By TYLER COWEN
Saturday, April 13, 2019
Tyler Cowen's newest book is Big Business: A Love Letter to an American Anti-Hero
It may seem odd, but it's not unreasonable to say that the U.S. economy in the 1960s belonged to a company that, when it was amalgamated in 1911, was best known for its meat slicers, coffee grinders and systems to track employee punch cards.
By that decade, the New Yorkbased IBM - fat from Second World War military spending and now fully invested in computing for businesses, including the game-changing introduction of the general-use System/360 series of computers - was a colossus. At its peak, it controlled nearly 70 per cent of that market.
But in 1969, the U.S. government brought an antitrust case against IBM, arguing that it held a monopoly and should be broken up into smaller parts. The suit ran on for 13 years, costing IBM and the government alike millions of dollars, not to mention the attention of IBM innovators. Even though a judge would rule the case had "no merit" in 1982, the suit hung over the formerly dominant company, and the decisions it made in an effort to settle the antitrust case - such as unbundling software and services from hardware - led to financial losses and disruption by cheaper and more efficient competitors. The antitrust case arguably made IBM less able to identify the market shift toward personal computers, and by 1980, its share of the market plunged to 32 per cent. In 1993, IBM posted a US$8-billion loss - at the time, the biggest in U.S.
But even as Big Tech has become a dominant industry today, with Silicon Valley driving innovation and revenue, the IBM case's lessons have apparently not been learned. In March, Democratic presidential candidate Elizabeth Warren wrote an essay calling for the breakup of tech firms with more than US$25-billion in global revenue.
"Today's big tech companies have too much power - too much power over our economy, our society, and our democracy," the senator argued.
That reflects the popular mood. After a spate of controversies - from the Cambridge Analytica scandal sparking a conversation about the role that socialmedia networks such as Facebook have played in election interference, the dissemination of false information and violence, to Google's seeming grip on how people find anything online - Big Tech is no longer the shiny bauble that it once was.
But a vigorous antitrust response would be hasty and harmful. Yes, Big Tech is big business, which has increasingly been cast as the big bad wolf. But doing so ignores all the good they do - and it doesn't help that many of the aspersions on Big Tech are unfair.
Let's start with this: Neither Google nor Facebook, the two tech companies that receive the most criticism, are a true monopoly. In addition to Google, there's Bing, Yahoo, Ask.com, AOL.com, Baidu, WolframAlpha and DuckDuckGo, which actually prides itself on refusing to store or sell data on your browsing history. That's plenty of choice. If Google wasn't offering good service - at zero price, I might add - users could switch to these other options and of course some of them do already.
When he questioned Facebook founder Mark Zuckerberg before Congress, Republican Senator Lindsey Graham tried to suggest that Facebook was a monopoly because there were no relevant alternatives for social networking. But the market features LinkedIn, Twitter, Snapchat, e-mail, various chat services, cellphone contacts, Pinterest, even the now superhot video game Fortnite. Personally, I also use my blog as a means of social networking, and believe it or not, I circulate in the physical world as well, preferring the proverbial cocktail party to time spent on Facebook. The true radicals among us might even see fit to knock on the door of their neighbours. But these networks all compete against each other for usefulness and convenience, and it's easy to imagine Facebook becoming less of a major player with time, since many young people these days consider Facebook to be "square."
Sure, Facebook bought up Instagram and WhatsApp, two potential competitors in the socialnetworking space. But the rise of these apps cannot be separated from the involvement of Facebook, which poured resources into those services and improved them. Furthermore, the clean, uncluttered design that drew users to them in the first place was precisely because Facebook had other ways of making money, such as through Facebook pages and its ad service; while Instagram does feature ads today, it's easy to imagine that both apps would have been rendered unusable and unenjoyable because of ad saturation if they had stayed independently owned.
Then there's the digital advertising industry that the two companies lead. But that's not a monopoly, either: Google as an advertising platform still competes with Facebook, television, radio, circulars, direct mail and, for that matter, e-mail and word of mouth. Insofar as Google has taken a big share of the ad market, it is because its ads are cheaper and better targeted than alternatives. When it comes to ads, Google is fundamentally a price-lowering institution for small and niche businesses that can now afford more reach for less than ever before. By boosting small startups elsewhere in the economy, Google and Facebook actually serve as major forces acting against monopolies in other sectors.
Another criticism is that they vacuum up our valuable personal data: that maybe what appears to be a free deal really isn't so free at all. But the tech companies are the ones who figured out a way to give that data value, and indeed the data have cachet in the marketplace only when they are organized, presented and marketed in the right way.
The reality is that your data, taken solo and marketed by you, isn't worth anything - just try putting it on eBay, if you don't believe me.
Furthermore, it is striking just how effective the major tech companies have been as innovators. Other than providing the best free search in the world, Alphabet - the umbrella corporation under which Google is a subsidiary - gave us Gmail, one of the best and biggest e-mail services in the world, for free.
Google Maps, which is also free, is pretty neat, too.
Then, despite the risks identified by critics of the deal - that YouTube appeared to be a bottomless pit for copyright-violation suits and nasty comments - Google bought the streamingvideo service for US$1.65 billion, and dramatically upgraded it.
Google cleaned up the legal issues, using its advanced software capabilities to spot copyright violations while enforcing takedown requests, improving search and heavily investing in the technology that has helped make video so widely used on the internet today.
In 2005, Google purchased Android and elevated the company's open-source system to the most commonly used cellphone software in the entire world. Because of the Google-Android combination, hundreds of millions of people have enjoyed better and cheaper smartphones.
More generally, Google has made most of its software open-source, enabling others to build upon it with additional advances, with entire companies now devoted to helping other companies build upon that infrastructure - meaning Google has not likely been the major beneficiary of its own actions.
Google, by way of Alphabet, has taken a lead role in developing self-driving vehicles and the underlying artificial intelligence, now being developed through Waymo; by throwing its weight behind this, Alphabet made the concept more publicly acceptable, and it could potentially save many lives on the road. After Hurricane Maria devastated Puerto Rico, Alphabet also stepped in to do good, deploying its work-in-progress Project Loon to restore internet access, which may eventually be integral for remote areas in Africa. It's a bold attempt to create a better and more connected living situation for some of the world's more vulnerable people.
All that from a company that is just a little more than 20 years old. Is this really the kind of company we should be punishing?
I am not suggesting that all is well in the online world, and some critics do make entirely valid points. For instance, there are genuine privacy concerns that apply to Facebook, Google and other major tech companies.
Those are problems worth addressing, including through the law. But solutions to privacy issues won't come from splitting up the big tech companies. If anything, your data are probably less safe with poorer, smaller and less well-capitalized tech companies, as would result from an antitrust breakup.
Our fractured and polarized politics is indeed another social problem, but that issue has been a growing concern since the 1990s. U.S. House Representative Alexandria Ocasio-Cortez has charged that democracy has "a Facebook problem," but the data don't bear that out: The most politically polarized group in the United States is the elderly, and they are the least likely to be online and the most likely to use cable news as a major source of political information. Indeed, for every study that supports the claim that the internet and social media are inherently accelerating political polarization, there are studies that offer a corrective to an argument that has become quickly accepted. For instance, a 2017 study by economists Matthew Gentzkower and Jesse Shapiro has indicated that our selection of friends is more likely to be more politically slanted than what we consume online; Grant Blank, a research fellow at the Oxford Internet Institute and coauthor of a 2018 study with the University of Ottawa's Elizabeth Dubois, that found that the breadth of multimedia consumed by most actually makes it easier for people to avoid echo chambers, said it bluntly: "Whatever the causes of political polarization today, it is not social media or the internet." A PNAS study even found that leaving one's echo chamber might actually deepen one's own partisan convictions. The internet and social media may indeed give bad actors another, easier path to interfere with democratic institutions or influence voters, but the jury remains out on whether they, in and of themselves, worsen the problem.
And practically speaking, moving to decisively to break up big tech or regulate it much more strongly would only distract the attention of senior management and deprive those companies of resources and focus. There just isn't any other sector of the North American economies that has been as dynamic in recent memory, or that shows comparable promise for the future - and breaking it up would only make it less focused on innovation and more focused on bottom-line administration, to the broader detriment of most citizens.
It is hard to come up with any sectors that have been more consistently innovative than what we call Big Tech, and that's without even mentioning Amazon and Apple, two major players that also would be affected by Ms. Warren's breakup plan. Yes, there is a good case for reform at the edges - but let's not shoot ourselves in the foot. The IBM case should encourage us to think first - and, after all, it's no accident that polling consistently finds that Americans, by and large, trust these companies more than they do the Congress where Ms. Warren currently sits as a senator.
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