Be Grateful for 'Big Tech'
There was a time, not so long ago, when the companies now tarred collectively as “Big Tech” were celebrated as heroic champions of innovation, growth, and progress. They produced magical objects of joy and wonder; they provided powerful information services that were easy to use and free; they were gleaming wellsprings of innovation that pointed the way to a brighter future.
Now, with tech companies deeply rooted near the center of the economy and everyday life, the narrative has darkened. Innovations in areas such as robotics and artificial intelligence seem to provoke more fear and loathing than joy and wonder, and people are suddenly spooked by the fact that those free internet platforms they rely on make money by providing them targeted advertising. So if the prevailing sentiment toward tech were to be summarized with an emoji, it would probably now be somewhere between straight-faced and glum, with some people tapping angry frowns.
The risk from this emerging negativism, of course, is that government will replace the light touch, pro-innovation regulatory and policy regime that has enabled the United States to lead with a much more draconian one, designed to placate anti-innovation, techno-populists.
A significant majority of the public still maintains a basic faith in tech companies to do the right thing most of the time, according to Edelman’s Trust Barometer. Nevertheless, advocates and opinion leaders across the political spectrum are sounding shrill alarms of gloom and doom. Liberal icon Robert Reich, says “Big Tech” has become “way too powerful.” Robert VerBruggen, writing for the conservative National Review, calls Google, Facebook, and Amazon “Our Digital Overlords.” And the bipartisan pairing of Bill Galston, a center-left thinker who helped shape President Clinton’s domestic agenda, and Bill Kristol, the center-right thinker and veteran of the first Bush administration, have formed a new group with a reform platform that includes “Challenging the Tech Titans.” It has become fashionable among elites now to bash big tech.
The critics level a wide range of charges against the household names of tech — particularly Google, Apple, Facebook, and Amazon (a.k.a., “GAFA”) — including that they hold undue market shares, that they have accumulated too much data, and that they conduct themselves like a “tax-avoiding, job-killing, soul-sucking machine.” The common thread running through all of these indictments? The size of these companies: They are just too big, the reasoning goes, and therefore too powerful.
However, like most arguments based on emotion, this analysis is shallow and wrong.
To be sure, many tech firms are large and have earned significant market shares. But big firms, tech or otherwise, create enormous benefits that are too often overlooked, including higher-wage jobs with better benefits than small companies offer, more exports, and more innovation. Moreover, when it comes to tech, big firms are big precisely because scale holds the key to maximizing consumer welfare. As the Obama administration’s Council of Economic Advisers’ noted,
Some newer technology markets are also characterized by network effects, with large positive spillovers from having many consumers use the same product. Markets in which network effects are important, such as social media sites, may come to be dominated by one firm.
Please explain, for example, how it would be better for consumers if regulators broke Facebook into two entities, Facebook and Headbook. Every time someone wanted to post something for their friends, they’d have to do it twice. Let’s also not forget that breaking up big U.S. tech would leave the door wide open for big Chinese tech to corner the market.
Plus, if advocates are going to make charges of monopoly they should at least correctly define the relevant market. For free, ad-supported services that market is advertising — and here digital leaders have comparatively little power. Consider that Google and Facebook together hold just 25 percent of the ad market. No self-respecting antitrust economist would call such a market anything but competitive, especially since eyeballs could wander (and profits erode) when the next shiny new thing appears. Meanwhile, for many tech companies that make money by selling products and services, like Amazon, the prices are low and convenience high — a big reason their market shares have grown.
Moreover, big tech is vulnerable to competition, whether from adjacent markets, new entrants, or foreign competitors. As antitrust experts Carl Shapiro and Hal Varian put it:
The information economy is populated by temporary, or fragile, monopolies. Hardware and software firms vie for dominance, knowing that today’s leading technology or architecture will, more likely than not, be toppled in short order by an upstart with superior technology.
It is all too easy to forget that past tech giants such as IBM, Dell, and Microsoft once were seen as near invincible. Today’s giants are even more vulnerable. Why? Because compared to past technology leaders, there’s little to keep customers from switching horses mid-stream if a more compelling innovation emerges. And because they face formidable foreign competitors, many of which, at least in the case of China, are backed by their host government.
Rather than worry about hypothetical harms, governments should let consumers reap the windfall of the gains big tech companies are creating today. Most won’t be dominant long enough for any downside to materialize anyway.
Robert D. Atkinson is president of the Information Technology and Innovation Foundation, the leading think tank for science and technology policy, and author, with Michael Lind, of “Big Is Beautiful: Debunking the Myth of Small Business” (The MIT Press, March 2018).