By Hans Taparia and Bruce Buchanan

When it comes to market failures, Meta has created the perfect storm. It is a de facto monopoly for social media. The information asymmetry of its algorithms and data capture methods deceives users and violates their privacy. It extracts huge wealth from the internet, the public good that hosts it. And it exacts enormous costs on its users in the form of mental illness and lost productivity. Actions to correct these failures have proven ineffective. The Federal Trade Commission’s on-going effort to break up Meta has not succeeded, legislative attempts to regulate social media have been inconsequential and Meta’s profitability permits it to indefinitely pay billions of dollars in civil penalties and private and class action damages.

It’s time for new thinking. In a recent paper, we describe a powerful, yet market-based method for redesigning firms that create intractable costs to society. The method requires no new laws or market tools, and it respects conservative principles of private property. We call it Capture, Redesign, Release (CRR). If applied to Meta, it would fundamentally change the firm and dramatically mitigate the market failures it produces.

In the Capture phase, a government such as the state of California or the federal government, would exercise its sovereign right of eminent domain to condemn the firm, and assign the right to purchase its shares to an independent “Purpose Trust.” The use of eminent domain might seem novel, but it is legally conservative based on how the Constitution is drafted and how the courts have upheld its use.

The Fifth Amendment of the Constitution permits such takings for “public use” so long as “just compensation” is paid to the holders. Over the years, federal and state governments have applied eminent domain to acquire property for roads, parks, and infrastructure. But during the 20^th century, the Supreme Court broadened the definition of public use to the more expansive concept of “public purpose” (Berman v. Parker and Kelo v. City of New London). Governments both state and federal now employ eminent domain for enhancing community welfare, fostering economic development, and promoting public health and safety.

Meta’s documented record of deceptive and predatory practices, its “blight” upon public health, and its imperviousness to regulatory efforts make a compelling case for Capture. In two recent jury verdicts in New Mexico and California, Meta was found to have created addictive products, engaged in deception and unconscionable conduct, and failed to protect children from sexual predators. Many other cases involving tens of thousands of plaintiffs are in process in both state and federal courts. Over 40 state attorneys general now have active pending lawsuits. Meta is facing numerous class action and legal actions for violating precepts of the Electronic Communications Privacy Act and HIPAA data privacy laws. It has paid out over $2 billion combined in Texas and Illinois because of its biometric tracking practices. One could argue that Capture is overdue.

Any form of property, tangible or intangible, can be acquired through eminent domain. Shares of a corporation are nothing but the intangible property of its investors, and if publicly listed they are always for sale. Unlike real property, condemning a corporation through eminent domain does not require taking people’s land, pushing them from their homes or closing businesses. There is no individual hardship or community disruption. Investors simply receive cash at the selling price.

Once captured, the firm must be Redesigned, so that its harm to society is structurally reduced. This redesign relies on a Purpose Trust, which is established independently of the government, to purchase the shares of the platform by issuing bonds. Purpose Trusts are a relatively new legal form in which the beneficiary of the trust is not a person or community, but is the purpose itself.  Such trusts, governed by a self-perpetuating board, provide a powerful mechanism to permanently encode the purpose or mission of a corporation. For a social media firm, this board might consist of community leaders, mental health experts, industry executives, advocates from civil society and actual users.

As a subsidiary of the Purpose Trust, the social media platform itself would then be re-chartered as a Benefit Corporation with specific principles regarding data privacy, content moderation, prohibitions of hate speech, content amplification and the use of recommender systems. The charter might forbid the sale of user data and provide rights of access, removal, and correction to users. It might also restrict lobbying or require the firm to contribute a portion of its profits to address mental health and social media addiction. In sum, Redesign is where the social media platform’s charter and governance would be conceived to dramatically reduce the market failure it creates.

In the Release phase, the redesigned Meta is set free under the governance of the Purpose Trust to operate in the marketplace according to its new charter, delivering Facebook, WhatsApp, and Instagram to its users while respecting their rights, privacy, and dignity. Consumers would still enjoy those platforms, but with greater protections and rights. Meta’s investors are bought out at market prices and suffer no economic loss. Society suffers much less social and economic blight; and courts and regulators are no longer clogged with endless costly procedures.

Because of Meta’s extraordinary profitability, the financing works. Meta has a market capitalization of roughly $1.5 trillion. Its operations yield roughly $150 billion per year. Government-backed bonds at 5% would require roughly $75 billion in debt service, leaving another $75 billion for R&D and paying down principal. This means the government could perform a Capture, Redesign, and Release of Meta without ever taking ownership of the firm.

Capture, Redesign, and Release is a novel and unsettling proposal, and it would establish a threatening precedent. We do not recommend it become a routine procedure. But in cases of intractable and costly market failure, it may be the only way to ensure the rights of citizens, and that is the role of government. All corporate charters that grant limited liability to investors are issued at the pleasure of the state. From the standpoint of law, this option has always been there. Meta has proven itself highly intractable.

As regards this action, there should be broad political support. Consumers and voters should approve: Facebook, Instagram, and WhatsApp will all remain, but in a more benign form. Consumers gain. Advertisers will face a less noxious media behemoth. Citizens will endure less political misinformation and manipulation and fewer echo chambers of hate. Wall Street will get to underwrite over a trillion dollars in bonds, and profit handsomely off the transaction. True, there is some unavoidable risk to bond holders, but Meta will retain its monopoly power with a 70% market share and should remain hugely profitable. It might even enjoy greater consumer acceptance in its more benign incarnation. The redesign will reduce the need for an enormous payroll used to support algorithm optimizations, government relations, litigation and legal settlements.  R&D expenditures should drop as Meta focuses on its social media mission and stops its very expensive forays into VR and AI. The lower political risk should also lower the cost of debt capital and, if necessary, government guarantees could lower it still more.  No doubt, the titans of Silicon Valley, the men clustered on the President’s platform at the inauguration, and paying tribute at White House lunches, would go ballistic. All of them control firms that are, to greater or lesser extent, beyond regulation, and they like it that way. But as the Supreme Court held in the 1837 Charles River Bridge case, “we must not forget that the community also have rights, and that the happiness and wellbeing of every citizen depends on their faithful preservation.” Even citizens who don’t lunch at the White House have rights. In the case of Meta, regulation and litigation cannot restore them. Capture, Redesign, and Release just might.

Hans Taparia is a Clinical Professor at the NYU Stern School of Business.

 Bruce Buchanan is the C. W. Nichols Professor of Business Ethics at the NYU Stern School of Business.