PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Biden’s “Competition” Executive Order and Big Tech: Hits Small Business, Entrepreneurship and Misses on Economic Common Sense

By at 15 September, 2021, 1:36 pm

by Raymond J. Keating –

A favorite target on both sides of the political aisle these days has been so-called “Big Tech” – in particular, Amazon, Apple, Facebook and Google. Many Democrats, including President Joe Biden, and some Republicans have come to blame large technology businesses for an array of manufactured ills.

Does any of this have anything to do with sound economics and how markets actually work?

No. This is politics, and politics in service of expanding the invasiveness, reach and control of government.

Much of this effort has been crystalized in President Joe Biden’s executive order (EO) titled “Promoting Competition in the American Economy.” As SBE Council has summed up previously, this EO has nothing to really do with boosting competition.

Rather, it turns out to be a breathtaking call for increased government regulation across sectors of our economy, including technology, from social media to broadband; hospitals; prescription drugs; transportation; insurance; financial services; agriculture; and labor markets. And numerous economic and societal ills get linked to “corporate consolidation,” such as higher prices, low wages, restrained innovation and economic growth, fewer opportunities for entrepreneurs and small businesses, slower productivity growth, and greater racial inequality.

Again, though, this EO ignores most of economic and market realities, including that the U.S. economy is very much a small business economy, with 98 percent of businesses having fewer than 20 employees. In fact, out some 31.7 million businesses (according to the latest Census Bureau data), only 20,512 have more than 500 employees. Corporate consolidation? The U.S. is a nation of small businesses and entrepreneurs.

Entrepreneurs Think Big. Is that Now Bad?

Of course, all of us should be hoping that America’s small businesses grow and become market leaders around the world. Keep in mind the simple truth that every large business today was once a small business. But rather than encouraging and celebrating U.S. market leaders, the Biden administration and many in Congress see something nefarious at work, and have been attacking these firms. Of course, the only thing that businesses with large market shares are guilty of is serving consumers well and thereby earning such market share.

Entrepreneurship (read: a competitive environment and opportunity) is Actually Thriving

As SBE Council has noted regularly during this pandemic, technology tools, online marketplaces and platforms have provided lifelines to small businesses. These digital tools and digital acceleration have pushed small businesses to modify their business models and entrepreneurs to start new businesses. As SBE Council president & CEO Karen Kerrigan pointed out in a recent blog post:

“Despite the economic upheaval brought on by COVID-19, last year was the biggest year yet for new business applications – more than 4.3 million applications were filed in 2020 (+843,000 more than in 2019) with retail being the fastest growing sector. In 2020, 822,000 applications were filed to launch retail businesses — an increase of 58.2% over 2019.”

In fact, online retail is fueling the growth of retail businesses generally due to increased adoption and comfort with digital tools and transactions. As Kerrigan notes: “Access to the mass consumer marketplace through big companies has not only been a positive for small businesses and consumers, it is fueling higher levels of entrepreneurship.”

So, the general premise for the President’s EO on “Competition” is flawed. Competition is alive and well in our economy, as Kerrigan observed in a media release reacting to the order:

“First, the premise that new business creation has been harmed by big players, consolidation and lack of opportunity is flawed. The downward trend – which reversed itself in a big way in 2020 – is a result of bad government policy such as tax and regulatory barriers, which are particularly severe in states and cities that people are actually fleeing from. President Biden’s executive order includes a few bright spots that address these barriers, like occupational licensing reform, but then drowns out these positive efforts with a whole range of backward-thinking actions that work to intensify government control over entire industries. This executive order is a recipe for economic decline and stagnation, and less entrepreneurship, opportunity and innovation. Our global competitors are having a very good day today.”

While that is the case across the industries being targeted by the EO, it especially the case in government efforts that are attacking Big Tech. Aggressive legislative activity is underway in the Congress to break up and hyper-regulate technology leaders, there is a slew of lawsuits aimed at these companies across the U.S. (and the world), along with very aggressive signals being sent by the Federal Trade Commission (FTC) regarding forthcoming initiatives that will significantly impact these companies.

Shredding Big Tech via Government Regulation

Regarding “Big Tech,” as SBE Council has explained, “the Biden EO urges increased government controls over leading technology companies, including by opposing mergers, limiting the ability of technology firms to offer free services to consumers, disrupting business models so as to diminish service quality, and restricting lines of business firms can enter.

The negatives for consumers if such measures were imposed should be clear, but entrepreneurs and small businesses also would suffer, given that targeted so-called ‘Big Tech’ firms, such as Amazon and Facebook, provide invaluable services to and often serve as partners with entrepreneurs and small businesses.”

Specifically, it is stated in the Biden EO:

“The American information technology sector has long been an engine of innovation and growth, but today a small number of dominant Internet platforms use their power to exclude market entrants, to extract monopoly profits, and to gather intimate personal information that they can exploit for their own advantage. Too many small businesses across the economy depend on those platforms and a few online marketplaces for their survival.”

The EO’s accompanying “Fact Sheet” expands on vague and grandiose assertions, for example, that “dominant tech firms are undermining competition and reducing innovation,” including by acquiring “hundreds of companies,” which “federal agencies have not blocked, conditioned, or, in some cases, meaningfully examined these acquisitions.”

It continues by noting that President Biden is calling for “greater scrutiny of mergers, especially by dominant internet platforms, with particular attention to the acquisition of nascent competitors, serial mergers, the accumulation of data, competition by ‘free’ products, and the effect on user privacy.”

This administration publication goes on to assert that “Big Tech platforms” are “unfairly competing with small business,” and notes that the Biden EO calls on “the FTC to establish rules barring unfair methods of competition on internet marketplaces.”

The Biden EO: A Green Light for Hyper-Regulation

All of this reads as a broad thumbs-up from the president to ramp up regulation. Unfortunately, this EO and efforts in Congress to undermine leading U.S. technology firms is long on misguided economics, overflowing with wrongheaded progressive and populist assumptions, steeped in ignorance of how business works, blind to competition, and jammed with political arrogance whereby politicians and their appointees believe that they have a better understanding of current and future markets than do entrepreneurs, businesses and investors who must serve consumers well in order to succeed.

During much of this year, SBE Council has explained assorted problems with current political efforts to ramp up antitrust regulation, particularly against tech firms, including how such undertakings wind up doing real damage to U.S. entrepreneurs and small businesses. These analyses are relevant to the Biden EO as well, given that this EO aligns with notions pushed in Congress. Consider, for example, the following analyses:

The Treacherous Turn on Antitrust Regulation of U.S. Tech Companies” – This brief takes a deep dive on two congressional reports focused on antitrust regulation of large U.S. technology firms. A report from congressional Democrats and another from Republicans once again confirms that current antitrust law and regulation are disconnected from economic and market realities. Unfortunately, so are the changes to antitrust law and enforcement being proposed from both sides of the political aisle.

From this brief:

Meanwhile, Amazon.com serves as a partner to a wide array of small businesses. Being able to work with the largest online retailer serves as a major benefit for small businesses in terms of selling and delivering products. On February 3, 2021, Amazon.com reported:

• “[W]e are supporting the rapid growth of more than 1.7 million small and medium-sized businesses (SMBs) around the world that are selling their products in our store. SMBs 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. In fact, SMBs from all 50 states that sell with Amazon are more than twice as likely to see 25-50% hiring growth compared to those that do not, research by IDC.”

The benefits to consumers, to small businesses, and to the overall economy are manifest. Indeed, tech companies like Facebook, Amazon.com, Apple and Google achieved their growth, market valuation, profits and market share by serving customers well.

The Tech Antitrust Sideshow vs. Small Business Realities” – While politicians attack so-called “Big Tech,” this brief explores how market leaders like Amazon.com work with and help entrepreneurs and small businesses.

From this brief:

… an SBE Council June 2020 small business survey found benefits for small businesses thanks to cloud services:

• “Saving time and money (89 percent) is the most widely perceived benefit of cloud services among small businesses, followed by improved employee productivity and collaboration (84 percent). Nearly eight in ten agree that cloud services have helped their business better communicate with or manage customers during COVID-19 (79 percent) and have been critical to the survival and operation of their business amid the outbreak (76 percent).”

• “Saving time and money (89 percent) is the most widely perceived benefit of cloud services among small businesses, followed by improved employee productivity and collaboration (84 percent). Nearly eight in ten agree that cloud services have helped their business better communicate with or manage customers during COVID-19 (79 percent) and have been critical to the survival and operation of their business amid the outbreak (76 percent).”

Increased Antitrust Hype Overlooks Value of Tech for Small Businesses – This analysis highlights the importance of a social media leader like Facebook to entrepreneurs and small businesses, especially in terms of reaching new customers and maintaining communications with customers. Significant concerns are noted about various Members of Congress looking to increase antitrust regulatory burdens on leading tech companies that serve consumers and small businesses.

From this brief:

Zeroing on Facebook and small business, according to Statista.com, Facebook had 10 million advertisers globally in the third quarter 2020. That was up from seven million a year earlier. That’s approximately a 43 percent increase in one year, and during the pandemic.

Also, in September 2020, CNBC reported, “‘180 million businesses use our family of apps every month,’ said Rich Rao, Facebook’s vice president of small business, adding that nine million of those businesses advertise with the company every month. ‘Our vision is to have a single place for those people to manage their business.’”

And in July 2020, 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.”

The numbers and trends are clear: Social media matters a great deal to small businesses, and a market leader like Facebook has proven to be valuable to small businesses for reaching and staying in contact with customers, just as small business ad revenues have proven to be of great value to Facebook.

Small Business and ‘Big Tech’ – A Personal Story” – In this blog post, I write about the benefits that various technology leaders offer small businesses as an economist, but also via my own story as a small business owner – as an author – who has benefited from services offered by the likes of Amazon and Facebook.

From this brief:

Before I started using Facebook’s advertising tools, my sales were encouraging for someone who had written newspaper columns and policy papers, but never anything in terms of fiction. But once I started spending my minimal advertising dollars each month on Facebook’s targeted ads, I saw a clear jump in sales. Being able to target people with interests that lined up with my books made a huge difference. And as time passes, I have become better at creating ads and posts to boost, as well as at using Facebooks to target potential customers.

This experience, along with improved tools coming from Facebook, has resulted in further improvements in sales. Interestingly, while February is hardly a strong month for book sales, I actually had my best sales month just this past month.

Along with advertising, the Facebook page for my books, along with my personal Facebook page, serve as excellent means for staying in communication and engaged with current and potential book buyers. In this age of social media, personal communications with customers – in my case with readers – is central to any marketing effort. Plus, as a writer, Facebook has served as a great avenue for gaining feedback from readers.

Small Businesses Empowered, Not Shut Out, by So-Called “Big Tech– In this brief, it is explained how large tech firms empower entrepreneurs and small businesses, as well as the wrongheadedness of government charges against such firms, including so-called “gatekeeping.”

From this brief:

Indeed, the words “gatekeeper” and “gatekeeping” get tossed around quite a bit. However, 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.

As noted earlier, 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, again, 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.

 “‘Big Tech’ Should Worry about Entrepreneurial Dynamism, Not Antitrust Politics and Volatile Regulation– This brief makes clear that those worried about “Big Tech” need to gain a better understanding of how business, markets and competition actually work, while also pointing out that large technology firms shouldn’t be forced to focus on government attempts to expand regulation, given that their focus needs to be on innovating and serving consumers well given that the real threat to their market share comes from entrepreneurs with the next great ideas.

From this brief:

First, it must be recognized that companies like Facebook, Amazon, Apple and Google earned their current market leadership by serving consumers well. And given the dynamism of technology markets, these firms cannot afford to act as if they now are monopolists, and therefore, can get fat and sloppy.

If large firms fail to serve and innovate, they are just as vulnerable as any other businesses. After all, history is strewn with market leaders who either no longer exist or rank as mere shadows of what they once were, such as Sears, Pan Am, Blockbuster, Kodak, Atari, MySpace, Borders, Commodore Computer, and on the list goes.

Second, and therefore, rather than going down the path of antitrust regulatory activism and dictates, again along with the considerable and varied costs, the most beneficial actions that elected officials can take if they are truly concerned about big business is to establish the best possible environment in which new competitors are able to emerge. That is, if you’re worried about big business, then make sure entrepreneurship can flourish.

Big Tech: Small Business Partners and Collaborators  

The above-noted briefs make clear that small businesses overwhelmingly view leading technology firms more as partners than opponents, and profit by using the products offered by such tech firms.

In fact, many of these money-saving and income-generating tools would be banished under Rep. David Cicilinne’s (D- American Innovation and Choice Online Act, one of the leading bills to micromanage Big Tech. A recent Computer & Communication Industry Association (CCIA) blog post summarizes how the bill “would remove many of the tools that small businesses and developers have come to count on to grow and succeed.”

As detailed in CCIA’s blog post, the bill could:

Strip small businesses of free or low-cost online tools and services.

● Undermine small business resiliency.

● Crush opportunity for small businesses and entrepreneurs.

Many other small firms work with such leading companies as suppliers, and/or serve their employees. Entrepreneurs, and angel and venture capital investors see the possibility of being acquired by larger firms as a real possibility, and therefore, such opportunities encourage investment and innovation.

Still others are in fact emerging competitors in a global marketplace. The dynamism of the technology marketplace makes any predictions of where this and other sectors of our economy are headed to be the most dubious of undertakings. Politicians and their appointees should not be limiting or dictating business and investment models and options, such as via ramped up antitrust regulation, given that they really have no idea of where the market is headed.

Government Regulators and Politicians Cannot Predict the Market – Humility is in Order

Who saw the success of an Apple, Amazon, Facebook or Google when these now-market leaders were just starting up? Very few, to say the least, beyond the entrepreneurs who started these firms who believed in the product and mission, along with some early employees and investors. And there was nothing guaranteed about their success.

The history of Apple makes that clear. These enterprises had to invent, innovate and improve, and then submit their creations to the market, whereby competitors provided discipline and consumers served as judge and jury. And of course, that process never stops, as current, emerging and future competitors, along with shifting consumer expectations, mean that the investing and innovating must continue for market leaders. If not, then their market shares and profits will slip away.

The Biden administration and assorted Members of Congress need to grasp the economics of how markets actually work, including today’s highly dynamic, innovation-laden technology sectors. With such understanding comes humility, and the reality that the greatest threat to entrepreneurs, small businesses and consumers is not so-called “Big Tech,” but rather it is an overreaching government that tries to promote competition paradoxically via greater government regulation, intrusions and controls.

Indeed, when government undertakes misguided attacks on “big business” just for the sake of being “big,” which very much seems to be the case with the Biden EO and assorted antitrust zealots, the ills and costs wind up being inflicted across the economy, including on entrepreneurs and small businesses.

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

 

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