Don't Break Up Big Tech - Let the 'Invisible Hand' Do It
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Don't Break Up Big Tech - Let the 'Invisible Hand' Do It
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Break up Big Tech! So cry pundits and politicos alike. They claim these humongous firms stifle competition and innovation while greedily gobbling endless profits. With Congress relatively gridlocked, the sweeping regulation critics seek is unlikely. It’s also unnecessary, even harmful. Why? Big Tech’s wild success doesn’t thwart competition. It sparks it! This feature of capitalism’s “invisible hand” will eventually keep today’s titans in check while creating innovation—without wrecking markets. Here is why.

Since COVID-driven shutdowns forced economic activity online, soaring Tech stock market values turbocharged calls for a sector takedown. The S&P 500’s six largest constituents are in Tech or Tech-like industries (like Amazon and Facebook). Their market value: almost $9 trillion—nearly 25% of the S&P. Critics fear a new Gilded Age of behemoth “trusts” dominating everything down to your hangnail—an ogre-ish oligopoly.

State governments and competitors already target Apple, Facebook and Google with antitrust lawsuits. Democrats and many Republicans back slews of new regulations of varied forms. All this in the name of boosting competition.

As I have long preached from here to Timbuktu and back, markets hate uncertainty. So if governments will whack the ogres, why are these targeted Tech titans’ stocks so hot? Gridlock! As I explained in March, Congressional Democrats’ tiny margins mean the slightest dissent kills legislation. Some California Democrats already oppose Tech clampdowns they fear threaten their state’s major employers and state tax revenue.

Regulation proponents have little time: Few Congressional sessions remain before the fiscal year’s September 30 close, with dastardly debt ceiling issues, infrastructure babble and reconciliation spending dominating debate. Then midterm campaigning starts. Many in ideologically 50 – 50 districts will shun big changes lest they irk swing voters—doubly true in more than a dozen states where pending redistricting leaves constituencies literally undetermined. Then, too, the ogre’s kajillionaire founders, managers and assistant flunky ogres will surely pour enough cash into election campaign coffers to buy their way out of any proposed legislative purgatory. I am being facetious saying that, but there are shreds of reality in it.

Markets won’t ignore this. They pre-price everything we all know. After early-year lag, US Tech stocks soared 16.6% since mid-May, trouncing the S&P 500’s 8.6%. The Tech-like Interactive Media & Services industry—part of the Communication Services sector and home of social media firms and search engines—jumped 23.3%. The Consumer Discretionary sector’s Internet & Direct Marketing Retail industry is up 15.6%. Translation: Markets see past the nonsense. Trust them. Markets are far more trustworthy than politicians or pundits.

Still, never fear: a failed Big Tech crackdown doesn’t mean America slinks toward any form of anticompetitive FAANG-dominated future. Should problems be real (as opposed to the imagined-yet-consensus view common among the elitist crowd), in time, capitalism’s “invisible hand” will throttle these firms’ power better than any regulations could—just as modern economics’ founder Adam Smith envisioned.

Hugeness doesn’t eliminate competition, Smith found—it inspires it. If the ogres get out of hand, that motivates new firms seeking disruptive opportunity. It just takes time. If these danged ogres gouge customers, provide shoddy products or fail to innovate and compete, customers inevitably take their business to the new disruptors who seemingly appear by magic from nowhere to nibble away the ogres from their hangnails up.

Don’t take Smith’s word for it—or mine. Consider the 50 years through 2019’s end, to eliminate pandemic skew. In 1969, IBM was America’s largest public firm. Its $41.5 billion market cap dwarfed second-place AT&T’s $26.7 billion. General Motors, Eastman Kodak, Exxon, Sears, Texaco, Xerox, GE and Gulf Oil followed, in that order. A decade later, half of that top 10 turned over. IBM was still #1, but by just $1 billion over AT&T. The oil industry dominated, riding repeat Arab oil crises’ surging prices to claim 6 of the top 10 spots.

Fast forward to 1999. Dominant Microsoft now tripled IBM’s market cap. Eastman Kodak, Xerox and Sears? Relics. The oil industry had transformed—only newly merged Exxon Mobil cracked America’s 10 biggest stocks. Chevron—less than a third of Gulf and Texaco’s combined market value in 1969—had swallowed up the former and was about to gobble the latter. Showing actual antitrust action lacked the invisible hand’s power, AT&T remained the 8th-largest public firm even after regulators made it ditch Ma Bell.

By 2019, IBM wasn’t even among America’s 50 largest firms. Only 2 of 1999’s biggies—Microsoft and Walmart—remained top 10. Microsoft did despite continual antitrust threats—proving they aren’t auto-bearish.

Free markets drive this constant top tier churn and burn. Too big is actually its own arteriosclerosis. Excess bigness creates bureaucracy—which morphs pretty darned pronto into bureaucrazy. New competitors disruptively emerge with newer technology disrupting via better products or greater efficiency—making the ogres’ offerings rusty relics. That is what capitalism does. Always! If you don’t believe that, you have a long-term personal investing future worse than any ogre could deliver. Those unable to adapt fade. New leaders replace them. The advances provide consumers endless benefit.

It will happen to today’s Tech titans. Not overnight, of course. But look beyond myopic visions skewed by recency bias to grasp the invisible hand’s power. Gradual shifts let markets digest changes bit-by-bit, giving investors abundant time to adjust. So don’t sweat legislative or regulatory threats. Meanwhile, love today’s Big Tech stocks. But not forever. Adam Smith’s invisible hand will come. Just be patient in stock market time, not politician and newspaper time. 


Ken Fisher, the founder, Executive Chairman and co-CIO of Fisher Investments, authored 11 books and is a widely published global investment columnist. For more, see Ken’s full bio, here

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