In no industry does the process of creative destruction operate more dynamically than in the tech sector. To remain competitive (or even survive), start-ups and giants must race to innovate. Technologists create new iterations of old features, as well as entirely new things, churning out products that just a short time ago seemed to be the imaginings of science fiction. The inhabitants of the tech ecosystem shift constantly as new innovators break through and old-timers lose their touch. Companies must evolve and advance or face irrelevancy. These pressures — while at times chaotic — produce staggering innovation and consumer benefits.
Nonetheless, regulators in the US and Europe have determined to subvert creative destruction’s workings in technology’s next great frontier — artificial intelligence (AI). Last month, in a joint statement, the collective pen of the Federal Trade Commission (FTC), the Department of Justice (DOJ), the European Commission, and the U.K. Competition and Markets Authority made clear its intention to hamper AI’s free development.
Like many efforts at economic planning, subverting market forces — the forces that drive creative destruction — driving AI innovation will likely do precisely opposite of what planners intend. AI presents yet-unseen challenges to legacy tech firms, the nemesis of technocratic antitrust officials. For example, Google Search finds itself sprinting to remain ahead of surging new AI products such as Perplexity. Hampering innovation can only fortify Big Tech’s incumbency, delaying the shrinkage and replacement of Big Tech firms whose bigness (we are told) poses a mortal threat to technological innovation and digital markets. As the Competitive Enterprise Institute’s Iain Murray recently noted, “by the time the [antitrust enforcement] gets around to providing its solution, the market has already solved it itself” by rendering legacy firms obsolete.
Today, anti-competitive consolidation poses little risk to the AI industry — even with respect to AI’s inputs. The landscape is too densely populated. It moves and adapts at a startling pace. New firms and new products enter constantly, and competition thrives. And contrary to regulators’ anxieties, new products created by new companies (such as OpenAI’s ChatGPT) have kept pace — or better — with the old guard’s offerings. Only foolish regulatory intervention can halt creative destruction’s naturally occurring churn.
The new AI insurgents’ successes have a simple cause. They have created wildly innovative and popular products. Whatever disadvantages they may have faced while competing against the world’s largest tech giants pale beside the competitive advantages that arise from simply doing things better than anybody else.
The joint statement frets that tech giants may, through investments in young AI companies, be seeking to buy dominance in the AI industry. This perspective both misunderstands markets and threatens to stifle investment, innovation, and the healthy competitive pressures that push today’s leading AI companies. First, Big Tech companies (in many cases) own only small portions of the AI firms in which they invest. This means they lack meaningful control.
Startups rely on external capital to grow. Consequently, the primary benefits of anti-investment competition policy accrue to established players. Thus, regulators’ rush to block consolidation by Big Tech could insulate today’s successful AI firms — such as OpenAI — from competition, slowing the breakneck innovative pace at which the industry thus far has raced. Again, misplaced fears of consolidation and misguided policy responses thereto lift incumbents and burden small competitors.
The ethos embodied in the joint statement springs from an unease with free and uncoordinated innovation and a concomitant taste for central planning. Attempting a top-down state-directed tech sector is an errand for fools and over-confident antitrust officials — particularly in such industries as AI. Five years ago, nobody could have predicted the paths today’s tech sector has foraged. Only runaway hubris could pretend to have knowledge of where tech will arrive five years hence. Therein lies the problem — the knowledge problem. It is impossible to tell from economics textbooks or white papers which nascent ideas will bloom, or which entrepreneurs will succeed in providing for consumers’ needs.
Despite their confidence, the historical anxieties of the alarmists of anti-tech antitrust have rarely proved warranted. “In 1969 International Business Machines was charged with monopolizing the computer industry,” Robert Crandall wrote for the Brookings Institution in 2000. “But whatever IBM had done to incur the Justice Department’s wrath became irrelevant in a world in which personal computers and minicomputers were making deep inroads into the ‘mainframe’ computer business.” The government would eventually abandon its case.
Likewise, MySpace, Yahoo, AOL’s instant messenger, and other now-fossilized platforms once were supposed to have secured lasting dominance or monopoly status. Almost invariably, product quality and innovation — not market position or incumbent advantages — proved the decisive competitive factors.
The type of regulator who populates Western antitrust agencies loves the effects of creative destruction — but lack all sense of creativity. They praise competitive innovation-
pn but know nothing about its source. They seek frigid, centrally planned economic development, dictated by mandarins such as themselves. Of course, such attempts to micromanage innovation and creative destruction shrink the benefits these processes provide and arrest the pace at which they work.
Overregulation is a European tradition. America’s historical departure from this tradition and progress towards free markets has made space for its citizens to achieve historically unmatched productivity and prosperity in the tech sector and throughout the economy. The desire of many American technocrats to ape Europe’s empirically inferior model is not just economically foolish, but antiquated and regressive.