Loren Thompson
Over the last two generations, the U.S. economy has steadily migrated from the production of goods to the delivery of services. Although U.S. manufacturers still dominate in industries such as aerospace and U.S. farmers remain the most productive in the world, their role is the economy is being eclipsed by services.
There are many reasons for this shift, not the least of which are the income and lifestyle aspirations of American workers. Working on a farm or an assembly line is hard, and many—perhaps most—Americans would rather do something else.
The Internet has made that dream possible for a growing number of people, spawning millions of new enterprises and transforming old ones with its unique capacity to stimulate commerce. It is no coincidence that America’s greatest business successes of the new century—companies like Amazon AMZN -1.3% and Alphabet and Facebook FB +0.5%—all depend on the Internet and focus on providing services.
This is a revolutionary trend in business, and unsettling to some. There is a fear that Internet-based enterprises will destroy jobs, evade taxes, invade privacy, spread vices and otherwise cause disruption. Whatever validity these fears may have, they result from the voluntary choices of consumers rather than the business strategies of Big Tech.
It is not common in U.S. political culture to oppose trends set in motion by the behavior of millions of consumers seeking the best solutions to their needs.
Nonetheless, on July 27 some members of the House Judiciary Committee are likely to do precisely that. The committee’s antitrust panel has been investigating the nation’s biggest technology companies for a year, and on that day the CEOs of four of them will appear before the committee: Tim Cook of Apple AAPL -0.2%, Jeff Bezos of Amazon, Mark Zuckerberg of Facebook, and Sundar Pichai of Alphabet (Google GOOGL +0.1%’s parent).
This has never happened before, and it underscores the importance that both political parties assign to restraining potential excesses in an Internet-based economy. Federal law governing the Internet hasn’t changed much since the World Wide Web was in its infancy, so there’s a case to be made for legislative review.
The case for an antitrust inquiry is less convincing. Antitrust law originated over a century ago when industrialists sought to monopolize segments of the economy as a way of assuring profits. The laws were intended to prevent combinations that might weaken competition, discourage innovation and reduce consumer choice.
For instance, Standard Oil, which had come to control 90% of U.S. petroleum refining, was broken up.
The difference between Standard Oil and today’s Internet behemoths, though, is that consumers have plenty of alternatives for what Big Tech provides, and the barriers to new market entrants are not high the way they were for refiners in 1900. Apple, Amazon, Facebook and Alphabet got big because consumers preferred them to other options. That was due in no small part to their continuous innovation.
You really have to twist the intent of antitrust law to make a case against companies like Alphabet’s Google, because its market dominance in search resulted from consumer choice rather than a lack of alternatives. The imposition of antitrust sanctions would amount to punishment for success or mere bigness, rather than a rational application of regulatory power.
Or take the example of Facebook, which, like the other companies testifying on July 27, is the subject of an antitrust inquiry by the government’s executive branch. The main complaint antitrust types seem to have against Facebook is that it supposedly made acquisitions as it grew aimed at dominating social networking.
Exhibit A in this case is the 2012 acquisition of Instagram, which has become phenomenally successful under Facebook’s tutelage. At the time it was bought, though, the company had only 13 employees and no ability to scale to what it has now become. People laughed that Zuckerberg would be willing to pay a billion dollars for such a modest business.
It turned out to be a smart move, but as Instagram took off many younger users shifted their attention from Facebook to the new platform, so there was a downside.
But trying to retrospectively fit the acquisition of Instagram (or WhatsApp, or Oculus VR) into a pattern aimed at restraining competition and squelching innovation is simply misleading. There are plenty of places outside the Facebook family that people can go online to network or game or post photos or get the news, and they all innovate furiously.
The same can be said of all the Big Tech companies. They have to run as fast as they can just to stay where they are. Innovation has been the key to their success, and new market entrants are constantly emerging to challenge that success.
What makes this relevant to national security is that the new entrants increasingly aren’t American, they’re Chinese. The biggest reason U.S. manufacturing has receded since 2000 is the rise of China, and the success of companies like Beijing-based Bytedance—TikTok’s parent—is a signal that China is capable of doing the same thing to U.S. tech companies that it has already done to steel makers and electronics manufacturers.
TikTok was downloaded over 300 million times during the first quarter on 2020, making it the most downloaded app during a single quarter in history. Six of the top ten apps in India, soon to be the world’s most populous country, are Chinese. Indian authorities reversed that trend when they banned Chinese apps after a border skirmish, but America’s Internet-based service providers can expect continuous assaults by Chinese rivals for the foreseeable future.
Beijing is undoubtedly encouraging if not subsidizing such assaults. The contrast between how the Chinese government treats its tech companies and the way Washington treats its own players is hard to miss. Whether we like it or not, companies like Alphabet and Facebook have become the leading purveyors of American ideas and influence to the world. If they are hobbled, Chinese competitors will eagerly take their place.
There is no compelling argument for breaking up or otherwise sanctioning U.S. technology leaders. If you think America’s Big Tech companies have too much power, imagine how it will feel when their successors are run out of the People’s Republic.
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