Big Tech is not the devil it is being made out to be
4 min read . Updated: 11 Dec 2017, 04:23 AM IST
PremiumDemanding the break-up of Google, Facebook or Amazon is excessive and unwarranted
Big Tech—the nomenclature following Big Oil, Big Tobacco and Big Pharma itself conveys the crisis that the likes of Google, Facebook and Amazon find themselves in. The tech giants are being blamed for a number of things: engaging in monopolistic practices, not doing enough to curb fake news, and violating the privacy of users. They have also been blamed for stagnation in wages and the decline in labour’s share of gross domestic product (GDP). And the biggest charge against Big Tech is that it is becoming a threat to freedom of expression and democracy itself.
To substantiate this last point, Luigi Zingales of the University of Chicago Booth School of Business points out that “in the last year, 85% of the increase in ads online was shared by Google and Facebook". As a disproportionate beneficiary of online advertisement revenue, Google and Facebook have effectively become gatekeepers of information that is accessible to users of their platforms. Zingales also offers some solutions. He cites examples of how intervention by competition authorities in the cases of AT&T, IBM and Microsoft helped generate competition in those markets. Some similar kind of intervention, Zingales contends, is required. There are others who have advocated breaking up these tech giants. The support for some kind of action against these firms cuts across the ideological spectrum in the US, with progressives like Elizabeth Warren and conservatives like Stephen Bannon on the same side of the divide.
It is true that competition authorities did indeed crack down on some giants of yesteryear and those interventions did help. But in those cases, it was relatively clearer that the firm in question was abusing its position of monopoly. For example, Microsoft was systematically using its monopoly in operating systems to help its web browser tide over the challenge of Netscape. Such instances of glaring misuse of monopoly power have so far not been seen with the current lot of tech giants. Yet, the European competition authorities have still come down hard on Google and Amazon. A desire to protect rival European firms may have also been a driver of strict actions against American firms.
One particular concern has been centred on the lack of content curation by social media platforms. Not just fake news—which Facebook and Google are now going after more seriously than before—the social media companies have also been blamed for the creation of echo chambers. But again, this is not a problem confined to online behemoths like Google and Facebook. Their algorithms may indeed be helping create echo-chambers, but the same problem exists with traditional media. As former US president Barack Obama said at the recent Hindustan Times Leadership Summit: “Those who watch Fox News and those who read The New York Times occupy a different space. If I read Fox News, I wouldn’t vote for me." As far as fake news is concerned, it too is not a new phenomenon. What Google and Facebook provide is high speed of dissemination—a feature that can be skilfully used to counter fake news.
What about the charge of indulging in monopolistic practices and erecting barriers to entry for newer firms? The markets that Google, Facebook and Amazon operate in weren’t as coveted before the entry of these firms. The firms that were disrupted by Google, Facebook and Amazon were not even necessarily operating in the same market. This is true of any “Schumpetarian wave" of technological innovation. One of the most influential economists of the last century, Joseph Schumpeter wasn’t greatly enthused by perfect competition based on prices. He laid higher emphasis on competition from the next disruptor with a new method of production or organization. One needs to understand Schumpeter to explain why Kodak was beaten not by Fujifilm but by mobile phones with camera.
The challenger to Big Tech may similarly come from an entirely unexpected source through the creation of a hitherto non-existing market. This is the reason Snap failed to topple Facebook. As long as Snap was competing in broadly the same market, Facebook could simply emulate Snap’s new features and beat it with the incumbent advantage of network effects. But the threat of competition emerging directly in the same market or, obliquely, in a different market keeps these tech giants on their toes, innovating constantly. The goal, remember, should be consumer welfare, whether it is delivered through competition or monopolies.
In a 2017 paper titled The Fall Of The Labor Share And The Rise Of Superstar Firms, David Autor and others do indeed blame the rise of “superstar firms"—Google, Facebook and Amazon among them—for the fall in labour share of GDP. But the authors also note that the industries in which these superstar firms emerge are also the ones which have experienced high levels of innovation, as measured by citation-weighted patents or total factor productivity growth.
Are there no concerns then? There are. Since there is no direct user fee, Google and Facebook end up monetizing the personal data of consumers. Users are mostly unaware of how much of their data is used and how exactly. Regulators around the world should frame rules to make it mandatory for these tech firms to seek user consent before using personal data and be more open about how the data is used. Demanding the break-up of these tech giants is excessive and unwarranted.
Should the competition authorities adopt a tough approach with Big Tech? Tell us at views@livemint.com
