(Drivebycuriosity) - Big tech companies are getting a lot political headwinds these days. Senator Elizabeth Warren and others want to break up technology giants like Google, Facebook, Apple & Amazon (stratechery). Sen. Warren claims: "Today’s big tech companies have too much power — too much power over our
economy, our society, and our democracy. They’ve bulldozed competition,
used our private information for profit, and tilted the playing field
against everyone else. And in the process, they have hurt small
businesses and stifled innovation" (teamwarren).
Do the tech giants really have too much power? I gave up Facebook 2 years ago. Did I get arrested? Nope. Did I have to pay a fine? Neither. People can use Facebook or cease the social network as they please. Zuckerberg can force nobody to use his services. People may purchase at Amazon.com or they may buy at Walmart.com and any other e-commerce company. Neither Amazon nor Walmart can coerce people to shop there. And nobody is obliged to buy the newest iPhone or MacBook.
That separates Big Tech from
governments. Governments have state authority and they use armies and
police to enforce their power. Companies don´t. Governments are
collecting taxes and they impose penalties. Corporations don`t. Government
are passing laws and are setting rules for many things in life
(regulations). Companies don´t.
Milton Friedman said once: "There is no way in which General Motors can
get a dollar from you unless you agree to give it to the company. That’s
a voluntary exchange. It can only get money from you by providing you
with something you value more than the money you give it. If it tries to
force something on you that you don’t want, ask Mr. Henry Ford what
happened when Ford tried to introduce the Edsel. On the other hand the
government can get money from you without your consent. They can send
policemen to take it out of your pocket. General Motors doesn’t have
that power. And that is all the difference in the world. It is the
difference between a society in which exchange is voluntary and a
society in which exchange is not voluntary. It’s the reason why the
government, when it is in the saddle, produces poor quality at high
cost, while industry, when it’s in the saddle, produces quality at low
cost. The one has to satisfy its customers and the other does not" (hoover).
The power of companies is constrained by competition. When a corporation
has success, her rising profits attract automatically others who want a
share from the pie. Amazon´s success has been animating a legion of copycats who also want to benefit from the ascent of e-commerce. Today Amazon is competing against WalMart, who owns Jetcom, and
online buyers can also shop at Target, Best Buy and a legion of other E-commerce companies.
Even Google & Facebook opened their own online shops and are trying to get a piece of Amazon´s pie. The Internet makes it very easy to compare prices and to switch to other
shops, sharpening the competition. Customers can choose the company
which has the best quality, the best service and/or the lowest price
which gives them a lot power. As a result, customers have more power
than the corporations.
If we believe Warren & Co. big companies are evil. Are they? Big Tech doesn`t need to be our friend, but the tech giants have to behave friendly otherwise they would go out of business. Adam Smith declared “it is not from the benevolence of the butcher, the
brewer, or the baker that we expect our dinner, but from their regard to
their own interest”. That is also true for Big Tech. If Amazon would treat their customers unfriendly, if they would sell too expensive, deliver too slow & unreliable, customers would buy at Walmart or elsewhere. That is the magic of competition. Because Big Tech has to compete against others they have to behave like friends. And competition is fierce as the recent growth numbers of Walmart show.
We all are benefiting a lot from Big Tech. People use Facebook to communicate with relatives & friends for
free, they use Instagram to spread their photographs without paying for it. I use Google maps and other services without getting charged. I use Twitter to promote this blog and to get a lot of information & entertainment for free. Amazon translates their experience & efficiency into low prices which forces the competitors also to sell cheaper. As a result Amazon and other e-commerce companies are keeping inflation at bay which translates into low interest rates (amazon-effect). I am really happy to buy Kindle e-books for a relatively low prices, why is that a problem for Sen. Warren? Amazon is also a platform which allows even tiny businesses - including many unknown book authors - to sell their products globally. And the cloud services by Amazon, Microsoft and Google - who all are fiercely competing against each other - allow other companies, including tiny startups, to reduce their expenses for information technologies and to expand their businesses. All these services & products benefit the whole economy and the society.
A study by William Nordhaus confirms these arguments. The Nobel Prize winner & Yale University
economist comes to the result that "“only a minuscule fraction of the
social returns from technological advances over the 1948-2001 period was
captured by producers, indicating that most of the benefits of
technological change are passed on to consumers rather than captured by
producers.” (nber.org).
Warren claims that Big Tech companies "have hurt small
businesses and stifled innovation". Did she ever hear of Uber, Lyft, Arbnb & Pinterest? These so-called unicorns were founded just years ago and are already valued $20 billion and more (nypost). Casper, who sells mattresses online, became a brand name almost over night. WeWork, a company that provides shared workspaces, was founded in 2010 — just nine years ago — and may be valued at $45 billion to $50 billion (nypost).
Apparently the success of Amazon, Google, Facebook & Co. is stimulating talents to start new & disrupting (innovative) businesses and is animating venture capital funds to finance them. It seems we are experiencing a Cambrian explosion. There are so many new & rising companies which are changing society & economy - on the coat-tails of Big Tech.
Did Warren & Co. ever notice that there is world outside of the US? If the US government would curb her tech giants ore break them up they would support the global competitors. China already has tech giants like Alibaba, Baidu & Tencent; Latin America`s e-commerce is ruled by Mercado Libre and Russia´s Internet is dominated by Yandex. These giants would be happy to inherit the turf of Google, Amazon & Co. and to overtake the global markets.
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