Abacus: Breaking Up Big Tech

Google, Apple, Facebook, and Amazon

Companies leading the way in innovation and advancement (also known as Big Tech) have faced growing criticism in recent years from a diverse range of voices in society. Indeed, these voices are concerned about the rising costs incurred from big tech in several aspects of the economy and, more generally, entire countries. Moreover, discussions regarding the relationship between company business practices and the economy make for an intriguing insight into free-market economic thought. 

It would seem logical for proponents of a capitalist economy to be enthused by success of firms like Facebook, Google, and Apple. After all, their emergence as dominant figures in industry compared to their smaller contemporaries has allowed them to provide invaluable products and services to society, thus enriching people's lives. 

However, as one would learn in an introductory microeconomics course, a private exchange can, under some circumstances, lead to negative externalities, some more obvious than others. For example, many recognize that a polluting factory causes harm to the environment, and that society should implement the appropriate punishment against such firms that degrade nature (namely, via taxation, lawsuits, and sanctions). 

But other types of externalities may be hard to detect, especially those hidden behind an exchange that is seemingly innocent, if not economically viable. 

For individual technology companies that maintain statuses as monopolies or oligopolies (the former referring to a sole provider in a market, and the latter referring to one of a few providers in a market), their actions can significantly affect millions, if not billions, of ordinary citizens. 

During the 19th and 20th centuries, providers of oil and steel were seen as unjust monopolies that needed to be broken apart in order to preserve competition among firms and freedom among laborers. Anti-trust legislation favored by politicians like Franklin Delano Roosevelt helped disband corporations in a number of industries, including in the telecommunications sector.

Consider one of the most controversial topics for tech giants: a consumer’s right to privacy. Indeed, many companies have taken actions in the form of misusing private photos, telephone numbers, and social media account information to weaken data protection regulations. In a broad scope, tech giants have discovered a variety of avenues to exploit privacy.

For all the good that artificial intelligence has done for mankind, it also features its own controversial downsides.

For instance, many people have been critical of certain surveillance technologies used to identify specific individuals. In the early days of the Covid-19 pandemic, United States government agencies were coordinating with companies like Google, Facebook, and Amazon in the hopes of utilizing technologies to control the spread of the coronavirus, including those pertaining to facial recognition with the goal of permitting contact tracing.

The misuse of technology that, in many cases, can be used to enhance the greater good has helped focused many people's attention on the overwhelming power a select few technology firms have. Even those who favor free-market principles must reckon with the reality that a few companies can heavily influence a society. 

Rather than have to face the accustomed consequences of monopolies (specifically those that come in the form of high prices), both the economy and financial markets depend tremendously on a select few tech firms.  

Consider the S&P 500 index: five companies (Apple, Amazon, Microsoft, Alphabet, and Facebook) largely dominate the returns in a market indicator composed of 505 firms. In August, Apple became the first $2 trillion publicly traded company.

Moreover, the current pandemic has helped reveal the real gap in competitive advantage in technology. While many small businesses have closed throughout the United States, many tech companies have flourished, as they have proven fit to operate in an economy in which more people are staying at home.

Amazon doubled its net profit year over year with an excellent second quarter. The largely e-commerce-based company reported year over year profits of $5.2 billion, a stunning total given that the giant predicted it would sustain a loss during the time period.

The company's success is further evidence that no company is better suited to overcome obstacles than Amazon with regards to online retail. 

Alas, the question as to whether to break up big tech companies has emerged, and conversations surrounding the topic are perhaps more severe than ever before. 

Economic theory alone might suggest that breaking up tech companies would be the optimal decision. In doing so, the short term would undoubtedly feature an increase in competition among startup companies and other firms. Any increase in competition helps drive technological progress, one of the hallmarks of a market-orientated economy. 

But breaking up tech giants would only temporarily hide the specialization processes that made them so unique within their industries. It is not difficult to envision that one day in the future, other entrepreneurs and visionaries will surface to build successful companies of their own. 

Additionally, many people have been susceptible to beliefs that breaking up big companies will lead to safer data and privacy protections for consumers. 

Noah Phillips, a Republican member of the Federal Trade Commission, conveyed his doubts in January that government intervention will lead to better privacy results. Mr. Phillips specifically spoke about Facebook, asserting that dismantling the social media conglomerate would hardly dispatch concerns over data exploitation. Mr. Phillips claimed that a handful of companies would be eager to take advantage of user data in the near future in the event of such a breakup.

Others contend that breaking up certain monopolies in the technology sector could ironically do more harm than good to the economy. The argument is not entirely misguided: exchange in specific industries can become more efficient when a select number of well-structured companies are in charge of providing output. 

On a far more simplistic scale, consider the market for street sweepers. Machinery that sweeps trash from public streets and helps to maintain cleanliness is vital to a functioning society. Still, it may not be ideal for several sweeper businesses to be competing against one another. Such a scenario could feature a large number of loud machines that could get in the way of pedestrians. Instead, a system that limits the market to only a few sweepers is more optimal. 

Similarly, not many tech firms would likely be able to afford the high costs of capital that serve as entry barriers. A perfectly competitive market structure would likely fall apart as only a few member firms attain the money to maintain their market status. For example, research and development has served a huge hindrance for firms hoping to enter the electronics market, as many practices by established firms are licensed.

In the end, the decision as to whether to break up tech giants makes for a well-deserving conversation among economists, politicians, and academics. Undoubtedly, millions of people observe the costs of big tech monopolies every day. However, attempting to break up companies would be associated with tremendous costs of their own, including those that may come in the form of legal battles and harm to the economy. 

To many economists, the answer to whether the likes of Google, Facebook, and Amazon should be disassembled is boringly similar to that of other economic questions: it depends.