Big Tech is not Standard Oil. Breaking up tech giants will do more harm than good.
The world’s most powerful tech companies are facing unprecedented pressure from all sides: the general public, politicians, and regulatory bodies. Amazon, Google, Facebook, and Apple are the main victims of the new offensive against tech leaders. Democratic presidential hopefuls Elizabeth Warren and Bernie Sanders are already out with a headline-grabbing proposal to break up Big Tech.
Progressive politicians oppose tech corporations because they are powerful and rich. For Sanders, Warren, and alike, tech companies are the personification of evilness that aims to enhance their sway‒over society, political process, and our lives‒through nefarious means. However, the arguments in favor of breaking up Big Tech are muddled.
Warren says that the tech companies use mergers to limit competition and cites as an example Facebook’s acquisition of WhatsApp. But before Facebook bought WhatsApp, it was available for a fee; now, however, it is completely free.
Warren also says that Google stifles its competitors in the search engine market. It is not, however, obvious how the company actually does that. Has Google forced you to dump Yahoo? Or does Google in any way constrain your ability to switch to another platform — Bing, Yahoo, or DuckDuckGo?
What about Amazon? Senator Warren proposes to “unmerge” Whole Foods from Amazon. Although the company has around 50% of all online sales, it does not have anything even close to a monopoly in the food retail market. Kroger, Target and Walmart, facing competition from Amazon, are already spurring their investment in R&D and are beginning to use robots and other new technologies in order not to remain behind innovative Amazon. Amazon is not only not monopolizing the market, but is also decreasing prices and encourages more innovation.
Three out of the world’s top five R&D spenders are Amazon, Microsoft, and Alphabet. Tech companies are the primary drivers of innovation and technological progress.
The level of development of artificial intelligence, robots, autonomous vehicles, voice recognition would not be as advanced as it is today without tech companies. In fact, as OECD’s study finds, so-called “frontier” (technologically advanced) firms accounted for almost all of the productivity growth in recent decades.
The main problem with tech giants is that they represent natural monopolies. A natural monopoly is a monopoly that results from high barriers to entry to the market.
Put simply, because the costs of production are high, only large companies can be profitable, when a large number of customers bring enough profits to cover the costs of production.
There is a point where companies can reap the benefits of “economies of scale” and they are even ready to make initial losses to maximize later gains (as Amazon did for its first seven years of operation, when it accumulated $2 billion in debt, and also FedEx, ESPN, Tesla, Spotify, Uber and many others).
That is why the majority of digital platforms are natural monopolies. They can be profitable only in the economies of scale — and thus they often take the majority of the market. Therefore, breaking them up would eliminate their most fundamental advantage and hamper their ability to bring benefits to consumers and the economy in general.
In the data-driven economy, the process of monopolization is inevitable. This is because of AI algorithms’ dependency on data. The more data available, the better the algorithms are. If a particular company gains an early upper hand, it will, in most cases, dominate the market. First, even a slightly better product will attract more customers. In turn, more users will supply more data. Then, more data will amplify AI algorithms. Finally, improved algorithms will make the user experience even better and even more customers will choose this company — which will create even more activity, ad infinitum. Monopolization is thus an inherent characteristic of the AI industry.
As The Economist has put it,
“… a full-scale break-up would cripple the platforms’ economies of scale, worsening the service they offer consumers. And even then, in all likelihood one of the Googlettes or Facebabies would eventually sweep all before it as the inexorable logic of network effects reasserted itself.”
Apart from economic reasons, there are geopolitical incentives not to break up Big Tech. In China, top AI companies (Baidu, Huawei, Alibaba, Tencent) have very strong ties with the central government. They enjoy unrivalled and unchallenged positions thanks to Beijing’s full support and are allowed to harvest personal data without any constraints, regardless of privacy concerns. If Washington breaks up its tech companies, their efficiency will be severely harmed and it will be very difficult for the US to compete with Chinese tech behemoths in the global market.
If the US wants to reinforce its global technological dominance, we must assist Big Tech, not undermine it.
Big Tech is not a threat; it is an inevitable aftermath of technological evolution. Trying to break it up will not only restrict innovation and growth but will also entail severe geopolitical risks. It is critical to adopt a more balanced and pragmatic approach to dealing with Big Tech.
The views expressed in this article are the opinion of the author and do not necessarily reflect those of Lone Conservative staff.