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There is a rising chorus among Democrats that the US should use antitrust laws to break up Amazon, Facebook, and Google. Presidential hopeful Elizabeth Warren’s plan is to break up those companies and turn what’s left into federally regulated utility platforms. Rep. Alexandria Ocasio-Cortez (D-NY) is backing the plan. Another presidential hopeful, John Hickenlooper, has implied his support claiming that “today American capitalism is broken” and that part of the solution is to use antitrust to attack elements of the information industries where, in his mind, there are only a few large players. Presidential candidate Pete Buttigieg has also implied support, saying: “Antitrust law as we know it has begun to hit its limits with regulating tech companies” because some tech companies don’t charge users.
What are the false premises?
One myth is that antitrust has in the past been an effective tool for decreasing economic power and allowing new innovations to emerge. Advocates point to the cases of Standard Oil, AT&T, IBM, and Microsoft. The advocates get this history wrong.
Standard Oil’s decline came from new competition unrelated to government actions. AT&T’s breakup was costly and time-consuming. And if it was so effective, why has the supposed lack of competition in telecommunications been a rallying cry for net neutrality and for stopping telecommunications mergers, such as the proposed Sprint and T-Mobile merger? Antitrust action against IBM had nothing to do with the emergence of Microsoft (IBM was already unbundling), and antitrust against Microsoft had nothing to do with the emergence of today’s tech leaders: Microsoft guessed wrong about the future and so became a follower.
Another false belief is that the government knows how to design industries. The years of regulatory and court proceedings necessary to reorder the telecommunications industry after the AT&T breakup is adequate evidence that the government struggles even with something as apparently simple as copper-wire telephone service.
Other false premises include:
Why could breakups destroy the US tech industry?
If I’m right that government lacks expertise in designing markets and business models, the remaining pieces of the tech companies won’t have viable business models and will either close or be acquired by others. This is what happened to the pieces of AT&T following its breakup.
If I’m right that tech markets are more rivalrous than the critics assume, breaking the US tech business models would mean that companies from the next tier down would become world leaders. These are largely Chinese companies protected by Beijing.
If I’m right that today’s antitrust is too outdated to be applied to today’s fast-moving tech, the breakups will be about supposed problems that competition has already addressed. Rapid market changes showed that antitrust regulators were stuck in the past when they opposed the proposed merger between MCI Worldcom and Sprint in 1999. Regulators decided the merger would create too much market power in long-distance markets, but the presumed market was already disappearing because of deregulation, the rise of the internet, and the advent of mobile phones.
And if I’m right that elected officials and regulators will not resist the temptations of political favoritism, the economic value in the tech sector will be converted to political value and transferred to those with political power. This has happened in numerous countries, and it always leads to the demise of the captured industries (and to a decline in the affected economies).
What should be done?
Calls to break up Big Tech resonate because of the economics of politics: People vote for those that they believe will take on bad guys, and Big Tech firms are the current bad guys in the minds of many in the media, politics, and the population in general. To counter this, the breakup value proposition needs to change. There is an important counter proposition: clearly identifying and explaining what today’s tech leaders make possible for entrepreneurs, users, lower-income households, and the economy at large and noting that this value will be lost with breakups.
For the longer term, the tech sector should use its voice to help people learn how to think critically about politics, government, and regulation. Educational institutions, other media, etc. should do the same. This would not only help counter bad policy proposals, but also would go far to addressing the challenges of “fake news” and political interference from other countries.
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