Facebook whistle-blower’s testimony strengthens calls for regulation in Europe.

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Daily Business Briefing

Oct. 6, 2021Updated 

Oct. 6, 2021, 9:38 a.m. ET

Oct. 6, 2021, 9:38 a.m. ETImageCredit…T.J. Kirkpatrick for The New York Times

The congressional testimony from the Facebook whistle-blower, Frances Haugen, has intensified calls in Europe for new laws and regulations aimed at the social media company and other Silicon Valley giants, proposals considered by many to be among the most stringent and far-reaching in the world.

Alexandra Geese, a lawmaker in the European Parliament from Germany, said Ms. Haugen’s testimony, along with the global outage that took down Facebook, Instagram and WhatsApp for billions of people this week, showed tougher regulation was needed.

“Any trust there could be in the company has been destroyed,” Ms. Geese said. “We now know we need to regulate because the company will not stop breaking things. And breaking things means breaking people and democracies.”

In her testimony, Ms. Haugen provided details about Facebook’s inner workings and negative affects on society, and she outlined several ideas that matched what European Union officials have debated the past year.

One of the proposals, the Digital Services Act, could be adopted as early as next year. It includes transparency requirements that Ms. Haugen called for during her testimony, requiring Facebook and other large tech platforms to disclose details to regulators and outside researchers about their services, algorithms and content moderation practices. The draft law also could force Facebook and other tech giants to conduct annual risk assessments in areas such as the spread of misinformation and hateful content.

Another E.U. proposal, called the Digital Markets Act, puts new competition regulation in place for the biggest tech platforms, including restricting their ability to use their dominance with one product to gain an edge on rivals in another product category.

Christel Schaldemose, a Danish member of the European Parliament who is playing a leading role in drafting the Digital Services Act, said she spoke with Ms. Haugen a couple of weeks ago.

“She asked me to insist on regulating the platforms,” Ms. Schaldemose said in an email. “And that is what I am working on. Especially transparency and accountability of the algorithms.”

The European Union has for years been the world’s leading tech industry regulator on issues including antitrust and data privacy, and its rules often serve as a model for other countries. Facebook and other Silicon Valley companies have poured money into lobbying to shape the new laws more to their liking.

The tech industry now spends more than any other sector lobbying the European Union, above the drug, fossil fuels, finance, and chemicals industries, according to Corporate Europe Observatory, a watchdog group.

In Washington, Ms. Haugen’s testimony resulted in bipartisan calls for tougher laws, but a timeline for passing the any new policies remains unclear. There are some signs that Europe and the United States are converging on ideas for regulating the biggest tech platforms.

Last week, after a digital policy meeting of European Union and Biden administration officials, the two sides put out a joint statement on “common issues of concern,” including need for more transparency about how algorithms work and amplify certain content over others.

Elian Peltier contributed reporting.

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‘We Can Do Better,’ Facebook Whistle-Blower Says

Frances Haugen, a former product manager at the company, spent hours detailing to lawmakers how the social network harmed young people. Facebook disagreed with her testimony, but said new rules for the internet were long overdue.

Yesterday, we saw Facebook get taken off the internet. I don’t know why it went down, and I know that for more than five hours, Facebook wasn’t used to deepen divides, destabilize democracies and make young girls and women feel bad about their bodies. It also means that millions of small businesses weren’t able to reach potential customers, and countless photos of new babies weren’t joyously celebrated by family and friends around the world. I believe in the potential of Facebook. We can have social media we enjoy that connects us without tearing our democracy — apart our democracy — putting our children in danger and sowing ethnic violence around the world. We can do better. I have worked as a product manager at large tech companies since 2006, including Google, Pinterest, Yelp and Facebook. My job has largely focused on algorithmic products like Google Plus Search and recommendation systems like the one that powers the Facebook news feed. Having worked on four different types of social networks, I understand how complex and nuanced these problems are. However, the choices being made inside of Facebook are disastrous for our children, for our public safety, for our privacy and for our democracy. And that is why we must demand Facebook make changes. During my time at Facebook, first working as the lead product manager for civic misinformation, and later on counter-espionage, I saw Facebook repeatedly encounter conflicts between its own profits and our safety. Facebook consistently resolves these conflicts in favor of its own profits. The result has been more division, more harm, more lies, more threats and more combat. In some cases, this dangerous online talk has led to actual violence that harms and even kills people. This is not simply a matter of certain social media users being angry or unstable, or about one side being radicalized against the other. It is about Facebook choosing to grow at all costs, becoming an almost trillion-dollar company by buying its profits with our safety.

Video player loadingFrances Haugen, a former product manager at the company, spent hours detailing to lawmakers how the social network harmed young people. Facebook disagreed with her testimony, but said new rules for the internet were long overdue.CreditCredit…T.J. Kirkpatrick for The New York Times

The hearing with Frances Haugen, the Facebook whistle-blower, covered plenty of ground — and in a more in-depth way than at previous congressional hearings with executives of the social network. That may be because Ms. Haugen, 37, a product manager who worked at Facebook for two years before leaving in May, appeared to speak more freely.

Here are three main takeaways from the day:





Senators Call for More Regulation of Facebook

Republican and Democratic senators voiced support for greater regulation of Facebook and its social media platforms during a hearing in which a whistle-blower warned about wrongdoing inside the company.

“Facebook exploited teens using powerful algorithms that amplified their insecurities and abuses through what it found was an addict’s narrative. If they won’t act, and if Big Tech won’t act, Congress has to intervene. Senator Markey and I have introduced the KIDS Act, which would ban addictive tactics that Facebook uses to exploit children.” “Passing a federal privacy standard has been long in the works. I filed my first privacy bill when it was in the House back in 2012, and I think that it will be this Congress and this subcommittee that is going to lead the way to online privacy, data security, Section 230 reforms. And of course, Senator Klobuchar always wants to talk about antitrust.” “As early as 2012, Facebook has wanted to allow children under the age of 12 to use its platform. That’s why we need to expand the Child Online Privacy Protection Act. That’s why we need to pass the KIDS Act that Senator Blumenthal and I have introduced and why we need an algorithmic justice act.” “There’s a lot of bills that I think we’ve all talked about, but mine is called the DATA Act. It’s going to require express consent from users for large platforms to use algorithms on somebody.”

Video player loadingRepublican and Democratic senators voiced support for greater regulation of Facebook and its social media platforms during a hearing in which a whistle-blower warned about wrongdoing inside the company.CreditCredit…Drew Angerer/Getty Images

  • Republican and Democratic lawmakers are united on taking action to stop the harms caused to teenagers on Facebook. Citing internal research brought to light by Ms. Haugen, lawmakers discussed how Facebook knew the harm that apps such as Instagram were causing to teens. Several senators discussed bills they have proposed that would add safety provisions for young users.

    At one point, Ms. Haugen suggested something even more radical: Increasing the minimum age for any person using social media to 17 years old from 13 years old.





Thune, Facebook Whistle-Blower on Engagement-Based Ranking

Senator John Thune, Republican of South Dakota, asked the Facebook whistle-blower to detail the danger of engagement-based ranking, which is used by Facebook and other social media platforms to determine which content they believe is most relevant to users’ interests.

“We’ve learned from the information that you provided that Facebook conducts what’s called engagement-based ranking, which you’ve described as very dangerous. Could you talk more about why engagement-based ranking is dangerous? And do you think Congress should seek to pass legislation like the Filter Bubble Transparency Act that would give users the ability to avoid engagement-based ranking altogether?” “Facebook is going to say you don’t want to give up engagement-based ranking. You’re not going to like Facebook as much if we’re not picking out the content for you. That’s, that’s just not true. There are a lot of — Facebook likes to present things as false choices, like you have to choose between having lots of spam. Like, let’s say, imagine we ordered our feeds by time, like on iMessage or on — there are other forms of social media that are chronologically based. They’re going to say, you’re going to get — you’re going to be spammed, like you’re not going to enjoy your feed. The reality is that those experiences have a lot of permutations. There are ways that we can make those experiences where computers don’t regulate what we see. We, together, socially regulate what we see. But they don’t want us to have that conversation because Facebook knows that when they pick out the content that we focus on using computers, we spend more time on their platform, they make more money. The dangers of engagement-based ranking are that Facebook knows that content that elicits an extreme reaction from you is more likely to get a click, a comment or reshare. And it’s interesting because those clicks and comments and reshares aren’t even necessarily for your benefit. It’s because they know that other people will produce more content if they get the likes and comments and reshares. They prioritize content in your feed so that you will give little hits of dopamine to your friends so they will create more content. And they have run experiments on people, producer side experiments, where they have confirmed this.”

Video player loadingSenator John Thune, Republican of South Dakota, asked the Facebook whistle-blower to detail the danger of engagement-based ranking, which is used by Facebook and other social media platforms to determine which content they believe is most relevant to users’ interests.CreditCredit…Anna Moneymaker/Getty Images

  • Lawmakers have gotten smarter about tech. Lawmakers in the hearing explored the role that Facebook’s algorithms play in amplifying problematic content, and the way in which the company consistently tweaks its algorithm to choose one type of content over another.

    That’s far more sophisticated than the kinds of questions lawmakers have previously asked about Facebook. (Remember when, a few years ago, some lawmakers didn’t know how the company made money?) And while past hearings have focused on specific issues such as speech online or whether a certain individual or idea should be banned from the platforms, the discussion in Tuesday’s hearing was broader and touched on many facets of the active role that Facebook plays in the pieces of content that it promotes.

    That was buttressed by Ms. Haugen’s candor. She used knowledge of Facebook’s technology to explain how the algorithms work in layman’s language, and started a nuanced discussion on what lawmakers could do going forward.





Whistle-Blower Warns of Foreign Influence on Facebook

Frances Haugen, a former Facebook employee, said during testimony before the Senate that foreign governments, including China and Iran, were using the platform to conduct surveillance and espionage operations.

“During my time working with the threat intelligence org, so I was a product manager supporting the threat, the counterespionage team, my team directly worked on tracking Chinese participation on the platform, surveilling, say, Uyghur populations in places around the world, that you could actually find the Chinese based on them doing these kinds of things.” “So facebook? I’m sorry.” “We also saw active participation of, say, the Iran government doing espionage on other state actors. So this is definitely a thing that is happening. And I believe Facebook’s consistent understaffing of the counterespionage information operations and counterterrorism teams is a national security issue. And I’m speaking to other parts of Congress about that.” “So you are saying in essence, that the platform, whether Facebook knows it or not, is being utilized by some of our adversaries in a way that helps push and promote their interests at the expense of America’s.” “Yes, Facebook is very aware that this is happening on the platform, and I believe the fact that Congress doesn’t get a report of exactly how many people are working on these things internally is unacceptable because you have a right to keep the American people safe.”

Video player loadingFrances Haugen, a former Facebook employee, said during testimony before the Senate that foreign governments, including China and Iran, were using the platform to conduct surveillance and espionage operations.CreditCredit…T.J. Kirkpatrick for The New York Times

  • Facebook is sitting on an even larger mountain of internal research. The thousands of documents provided by Ms. Haugen to lawmakers are likely just the tip of the iceberg. In her testimony, she encouraged lawmakers to demand more documents and internal research from Facebook, stating that it was only through complete transparency that Congress could hope to understand and eventually regulate social media.

    Ms. Haugen also hinted that there was more to come from her. During the hearing, she mentioned that she was speaking to a separate congressional committee on how Facebook has understaffed critical security teams that monitor whether countries were using the platform to spy on one another and run disinformation campaigns. She said the company was failing to adequately protect against threats emerging from China, Iran, Russia and other countries.

Read moreCredit…Kevin Dietsch/Getty Images

As Washington dickers over raising the debt limit, the White House is offering a sober take on the real-world impact of default.

If lawmakers fail to raise the federal debt limit before the government runs out of money to cover its bills, it could set off a global financial crisis that the United States would be powerless to confront, White House economists warn in a report released on Wednesday.

“A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge,” officials at the White House Council of Economic Advisers warned. “Employers around the world would likely have to begin laying off workers.”

The potential for an ensuing global recession, they wrote, could be worse than the 2008 financial crisis, because it would come as countries continue to struggle to escape the coronavirus pandemic. Adding to the burden, Congress and President Biden would be unable to spend money to prop up the economy until the debt limit, which caps the amount that America can borrow, is raised.

“The federal government could only stand back,” they wrote, “helpless to address the economic maelstrom.”

Mr. Biden and Democratic leaders in Congress are engaged in an escalating standoff with Senate Republicans, who agree the debt limit must be raised in the coming weeks to avoid default, but who are blocking an up-or-down vote to do so. The Republicans want Democrats to use a special process in the Senate to bypass their filibuster, which Democrats have resisted. Mr. Biden has called the Republicans’ actions irresponsible and tried, and failed, to shame them into allowing a vote.

The report released on Wednesday offered a detailed and near-apocalyptic rundown of White House fears of how a default on the debt — which would come when the government is unable to pay everyone it owes money to at once — would ripple through the economy.

The officials warn that even the threat of a default in 2011 pushed up mortgage rates for home buyers for months, and that an actual default could elevate them even further this time. They also say retirees, Medicare beneficiaries, members of the military and millions of other people who depend on federal payments could see their means of support cut off “quickly, even overnight in some cases.”

They also say some critical federal services — like forecasts from the National Weather Service or time keeping from the National Institute of Standards and Technology — could be disrupted for lack of funds.

Mr. Biden is continuing to press Republicans to allow Democrats to approve a debt-limit increase along party lines in the Senate. Barring that, Democrats in Congress will be forced to move the increase through the budget reconciliation process that bypasses a filibuster, or move to eliminate the filibuster for the vote.

The administration has ruled out unilateral efforts to bypass the limit, like minting a $1 trillion coin, saying such efforts would sow uncertainty that would damage the economy.

Read moreCredit…Chris Stephens/Magnolia Pictures

Magnolia Pictures, the film distributor owned by the billionaire investor Mark Cuban and the entertainment entrepreneur Todd Wagner, has hired an investment bank to run a sale of the company, two people familiar with the matter told the DealBook newsletter.

The move reflects the rising value of film libraries as streaming services amass content. (See: Amazon’s $8.45 billion acquisition of MGM in May.)

The two people familiar with the matter spoke on condition of anonymity because the process was confidential. Mr. Cuban and Eamonn Bowles, Magnolia’s president, did not respond to requests for comment.

Magnolia’s business model involves buying rights to finished films at festivals like Cannes and Sundance and attracting an audience through grass-roots marketing and awards buzz. Others in this market include Sony Pictures Classics, Roadside Attractions and IFC Films.

Mass-appeal movies have started to rebound at the box office, but art-house films haven’t followed suit, in part because their audience tends to be older and therefore more concerned about the coronavirus.

Magnolia has about 500 films in its library. The company, founded in 2001, is known for documentaries like “Blackfish,” “I Am Not Your Negro” and “Capturing the Friedmans.” It generated around $30 million in sales last year and expects to bring in about $40 million this year. Its streaming partners have included Amazon, Apple, HBO Max and Hulu.

It was once part of a bigger media play. 2929 Entertainment, the media company founded by Mr. Wagner and Mr. Cuban, wanted to bring big-media ideas of vertical integration to the art-house world when it acquired Magnolia and the indie cinema chain Landmark Theatres in 2003. But the group sold Landmark to the billionaire Charles Cohen’s real estate group in 2018, when Netflix was emerging as an art-film superpower.

In exploring a sale, Magnolia joins a number of smaller film companies that are seeking deals in hopes of tapping streamers’ appetite for content.

Blackstone’s yet-to-be-named media venture has acquired Reese Witherspoon’s Sunshine Productions for roughly $900 million, for example. Will Smith and Jada Pinkett Smith’s media company, Westbrook, is also reportedly in talks with the outfit. SpringHill, an entertainment company controlled by LeBron James that helped produce the “Space Jam” reboot, has reportedly been in talks with RedBird Capital.

Read moreCredit…Nam Y. Huh/Associated Press

Stocks around the world dropped on Wednesday as government bond yields jumped higher, a sign that traders continue to be wary of higher inflation.

U.S. stock futures showed that the S&P 500 was set to open more than 1 percent lower. The index has already fallen more than 4 percent since its peak in early September as investors prepare for the Federal Reserve to pull back on stimulus and wonder if the U.S. central bank will have to act more aggressively to stem a rise in prices.

The yield on 10-year Treasury notes rose as much as five basis points, or 0.05 percentage points, to 1.57 percent on Wednesday, the highest since mid-June. It jumped five basis points on Tuesday.

“The respite has been brief for rates markets as the sell-off resumed yesterday, taking yields back to the previous week’s highs,” analysts at Dutch bank ING wrote in a note to clients. “Inflation angst is still playing out.”

Tech stocks dropped in premarket trading with Apple, Microsoft, Facebook and Amazon all falling more than 1 percent.

Stocks fell in Europe amid more evidence that supply chain disruptions were holding back the economic recovery. Data published on Wednesday showed that German factory orders dropped 7.7 percent in August and retail sales were rose less than economists forecast. A survey of purchasing managers showed activity was contracting in the construction industry in September, though some constraints were easing.

“Supply bottlenecks, capacity constraints and rising costs all continued to take a toll on the German construction sector during September,” said Phil Smith at IHS Markit, which published the survey. There is “ongoing sluggish trends in activity and new orders, as firms reported disruption from material shortages as well as a negative impact on demand from having to raise prices in line with higher costs.”

The Stoxx Europe 600 fell 1.9 percent and the DAX in Germany fell 1.8 percent.

In Britain, gas prices jumped higher, raising concerns that a period of above-target inflation will continue, or will encourage the central bank to take action sooner than expected. The yield on 10-year bonds rose three basis points to 1.11 percent, following a seven basis-point increase on Tuesday. Yields are at their highest levels since May 2019.

Read moreCredit…Alyssa Keown/Battle Creek Enquirer, via Associated Press

Workers who make Kellogg cereals including Corn Flakes, Frosted Flakes and Froot Loops went on strike on Tuesday at factories in Michigan, Nebraska, Pennsylvania and Tennessee.

“For more than a year throughout the Covid-19 pandemic, Kellogg workers around the country have been working long, hard hours, day in and day out, to produce Kellogg ready-to-eat cereals for American families,” said Anthony Shelton, president of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, which represents the striking workers.

His statement added, “We are proud of our Kellogg members for taking a strong stand against this company’s greed and we will support them for as long as it takes to force Kellogg to negotiate a fair contract that rewards them for their hard work and dedication and protects the future of all Kellogg workers.”

The issues being negotiated include job protections, vacation and holiday pay, and health care. The plants are in Battle Creek, Mich., the headquarters of Kellogg and its home since the company’s founding in 1906; Omaha; Lancaster, Pa.; and Memphis. About 1,400 workers are on strike.

“We are disappointed by the union’s decision to strike,” said Kris Bahner, a press officer for the company. The workers’ pay and benefits “are among the industry’s best,” Ms. Bahner said in a statement, adding that “our offer includes increases to pay and benefits for our employees, while helping us meet the challenges of the changing cereal business.”

Her statement added: “We remain committed to achieving a fair and competitive contract that recognizes the important work of our employees and helps ensure the long-term success of our plants and the company. We remain ready, willing and able to continue negotiations and hope we can reach an agreement soon.”

Mr. Shelton said in his statement that his union “stands in unwavering solidarity with our courageous brothers and sisters who are on strike.”

The same union recently ended a weekslong strike at Nabisco, after clashing with its owner, Mondelez International, over proposed changes to shift lengths and overtime rules. The strike, by roughly a thousand workers, affected three bakeries and three small sales distribution facilities, according to Mondelez, which is based in Chicago.

Read moreCredit…Pool photo by Kevin Dietsch

As Jerome H. Powell’s term as the chair of the Federal Reserve nears its expiration, President Biden’s decision over whether to keep him in the job has grown more complicated amid Senator Elizabeth Warren’s vocal opposition to his leadership and an ethics scandal that has engulfed his central bank.

  • Mr. Powell continues to have a good chance of being reappointed because he has earned respect within the White House, people familiar with the administration’s internal discussions said.

  • But Ms. Warren has blasted his track record on big bank regulation and last week called him a “dangerous man” to lead the central bank. She has also taken aim at Mr. Powell for not preventing top Fed officials from trading securities in 2020, a year in which the central bank rescued markets, potentially giving the officials privileged information.

  • The administration is under pressure to make a prompt decision, in part because the Fed’s seven-person Board of Governors in Washington will soon face a spate of openings.

  • Critics say reappointing Mr. Powell amounts to retaining that more hands-off regulatory approach. And some progressive groups suggest that if Mr. Powell stays in place, Randal K. Quarles, the board’s vice chair for supervision, might feel emboldened to stick around as a Fed governor once his leadership term ends. That would mean four of seven Fed Board officials would remain Republican-appointed.

The uncertainty also reflects growing complications around Mr. Powell’s renomination. READ THE ARTICLE →

Credit…Carlos Garcia Rawlins/Reuters

For many Chinese businesses, the guidelines were once clear: Pay lip service to the government, make money and go global if possible, with foreign listings and acquisitions.

While China’s billionaires always felt vulnerable — the country’s list of richest individuals is often joked about as a catalog of targets — they also had a cozy relationship with officials that allowed for flouting the rules and influencing policy.

Success is no longer a guarantee of safety. As China’s leader, Xi Jinping, reshapes how business works and limits executives’ power, the big-name casualties are piling up, and there is little sign that Mr. Xi and the regulators he has empowered are daunted by the carnage. Since February, investors have erased more than $1 trillion from the market value of China’s largest listed tech firms.

Long in coming, but rapid in execution, the policies are driven by a desire for state control and self-reliance as well as concerns about debt, inequality and influence by foreign countries, including the United States.

The goal is to fix structural problems, like excess debt and inequality, and generate more balanced growth. Taken together, the measures mark the end of a Gilded Age for private business that made China into a manufacturing powerhouse and a nexus of innovation.

“The very definition of what development means in China is changing,” said Yuen Yuen Ang, a political science professor at the University of Michigan. “In the past decades, the model was straightforward: It was one that prioritized the speed of growth over all other matters.”

“It is clear by now that Mr. Xi wants to end the Gilded Age and move toward a Chinese version of the Progressive Era, with growth that is more equitable and less corrupt,” she added.

Economists warn that authoritarian governments have a shaky record with this type of transformation, though they acknowledge that few have brought such resources and planning to the effort. READ THE ARTICLE →

Read moreCredit…T.J. Kirkpatrick for The New York Times

A Facebook whistle-blower told lawmakers at a hearing on Tuesday that the company can effectively police at most about a fifth of the vaccine misinformation that appears on its platform.

Frances Haugen, a former Facebook product manager for the company’s civic misinformation team who released a trove of internal documents demonstrating the social media company’s negative impacts, testified on Capitol Hill about a wide range of issues, briefly touching on the problem of virus misinformation.

Facebook and other online platforms like YouTube and Twitter have helped turbocharge the spread of false information about the coronavirus, vaccines and supposed cures, like the livestock deworming drug Ivermectin. The company said in February that it planned to remove posts that contained inaccurate statements about vaccines from its platform and has since last year been vocal about removing coronavirus misinformation.

But posts and groups spreading false information related to the coronavirus continued to appear. In July President Biden said Facebook was “killing people” through the inaccurate information it spread, though he walked the comment back after the company objected.

On Tuesday, Senator Amy Klobuchar of Minnesota asked Ms. Haugen whether Facebook had dedicated enough resources to removing coronavirus falsehoods, noting that YouTube said last week that it would ban all anti-vaccine misinformation.

“I do not believe Facebook, as currently structured, has the capability to stop vaccine misinformation,” Ms. Haugen said.

She added that Facebook said that its efforts were only likely to remove “10 to 20 percent of content.”

Facebook did not immediately respond to requests for comment.

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