Elizabeth Warren's fairy tale about Big Bad Tech
As a presidential candidate, Donald Trump offered a series of ridiculous tax plans. Although the proposals utterly failed as serious policy, they succeeded in signaling to skeptical conservatives that Trump was really one of them. Or at least that he would probably act like one of them as president. Now no Democrat doubts Elizabeth Warren is a true blue progressive. But her fantastical plan to break up Big Tech — like, all of it — is also far more signal than substance. It suggests to potential presidential primary voters that Warren is an imaginative thinker who has identified a critical threat to America's economy and democracy and is proposing a bold response.
And just as President Trump eventually achieved a watered-down version of his tax cuts, a President Warren — or some other Democrat having jumped on the "break ‘em up" bandwagon — might well start the U.S. down the path of dismantling its tech titans: Alphabet-Google, Amazon, Apple, and Facebook. Consider growing Republican hostility to Silicon Valley, there might even be bipartisan support for such an idea.
Yet even a more modest version of the Warren plan would risk hobbling America's most innovative sector and key competitive advantage in the global economy.
Trumponomics is built on economic myth — the U.S. is overtaxed and free trade has impoverished the middle class — so, too, Warren's anti-trust activism is based on a misreading of history and economics. She argues that it was Washington's trust-busting effort in the 1990s against Microsoft that helped give birth to Google and Facebook. "The government's antitrust case against Microsoft helped clear a path for internet companies like Google and Facebook to emerge," she writes in a Medium blog post explaining her plan. And then, she adds, it was a lack of trust-busting in the 2000s that allowed those companies, as well as Amazon and Apple, to grow to gargantuan size.
These are dubious claims, at best. Microsoft didn't miss the mobile revolution because it was distracted by the Clinton administration's decision to sue the company over unfair dealings with Netscape, a case ultimately settled by the George W. Bush administration. It's much more likely that Microsoft fell into a trap that often ensnares large, dominant firms: It simply couldn't adjust to a business paradigm shift where its model — desktop PCs running Windows — was no longer the center of the universe.
Moreover, Big Tech didn't get big because of nefarious business practices. Or as Warren puts it, "They've bulldozed competition, used our private information for profit, and tilted the playing field against everyone else." Alternate explanation: They have created superior and innovative products and services that consumers love. Indeed, a much-cited study by economist David Autor finds that industries, like tech, that have become more concentrated are exactly those that have been increasing their innovation most rapidly.
This is hardly surprising. Big Tech firms are the biggest corporate spenders on R&D, more the behavior of paranoid competitors than satisfied monopolists. There's no sign that Warren has considered how her plan would affect all that investment spending. Nor has she considered how these companies will continue to deliver free services if government regulation undermines the current ad-driven business model. Everything would change, she promises, but all only for the better for consumers.
That really gets to the heart of why Warren's plan is so flawed: A lack of imagination. The internet isn't over. It isn't time to turn these firms into "platform utilities" under a heavy government thumb. Amazon owns just 5 percent of the retail market. Facebook has lost 15 million users since 2017 and is trying to shift its entire business strategy. Apple wonders how to adapt to a post-iPhone world. Google faces a future where voice search may be dominant, and other Big Techies are aggressively competing.
History is littered with supposedly unassailable tech firms that are now industry afterthoughts: Yahoo, MySpace, Nokia. Technologies will evolve. So might business models. Government should be careful when injecting itself into that process.
Warren and other antitrust enthusiasts should take a look at a new tech competition report commissioned by the British government and coauthored by Obama White House economist Jason Furman. It concedes that the "tipping effects" of digital markets often means one winner takes most, a process that has benefits as well as costs. It also points out that "policy change and enforcement can be slow and unpredictable, which is even more costly than normal in rapidly evolving technology markets."
Rather than advocating for making companies divest themselves of past purchases, such as Facebook's acquisition of WhatsApp, the report favors more caution toward future M&A and other measures that may boost competition, such as allowing consumers to move their data from one social media site to another. Admittedly, such ideas won't rev up a crowd in Iowa or New Hampshire, but they do show seriousness in a deeply unserious time.