Do we need more regulations to tame the tech giants, or would applying existing legislation be sufficient?
Democratic 2020 presidential candidate Elizabeth Warren has sparked controversy after announcing detailed plans to force tech giants such as Amazon, Facebook or Google to be broken up into their respective divisions and be prevented from acquiring or copying competitors who could threaten their model: should there be a size limit on successful companies to prevent them from reaching a position where they would be a threat to innovation?
There are a number of aspects to this issue: to begin with, Warren specifically targets Amazon, Facebook and Google, but leaves Apple out, despite being larger, which indicates she is not talking about size alone, but instead behavior and attitude. In fact, she specifically cites cases in which those three companies have used various types of strategies expressly designed to harm competitors, attain dominance or limit competition: Microsoft and browsers, Amazon’s copying and marketing of successful products with private labels, Google’s decision to demote its rivals’ services in searches, and acquisitions such as Instagram or WhatsApp by Facebook, DoubleClick, Nest or Waze by Google, or Whole Foods or Zappos by Amazon.
According to Warren, all this has impacted negatively on the number of technology startups, on fewer young companies in the growth cycle, and to less of them taking part in early financing rounds. We could also add acquisitions such as Kaggle by Google, Github by Microsoft, or the many machine learning companies that several of these giants have been acquiring in an effort to control everything that moves in that nascent sector.
Warren proposes restoring competition in the technology sector by raising the level of regulation on companies with more than $25 billion turnover, preventing them from creating platforms of any kind that connect to third parties and participate in addition in them. In addition, it would revert all mergers and acquisitions already made that could be interpreted as anti-competitive, starting, logically, with the big three. It’s hard to take in the scope of such regulations, and it would certainly be a nightmare for tech companies to comply with. Furthermore, considering that the biggest competition for these players comes from a country, China, whose government is dedicated to supporting its technology companies and that has never imposed restrictions on their growth and expansion into new markets, the effect on the US technology industry could be negative.
I have said on numerous occasions that the large technology companies have got away with activities that should have been scrutinized by the antitrust authorities. I sympathize with the idea that these companies have become too powerful and have, in addition, abused that power on numerous occasions, on many of which, I wrote at the time. I believe strong antitrust legislation is fundamental for the market to function properly and to protect diversity, but I find it counterintuitive that more regulation will increase innovation and create a more dynamic market, quite simply because the most dynamic and innovative markets are usually those with the least state intervention.
That said, technology is subject to constant change: remember Yahoo!, MySpace and AOL? Not that long ago they dominated their markets, and the changes those markets underwent were not the result of legislation, but instead were due to the merits of those who replaced them. I could agree with increased control over acquisitions, since they are operations in which there is always a significant destruction of value and, in many cases, they are carried out for reasons that could be described as anti-competitive; but even here, it would seem more appropriate to ensure adequate compliance with existing legislation and to block the growing influence of powerful lobbies rather than creating even more rules.
The European Union is a significantly more regulated environment than the United States. It tends to apply antitrust legislation more often, imposes heavier fines, intervenes in companies more often, and even invents non-existent and absurd rights. Has it managed to generate a more competitive and innovative environment? The simple answer is no, it hasn’t. The United States should not be envious of Europe’s highly regulated environment.
I would not disagree that the large technology companies enjoy excessive and potentially harmful power and that some intervention is necessary. Privacy is one area where I feel strongly that the United States needs to act; another is in interpreting the results of M&A operations. But in conclusion, I would argue that dealing with issues on a case-by-case basis, as well as stricter application of existing legislation and applying controls on companies when their activities are likely to cause more harm than good, make more sense than creating the kind of over-regulated environment that has proved so burdensome in Europe.
This article was previously published on Forbes.
(En español, aquí)
Do we need more regulations to tame the tech giants, or would applying existing legislation be sufficient?
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