re being a pal.

Everybody loves to love small business. Which makes small business programs good marketing.

America has a romanticized idea of small business that makes the concept very easy to latch onto, whatever your political stripes or financial status. Donald Trump called small business the “heart of our nation”; Joe Biden, a “core part of the American community.” It’s a part of the pull-yourself-up-by-your-bootstraps, entrepreneurial vision of the fleeting American dream. Consumers say they’d rather pay more to a small business than a big one. According to Gallup, Americans have more institutional confidence in small business than they do in the medical system, public schools, church, and even the military.

That’s part of what makes small business such a powerful political and economic tool, whatever the interests of the group that’s wielding it: Of course everybody wants the best for the local bookstore or pharmacy or deli. Saying you’re helping small business or entrepreneurs is just good marketing, whether you’re Verizon or Amazon or Airbnb or the federal government. There’s a reason you don’t know a ton of consumer brands are owned by the same handful of corporations — you might feel differently about them if you did. Even when you think you’re shopping from a small operation, you might not be: Ben & Jerry’s is owned by Unilever (though Ben and Jerry say they still run the place).

Business interests consistently fight against new rules and regulations and insist that even a whiff of new paperwork will make business owners’ lives a living hell. When the Business Roundtable, which is composed of the CEOs of the biggest companies in America, came out in opposition to a $15 federal minimum wage hike, it said it was in part standing up for small businesses (which are not among its members). The US Chamber of Commerce is one of the loudest voices calling for expanded unemployment insurance to be cut off early, saying the extra benefits keep small businesses from being able to hire. The argument against limiting payday lending? It hurts small business. The same for regulating banks and enacting environmental protections.

The typical case lobbyists and corporations make is that more rules or bureaucracy will wind up disproportionately hurting places with smaller staffs and budgets. They won’t be able to navigate the system as easily as larger corporations with huge budgets and teams of lawyers and accountants.

Hubbard said there’s a truth to that — sometimes, the bureaucratic obstacles are harder to get over for a five-person company compared to a 5,000-person one. And small businesses often speak up for themselves. But that’s not all that’s happening, especially when it’s the big players talking. “It’s also a talking point used to fight legislation that aims to level the playing field,” she said.

She pointed to the General Data Protection Regulation, or GDPR, a European digital privacy law that went into effect in 2018, which attempts to put all sorts of limits around data collection, access, and transparency. Industry lobbyists have framed the law as overly burdensome, and big companies have found ways around it or just given up on complying with it altogether. “If companies actually did comply with the GDPR, it would create much more opportunity for smaller companies, because the source of their dominance is their data acquisition and their data surveillance network that nobody else has,” she said. “To the extent you get at their extensive and ubiquitous surveillance practices, you’re also getting at their monopoly power.”

To put it plainly, Facebook’s core issue with data privacy laws isn’t that it’s going to hurt whatever business is paying it to target ads. Its core issue is that it won’t be able to collect that data to sell ads to those businesses.

In a statement to Vox, a Facebook spokesperson said the company “levels the playing field by empowering businesses with the same tools, training, and opportunities that large businesses have” and noted that it has put over $100 million in grants toward small businesses during the pandemic. The company pointed to a blog post about why personalized ads matter to small business to help them reach target and potential customers and said that most businesses use its products for free.

Despite America’s purported love for small business, the rate of business formation has slowed in recent decades in many places, and fewer startup jobs have been created. According to an analysis from Barclays, market concentration has increased in three-quarters of nonfinancial sectors since 2000 and is up by about 60 percent. The pandemic killed off many small enterprises that just couldn’t stay afloat during the shutdowns, though new entrepreneurial ventures have begun to pop up as well.

There are a host of reasons that could contribute to fewer new business startups, from investment trends to cultural changes to student debt. Running a company is hard, and it’s easy to fail. About one in five small businesses in the US fail in the first year, and half fail within five. But part of the issue is also corporate concentration and consolidation; the bigger players make it harder and harder for smaller operations to stick around.

“If you’re a growth-oriented business right now, the pathway seems to be that you either become a monopoly or you get acquired by one,” said Nidhi Hegde, director of strategy and programs at the American Economic Liberties Project.

Big corporations become gatekeepers and set their own rules of the road

Some consolidation within industries is a natural part of maturing, but the process has sped up in recent years. An increasing number of industries — from airlines to beer to hospitals — are controlled by just a handful of players. We often focus on what this means for consumers, and antitrust law generally looks at what consolidation or monopolization means for prices. But what sometimes gets lost in the conversation is what it means for the other companies trying to get a foot in the door or survive.

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“All entrepreneurs and businesses should have access to markets to launch and grow new businesses, but today — and the way markets are structured — dominant corporations are a major barrier,” Hegde said. “And that is one of the reasons we’re seeing entrepreneurship and small business growth declining.”

Hegde is one of the people behind Access to Markets, a new initiative out of Economic Liberties that seeks to examine the effects of what they call the “rise of private gatekeepers.” They outlined the tactics used to undermine small businesses and keep away competitors in a recent report. “It’s not just the big corporations and Big Tech. We see this across the economy,” Hegde said.

To be sure, companies trying to protect their positions is not new — famed investor Warren Buffett has long talked about the importance of firms creating an “economic moat” around themselves as a way to stave off competition. But many of the tricks and strategies companies employ to get there are quite ugly and unfair and really tip the playing field.

Take the example of copycatting, which is exactly what it sounds like: A dominant company sees something a rival is doing and copies it. Amazon has repeatedly been accused of this practice, including by the House Judiciary antitrust subcommittee, which last year said it had evidence that the e-commerce giant was using data from third-party sellers to identify popular items, copy them, and then offer its own versions. (Amazon has denied this practice.) After Facebook tried and failed to buy Snapchat, it just started to copy it instead.

Apple has come under heavy scrutiny over its practices with its App Store, the bridge between software developers and iPhone users, over which it has strict control. Any app that wants to be offered on an Apple device has to comply with whatever rules Apple sets, including using its payment system. The company is currently locked in a battle with Epic Games, the maker of Fortnite, over its practices.

Last year, Epic tried to sell virtual currency on its game without going through Apple, which requires developers to share up to 30 percent of sales. Apple responded by kicking it out of the store, and Epic sued. Apple’s App Store practices have also garnered antitrust scrutiny in Europe, where regulators are looking specifically at how it makes other music platforms, such as Spotify, use its payment system and therefore give Apple a cut of subscription fees. Apple has pushed back against suggestions that it’s out of line with its App Store and says what it charges is just the industry standard.

The Apple saga exemplifies the way many dominant players have been able to establish themselves as middlemen, and all of the advantages that can entail for them. In Apple’s case, it has been able to basically enact a tax on app makers if they want to access its millions of iPhone and iPad users. It can argue it’s giving developers and creators opportunities — but those opportunities are coming at a cost.

We see this in myriad places. Delivery apps enact high fees on restaurants that use their services — last year, a post went viral from a Chicago food truck owner showing how GrubHub cut into hundreds of dollars in orders. But because so many consumers order through apps, restaurants that want to reach them aren’t really left with a choice but to comply with the terms.

A GrubHub spokesperson said in an email that the company supports restaurants so they can be “more successful” and offers a “range of options for restaurants to build and maintain their own loyal base of diners” through various channels. The company added that the GrubHub receipt pictured below, which went viral last year, is an “extreme outlier” because the restaurant offered too many promotions.

Google and Facebook (and increasingly Amazon) control so much of the ad market that small businesses looking to reach customers online don’t have many good options of other places to go. They’re subject to the whims of algorithms, and if the algorithm turns against them and suddenly their reach falls, then they are compelled to buy more ads. The middleman position in an increasing number of cases is a monopolistic one.

“Then they use this as an idea that we help small businesses, so anything you do to curb our monopoly power will harm small businesses, which is just not true,” Hubbard, who recently published Monopolies Suck, said. “The more options for middlemen these companies have, the better bargaining power they can have with these middlemen.”

Tim Clayton/Corbis via Getty Images

Agricultural monopolies have crowded out small farmers, with the agricultural giant Monsanto going so far as to sue smaller operations to protect patent rights on its seeds. Gore-Tex, which makes breathable fabric, has repeatedly been accused of using unfair business practices, including refusing to work with companies that also worked with competing fabric technologies. Live Nation Entertainment, which was created when Live Nation and TicketMaster merged more than a decade ago, has a stranglehold over basically the entire live music industry. Venues and artists have little option but to comply with whatever guidelines it sets.

To be sure, the romanticized vision of small business can conceal the fact that smaller is not always better. A small-business boss does not always mean a good business boss, and indeed, small businesses are the ones complaining loudest about higher wages and unemployment. Big companies aren’t always the villains they’re made out to be — they have big budgets that can allow them to really invest in research and development and innovate, and the jobs they create can be a lot more stable than jobs at startups with high rates of failure. The problem isn’t that big corporations exist; it’s that they are often keeping everyone else down.

“These companies are the ones deciding who are the winners and losers in these marketplaces, so you’re not really seeing the best ideas and products and services because they are determining that for you,” Hegde said.

Want to support small business? Call your senator.

It’s good to support your local businesses. If you can call the restaurant instead of ordering through GrubHub, try it. If you can buy from your local bookstore instead of ordering from Amazon online, sure. But there’s only so much individual consumers can do.

Unraveling the way dominant corporations use their power, often in order to stunt competition and small business, is much more a question of policy and enforcement question than of individual decision.

Anti-monopoly experts and advocates argue that much of the issue is just enforcing the laws that are on the books. Antitrust enforcement has become quite lax since the 1980s, and it’s hard not to wonder whether many mergers should have been allowed to go through. (Though that’s not just a matter of the FTC or Justice Department but also a question of the courts.)

“There’s a whole suite of things that can be done, and I think one good place to start is reinvigorating our antitrust laws. We have laws against unfair methods of competition and monopolization, and they have not been enforced. We need to enforce them,” Hegde said.

There’s no single solution, but as attention grows on just how big some businesses are getting, there are multiple efforts underway for lawmakers and regulators to at least try to try.

Lina Khan, the new chair of the FTC, is a longtime Big Tech critic, and her appointment is a signal that tougher enforcement may be on the way. House lawmakers also just introduced a set of bills aimed at curbing technology companies’ power. Antitrust probes are underway at the state and federal level against some tech giants. In New York, legislation has been introduced in the state legislature that aims to put in place an “abuse of dominance” standard to examine business practices. It’s passed the state Senate.

“It’s not just antitrust, it’s not just breaking them up, but it’s rules like nondiscrimination and neutrality rules,” Hubbard said. Basically, whatever the size of Amazon, it shouldn’t be able to copy someone’s products and then put that copy at the top of the search results list.

Big versus small is a persistent dynamic in the American economy. And, again, while big isn’t always bad and small isn’t always good, it’s important to look under the hood once in a while to see what’s actually going on. It’s lovely of Facebook to help small businesses get set up online during the pandemic, but Facebook is doing it to make money, not out of kindness. And if one of those small businesses starts to pose a threat, the tech giant will squash it like a bug.