Are Tech Titans Crushing Competition, or Is It Washington?

The luster of Silicon Valley tech firms is beginning to tarnish, Farhad Manjoo of the New York Times writes, and governments around the world are taking notice:

Nearly a year ago, I argued that we were witnessing a new era in the tech business, one that is typified less by the storied start-up in a garage than by a posse I like to call the Frightful Five: Amazon, Apple, Facebook, Microsoft, and Alphabet, Google’s parent company.

Together the Five compose a new superclass of American corporate might. For much of last year, their further rise and domination over the rest of the global economy looked not just plausible, but also maybe even probable.

In 2017, much the same story remains, but there is a new wrinkle: The world’s governments are newly motivated to take on the tech giants. In the United States, Europe, Asia and South America, the Five find themselves increasingly arrayed against legal and regulatory powers, and often even against popular will.

Manjoo is not wrong that both the public and policymakers now view these technology firms, long seen as uniformly heroic or even god-like, with more skepticism. Some consumers worry about privacy. The political left worries about bigness, wealth, and inequality. Liberal economists recently have begun to worry about industry concentration and market power. Some conservatives may even distrust these firms for their aggressive efforts over the last decade to push the FCC to regulate broadband and wireless network firms, better known as the “net neutrality”wars.

But turning against these titans of American innovation would be foolhardy for consumers, workers, and for the US economy.

Manjoo and others lament that few new public firms are rising up to challenge the big five. But why is that? Are these firms crushing competition? Or is Washington crushing competition?

(Source: CB Insights)

In 2016, just 14 venture capital-backed technology firms completed initial public offerings (IPOs) in the US, after 15 frustrating years of lagging IPO activity. With the Sarbanes-Oxley Act and other Washington regulations discouraging young firms from going public themselves, the big five are happy to gobble them up, providing founders and venture capitalists much needed exits. Meanwhile, regulation of the physical industries makes entrepreneurship and market-entry by technology upstarts more difficult. This leads to fewer challengers not just to the big five but other large incumbents in other industries. (The total number of companies listed on US stock markets is just half of its 1990s peak.) The big five are thus stepping outside their traditional digital lanes, but should we really criticize Amazon for pioneering drone technology or Google for self-driving car advances or Apple for forays into health care?

These firms aren’t perfect. I think it was a mistake for them to push regulation of the Internet. Many of us said it would lead to a backlash and a regulatory boomerang effect.

In a similar way, pushes in the US to regulate or break up these firms will only encourage more aggressive efforts by regulators overseas, who are all too eager to take US tech firms down a peg or two. Likewise, any new protectionist policies in the US will only give other nations permission to promote their own national champions and block US firms from competing in vast global markets.

South Korea, for example, just fined mobile chip leader Qualcomm $853 million for alleged antitrust violations. But new regulation of tech or protectionism at home will make it more difficult to defend such American companies overseas.

The best way to regulate the size, behavior, and prices of technology’s titans is by removing the obstacles to vibrant entrepreneurship, thus allowing the next Google or Amazon to challenge, displace, or transcend today’s titans.This post was originally published on TechPolicyDaily.