PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Why Are U.S. Politicians Joining Our Global Competitors in Dismantling U.S. Tech Leadership?

By at 17 March, 2021, 2:58 pm

 

by Raymond J. Keating-

Hmmm, I thought we wanted small, entrepreneurial firms in the U.S. to succeed and grow to the point that these enterprises become global leaders. Judging by the behavior of assorted U.S. elected officials and their appointees, however, that doesn’t seem to be the case when it comes to small technology firms rising to the top of their respective industries. How odd.

This strange political behavior becomes apparent whenever foreign regulators decide to target U.S. companies for increased government rules, regulations and limits, such as on the antitrust front. Rather than taking a grounded look at these regulatory escapades and what drives them – mainly, a strong political bias in favor of government intervention over market competition, and protectionist impulses to do political battle with U.S. firms seen as foreign interlopers – too many U.S. politicians and regulatory officials are joining in with their foreign colleagues in politically-driven regulatory activism.

U.S. Tech Under Attack from Foreign Governments

Currently, efforts are spreading in other nations to regulate leading U.S. technology firms – like Amazon, Apple, Facebook and Alphabet’s Google – and those just happen to be the same businesses being targeted by American politicians and regulators.

Out front are the European Union, the United Kingdom, Australia, Canada, and India with assorted regulations and/or proposals to regulate, such as mandates limiting or dictating aspects of business models; requiring tech leaders to be responsible for the actions of other businesses; and forcing payments from firms like Facebook and Google to media outlets. (For example, see reports here, here and here.) Shortfalls in compliance would result in major fines to threats of divestiture.

America Must Lead on Policies that Promote Strong Entrepreneurial Ecosystems

Rather than joining in with misguided regulations being perpetuated by politicians and bureaucrats in other nations, U.S. elected officials should be making clear that today’s high-tech marketplace is more dynamic and competitive than ever before. U.S. officials should be operating with a sound understanding of the following market realities (as laid out in previous SBE Council briefs on the tech economy, with links to each below) and making those clear to officials in other nations:

Investment and Innovation Transform and Improve Daily Life: Creativity, innovation and advancements in computer, telecommunications, digital and online technologies and services have transformed daily life, business and our economy in exciting, beneficial and previously unimaginable ways. That process is ongoing and taking place in a highly competitive and dynamic market environment.

Technology Has Allowed Small Business to Quickly Pivot to New Models and Digital Tools: For millions before and during this pandemic, their small businesses and careers were able to survive, pivot, and/or even thrive by creating or seizing upon new opportunities thanks, in part, to advancements in the tech economy. Opportunities and benefits will continue to flourish in the future by allowing entrepreneurship and investment to thrive under free enterprise – free from misguided and costly regulation.

Customers and the Competitive Market Drive Business Growth and Success: Leading tech companies like Facebook, Amazon.com, Apple and Google achieved their growth, market valuation, profits and market share by serving customers well. In the marketplace, unless government steps in to interfere, it is the consumer who makes the final decision. Consumer sovereignty reigns. Indeed, tech companies like Facebook, Amazon.com, Apple, and Google came into the market as small startups, and only gained market share – again – by serving consumers well.

Monopolies are Rare: Economics and economic history make clear that monopolies in private, competitive markets rarely, if ever, occur, and firms that do gain significant market share, again, can only do so by better serving consumers.

Current and Future Competitors are Maintaining Market Dynamism: Even those businesses earning large market shares must be aware of emerging and future competitors. Hence, we do not see the expected outcome of a monopoly operating in the marketplace, that is, reduced supply, significant price increases, and a diminishment in innovation and quality. The economic reality of markets is that companies that have gained significant market share are competing against current, emerging and future competitors. Markets are dynamic, not static.

Gatekeeping is Strange Fiction in an Age of Online Dynamism: The words “gatekeeper” and “gatekeeping” get tossed around quite a bit in the current debate over imposing increased antitrust regulation on tech firms. A gatekeeper is an entity that controls access. The notion that online markets, especially when it comes to retail and being able to reach consumers, are somehow subject to monopolies engaged in gatekeeping exhibits a gross disconnect as to what actually is ongoing in the marketplace.

Entrepreneurs and small businesses have unprecedented, affordable, ever-changing and expanding avenues and options to market and sell their goods and services to consumers in their own towns, across the nation and around the world, due to investments and innovations in computer, telecommunications, digital and online technologies and services.

The tools and ability to do so are not only offered by companies like Amazon, Apple, Facebook and Google, but also via Walmart, Shopify, eBay, Etsy, Overstock, Wish, Newegg, and CafePress, and those are but a few examples. And of course, entrepreneurs and small businesses reach out directly via their own websites, with all kinds of easy-to-use tools to make selling from one’s site easy for the business owners and for customers. There are no companies with vast power that control access to consumers. Gatekeeping is a strange fiction of politics, not a reality of markets – especially in this age of online dynamism.

Politicians and Regulators Cannot Predict Market Developments:  From the perspectives of economics and market realities, antitrust law and regulation suffer from two challenges that are insurmountable.

First, a static picture of the market currently is just that, i.e., static, and therefore, stands ignorant of the realities of market dynamism.

Second, even if elected officials, antitrust regulators and the courts were to recognize market dynamism, and also somehow guide antitrust enforcement by such dynamism, this would amount to nothing more than wild speculation about the future of existing and future industries. There is no avenue by which regulators can know how the market is developing now or in the future.

The Modern Marketplace is All About Collaboration and Partnerships: Consider that while politicians have been attacking so-called “Big Tech,” market leaders have been working with entrepreneurs and small businesses in partnerships whereby all involved benefit. That’s exactly how market transactions work, by the way. Value is created when individuals and businesses trade, with each side gaining, otherwise, they would not take part in the transactions.

For example, on February 3, 2021, Amazon.com pointed out: “SMBs [i.e., small and mid-size businesses] now makeup close to 60% of the sales in our store, and they have created more than 2.2 million jobs globally as a result of selling on Amazon.”

And Facebook plays a critical role in aiding small businesses to reach potential customers in a cost-effective way, as well as helping entrepreneurs to better communicate and stay in contact with existing and potential customers.

In July 2020, for example, Marketplace.org noted that “the biggest chunk of Facebook’s $70 billion ad business comes from small businesses, which account for nearly 75% of its annual ad revenue, according to Deutsche Bank.”

U.S. Policy Must Instruct the World on Economics 101

Through a proper understanding of the dynamism of markets, U.S. elected officials and their appointees should be educating and guiding officials among our trading partners, making clear that big is not bad; that big was once small and gained market share by serving consumers; and that big continues to compete against current and future competitors. Indeed, history is littered with big companies that lost market share and even failed because they didn’t answer competitors and failed consumers as markets changed.

Antitrust regulation overwhelmingly is about the whims of politics, as opposed to the laws of economics, and as such, U.S. elected officials should not stand idly by when foreign regulators attack U.S. market leaders, nor should U.S. officials join in such attacks.

Related content:

Small Business Empowered, Not Shut-Out, by So-called “Big Tech”, Small Business Insider blog post, March 2021.

“The Treacherous Turn on Antitrust Regulation of U.S. Tech Companies” Small Business Insider briefing paper, February 2021.

The Tech Antitrust Sideshow vs. Small Business Realities, Small Business Insider blog post, February 2021.

Increased Antitrust Hype Overlooks Value of Tech for Small Businesses, Small Business Insider analysis, February 2021.

Small Business and “Big Tech” – A Personal Story”,  Small Business Insider blog post, March 2021.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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