Breaking Up 'Big Tech' Is a Well Out of Tune Mistake
It seems like every day a new politician or cable news talking head joins the choir of critics calling for antitrust action against leading tech services. Unfortunately, their song is off-key and out of tune: Misguided calls to dismantle some of America's best-performing firms risk harming one of the most innovative, productive, and pro-consumer industries in the U.S. economy.
Competition is alive and well in tech America. Unfortunately, you wouldn't know it listening to cottage industry tech critics that parrot "big is bad" arguments about the impact of large tech companies on new and smaller firms. In reality, the U.S. leads the world in the number of startups valued at more than $1 billion. In 2017, 32 of the 57 "unicorn" startups were American. The mythical "kill-zone," where investors won't invest because of successful incumbent companies, doesn't exist; startups are nourished, not suffocated, in the current venture capital climate. Actually, VC investment in the tech sector is at a 20-year high, performing exceptionally well compared to venture capital investment in other industries.
Investor appetite for these high-risk, high-reward companies clearly shows the dynamism of the tech sector – using antitrust policy to curb the services leading the pack would be a grave mistake that would retard innovation in a fundamentally American industry.
Further, policymakers touting "break them up" solutions should be wary of disrupting the benefits of these dynamic economic engines of growth. Rising pay and increased employment in the tech sector means that the industry could maintain labor share of income while the rest of the non-health private sector saw labor share fall by 1.3 percentage points. Additionally, tech companies are continually reinvesting earnings into new and innovative products at impressive rates; by one count, the top five R&D spenders were all tech companies with a total investment of $76 billion. Tech services are an obvious bright spot for the economy that draconian industrial policy that picks winners and losers will only diminish.
Second, calling leading tech companies "monopolies" is a misnomer. I've worked in antitrust for four decades, and I've gone toe-to-toe with corporations who have acted anti-competitively, including AT&T and Microsoft. But typical markers of monopolies indicate today's tech leaders are not engaging in antitrust-related misdeeds. Where a true monopoly would dictate prices with little incentive to change, consumers today can use a range of low to no cost internet services that benefit from a constant cycle of improvements.
There are parts of our economy deserving scrutiny over their consolidation and abusive practices, but though there are big tech companies and they do make mistakes, the anti-trust toolkit is generally not appropriate. Economists have found fierce competition in tech. In one analysis, five of the largest tech companies compete against each other in 27 different categories.
Most relevant for the standards of U.S. antitrust policy, consumers and businesses benefit substantially from these services using them to access information or reach customers. Consumers can use many different services at the same time ("multihoming"), can easily switch or delete platforms, and can find information and connect across the world with friends and family.
According to MIT economists, consumers would have to be paid $3,600 a year to give up internet maps, $8,400 to give up e-mail, and $17,500 to give up search engines.
Some 2020 candidates, rightfully wary of antitrust action against some of America's most innovative companies, are trying to split the baby by suggesting we regulate these companies like utilities. This too misses the mark with a false impression that a utility model would improve consumer choice and would not stifle innovation. As many of us know far too well, we're stuck with our power company or internet provider – but we can leave Facebook whenever we want.
If the fear is that these companies are somehow forever entrenched into our lives, history has a good lesson: we've seen this fear of dominant firms before, in the technology hall of fame that is MySpace, Yahoo, AOL, and other would-be monopolies that fell in the face of disruptive American innovation.
Antitrust is an important tool and its credibility must be preserved for when it is really needed to go after true monopolies that are harming consumers. Instead of prescribing penalties ahead of any actual investigation, policymakers should work together to develop meaningful legislation that addresses the direct concerns instead of the antitrust kitchen sink approach. Thus, we can preserve the ability of our most forward-looking companies to continue creating the products and services that American consumers and businesses love.