startups

No, don’t break up the tech giants


If we want better consumer options at lower prices, we need an economy that facilitates innovation in return for profits. We also need political leadership that recognizes regulators often know far less about socially beneficial economic interests than major business owners.

President Trump seems to get this. Former Labor Secretary Robert Reich, however, does not.

I note this in light of Reich’s article for the Guardian, in which the Clinton administration alumnus calls on the government to break up major tech companies such as Amazon, Apple, Facebook, and Google. Reich says that this is necessary for two reasons: because this corporate power “stifles innovation” and affords big tech undue “political clout.” Both rationales are wrong and require repudiation.

On the first count, innovation, Reich points to U.S. government data which suggest that the rate at which new job-creating businesses have been created since 2004 has halved. He suggests “big tech’s sweeping patents, data, growing networks and dominant platforms have become formidable barriers to new entrants.”

In reality, the data paint a more complicated picture. Although high-skill businesses are forming at largely static rates, the growth rate trend for businesses with a high likelihood of becoming active job creators is slowly ticking up. A little hint here: if an author provides a link that forms the data linchpin of their argument, make sure you click the link yourself. Incidentally, the Census report’s concluding line also suggests that it might be high-tax and high-regulation business environments that are to blame for lower-than-desired business creation rates.

Regardless, the central issue here is whether Reich is correct that the data show big tech is stifling innovation. I do not believe that’s the case. For one, there is little high-value business creation even in markets such as the European Union, where U.S. tech companies must grapple with extensive regulations that are designed to limit their competitive power against smaller European companies. The real reason that we haven’t seen more business creation is not because big tech consolidates power, but rather because big tech firms are the best innovators. Put simply, they are doing their job better than anyone else. And while it’s true that big tech companies are active in buying out smaller innovators, even that activity isn’t necessarily problematic. Those who have been bought out are free to set up new innovative companies with the capital they have earned from their first sales. Neither is it true that big tech firms do not compete. Apple and Google are great competitors, and firms such as Walmart are now competing online with firms like Amazon.

Reich’s argument that big tech has too much political power is even less impressive. The facts do not bear his claim out at all. President Trump regularly attacks Amazon CEO Jeff Bezos, and Congress has hardly been friendly to Facebook or Twitter in recent months. I suspect that Reich’s real intention in including this claim of outsize political influence is to stir up the Guardian’s left-wing readership (such readers always see corporate conspiracies lurking closely).

Ultimately, though, big tech has been good for jobs, good for consumers, and good for the U.S. economy. And as the world grows more wealthy and its citizens have the means to seek out higher-value goods, big tech and thus the U.S. will have the most to benefit. But only, that is, if we protect the right of companies to grow big and make a lot of money. Antitrust legislation remains on the books, but we shouldn’t reach for that solution unless a specific malady has been identified. In this case, it has not been.





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