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Breaking Up Big Tech: A Bad Idea

By admin_45 in Blog Breaking Up Big Tech: A Bad Idea

When Democratic Senator/presidential hopeful Liz Warren and conservative firebrand Steve Bannon agree on a topic, you know something strange is going on. These two have about as much in common as the old British comparison of chalk and cheese.

The issue: breaking up Big Tech companies like Amazon, Google and Facebook, with Warren going so far as to outline a template just last week:

  • Companies with over $25 billion in revenue that offer the public an online marketplace/exchange/platform for connecting third parties would be designated a “platform utility”.
  • They would not be able to participate in the platform they operate, meaning (for example) Amazon would have to stop selling its own products on its website.
  • If she were to become president, Warren would also appoint regulators committed to reversing acquisitions like Amazon/Whole Foods, Facebook/Instagram, and Google/Waze, among other many transactions.
  • You can read Warren’s complete text here: https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c

Here’s the problem we see with any call to break up Big Tech: it assumes the US has no global competition in developing new technologies like artificial intelligence, Big Data/machine learning, quantum computing, and autonomous vehicles. Google, Facebook and Apple are at the forefront of all these emerging technologies, with R&D dollars funded by their existing businesses. But Chinese companies like Alibaba, Tencent, Baidu and smaller startups like SenseTime are nose-to-the-grindstone on the same challenges. And all of them work closely with the Chinese government to advance common goals. Chief among them: be global leaders in every emerging technology.

Consider a historical analogy: the US auto industry in the 1930s. Ford, General Motors and Chrysler were the Facebook/Google/Amazon of their day, and just as roundly criticized. The issue back then was unionization. The Great Depression created a social backdrop where collective bargaining was a hot topic, much to management’s chagrin. The United Auto Workers union was founded in 1935 and after several highly contentious battles (literally…) with management they were successful in unionizing the country’s automotive workers.

What happened then: Ford, GM, Chrysler, and every other automaker remained intact rather than seeing their assets strewn to the wind or seeing heavy fines as punishment for their anti-union ways. That was fortunate, because less than 5 years after GM recognized the UAW, the US entered World War II. America’s automotive plants and related industrial assets, managed as a cohesive whole, became “The Arsenal of Democracy”.

Yes, the comparison to the current “Break Up Big Tech” sentiment is imperfect. In a traditional industrial setting, economies of scale and scope are hugely important. Technology, by comparison, can break either way. Small groups headed by a visionary leader can upend the status quo, especially when generously funded by venture capital. Or a deep-pocketed Big Tech company can replicate that dynamic, as Google’s successful autonomous vehicle division or Amazon’s efforts in AI clearly show.

In the end, however, we think the strategic issue raised here needs more consideration than has thus far been aired by advocates of the Big Tech Breakup idea (which is to say they entirely ignore it). You need only look to Europe’s lackluster economic growth since 2008 (with accompanying mediocre equity returns) to see what happens when the Tech sector fails to scale and reach cross-regional critical mass. Moreover, since tech-based disruption compounds (just like Moore’s Law) it will be increasingly difficult for Europe to ever catch up.

Don’t get us wrong: US Tech does need more regulation, and most industry players actually agree with that sentiment. Data privacy needs to hew closer to western norms, for example, as does politically-related content. And emerging technologies like AI should similarly echo social values, something that will only come to fruition with new laws and rulemaking.

But a wholesale breakup of America’s biggest Tech companies ignores an important global reality (with apologies to von Clausewitz): technology is the continuation of diplomacy by other means. Over the next 10-20 years, tech-based innovative disruption will change the world. Not just the US or China, but every country. The Chinese approach is to guide technological advancement hand-in-glove with government priorities. The American approach (and European, if they can get in the game) needs to acknowledge that competitive advantage and plan accordingly.

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