Technology Was Supposed to Make Us Free; But That’s Not the Case
We’re facing modern and dangerous versions of monopolies, not only in the tech industry but mostly across every economic sector.
It is usually said that every economic crisis lays the seed of the next, and the 2008 Great Recession was not an exception. Banks have grown even bigger on the back of public money. Shadow banking has grown into a $160 trillion business, twice the global economy’s size and bonus pools for bankers are overflowing once again. On the back of trillions of publicly generated liquidity (“quantitative easing”), asset markets have rebounded, companies are merging on a mega scale.
One of the results of this situation is that, according to a Roosevelt Institute paper published in 2018, market concentration in the U.S. economy is high; the ongoing merger wave, and lax antitrust enforcement more generally, is indeed contributing to rising concentration, and in turn, concentration really portends a market power crisis in the economy.
The Economist went in the same direction in 2016:
Profits are an essential part of capitalism. They give investors a return, encourage innovation and signal where resources should be invested. Their accumulation allows investment in bold new ventures. But high profits across a whole economy can be a sign of sickness. They can signal the existence of firms more adept at siphoning wealth off than creating it afresh, such as those that exploit monopolies.
And it’s not only in the technology industry, as some might think:
As United Nations Conference on Trade and Development (UNCTAD) explained in a report about trade and development trends, “the paradox of twenty-first century globalization is that — despite an endless stream of talk about its flexibility, efficiency and competitiveness — advanced and developing economies are becoming increasingly brittle, sluggish and fractured.”
So when we’re talking about the growth of the market economy, and the need to let the business thrive, we need to remember economic classics. Smith or Ricardo considered that too powerful producers or consumers (monopoly, monopsony) was a flaw of the perfect competition, market dynamics, and the famous “invisible hand.”
In this sense, the National Bureau of Economic Research talks about “Bad Concentration” in the markets, “concentration and competition are negatively related when shocks to entry costs play a dominant role in the data. This can result from changes in antitrust enforcement, barriers to entry, or the threat of predatory behavior by incumbents. If these explanations are correct, concentration should be negatively related to productivity and investment.”
And this would probably lead to “Extreme economic concentration yields gross inequality and material suffering, feeding an appetite for nationalistic and extremist leadership,” as Prof. Tim Wu pointed out in his book “The Curse of Bigness: Antitrust in the New Gilded Age.”
Thus, the risk is real and growing, especially in the situation we’re living in and in the years to come, as SMEs are suffering more than big companies and incumbents in the current pandemic shock conditions. And as The New York Times explains, Prof. Wu’s point is simple: giant corporations, seeking to protect their advantage, try to turn their outsize economic power into political power. When the pandemic is over, we most certainly should fear the industry more than ever, says Kara Swisher.
Financial Times remarked that Big Tech’s dominance demands a rethink of how competition rules are applied. And after a 16-month investigation into competitive practices at Apple, Amazon, Facebook, and Google, the House Judiciary subcommittee on antitrust released its findings and recommendations on reforming laws to fit the digital age. The report concludes that the four Big Tech companies enjoy monopoly power and suggests Congress take up changes to antitrust laws that could result in parts of their businesses being separated.
- Concerning Facebook, the investigation claimed that Facebook’s monopoly power is held within online advertising and social networking markets.
- With Amazon, committee members alleged that Amazon has monopoly power over “most of its third-party sellers and many of its suppliers.”
- Regarding Google, the staff report alleges that Google has a “monopoly of the online general search and search advertising markets.”
The Institute for Local Self-Reliance put it into quite hard words:
Concentration has reached extreme levels. Most industries are dominated by a handful of corporations. As we detail in this report, concentrated economic power has reconfigured multiple sectors in ways that have both weakened the broader U.S. economy, by stifling investment and innovation, and harmed working people and communities. This centralization of power in private hands is threatening Americans’ fundamental right to liberty and equality.
And this is not only happening in the USA, as the European Union is also going after the big tech companies to limit its power in the markets and over the consumers.
What it was supposed to finally be a globalized space for the economy, for knowledge, for transactions, for products and services, giving new and unprecedented advantages to the consumer as one more step towards the perfect competition that economists dreamt two hundred years ago, it has become one more time the dominance of a very few hands. Monopolies came back, not only in those sectors where it could be “natural” (like utilities or infrastructures, for example) but also across almost any industry, threatening the world to come back to an economic plutocracy we hadn’t seen so strong for quite a while.