Big Tech rules the rankings of top 10
Call to rein in leading firms spurred by fear
Not long ago, Americans were afraid of Big Oil. Then it was Big Banks. Now Big Tech is coming under attack.
There is a growing sense that something should be done about the growth, largely unchecked, of tech giants and the impact they are having on the economy, employment, privacy, news (fake and real) and income inequality. The problem is, nobody knows what action should be taken.
Breaking them up is a popular answer, but the Federal Trade Commission says it enforces the nation’s antitrust laws “for the benefit of consumers,” not competitors, employees or society. The goal is better products and services at lower prices.
It’s hard to show how consumers are harmed when Google and Facebook charge them nothing or when Amazon.com delivers products faster and at lower prices than competitors. “The reason Amazon is pushing companies out of business is because people love it,” said Doug Melamed, a professor at Stanford Law School. “Antitrust (regulation) is going to applaud that. They built a better mousetrap.”
Not everyone agrees. Sens. Elizabeth Warren, D-Mass., and Cory Booker, D-N.J. — possible presidential contenders in 2020 — have been calling on Congress and regulators to rein in Big Tech.
Today Apple, Alphabet (Google’s parent), Microsoft and Amazon are the world’s four most valuable public companies ranked by market value. Facebook is No. 8, followed by Chinese Internet giants Alibaba and Tencent.
Just seven years ago, PetroChina and ExxonMobil were Nos. 1 and 2, and the only tech companies in the top 10 were Microsoft, Apple and China Mobile.
The comparison shows how quickly tech has come to dominate the world and how quickly an industry’s fortunes can change. Fracking technology undermined oil prices and profits.
Two developments have heightened concern over Big Tech. One was Amazon’s offer
to acquire Whole Foods Market for $13.7 billion. On the morning it was announced, Amazon’s market value shot up by $11.2 billion and Whole Foods’ rose by $3.1 billion. But the combined market values of Target, Kroger, Costco and Walmart fell by $20.5 billion, Scott Galloway, a marketing professor at New York University’s Stern School of Business, pointed out in a tweet.
“Amazon has such adulation, it can announce an acquisition and have it paid for by other companies,” Galloway said.
Also raising alarm are dire reports about the number of jobs that could be wiped out by artificial intelligence, machine learning, selfdriving cars and robotics.
The agricultural and industrial revolutions also mowed down occupations, but created many others. Some say it’s different this time, in part because tech companies are creating more wealth with fewer people. Facebook, Johnson & Johnson and Berkshire Hathaway have similar market values, but Facebook has around 17,000 employees compared with 126,400 for J&J and 367,000 for Warren Buffett’s conglomerate. Alphabet has just 72,000.
Also, machines that can learn (without being programmed by humans) threaten more jobs than machines that can’t.
This month, Tesla CEO Elon Musk called artificial intelligence “the biggest risk that we face as a civilization,” and urged regulators to take action now, before it’s too late.
Last Sunday, when Facebook CEO Mark Zuckerberg was livestreaming a questionand-answer session from his backyard, someone asked him about Musk’s stance. He called it a “doomsday scenario” and “pretty irresponsible.” He pointed out that self-driving cars could eliminate crashes, one of the top causes of death.
Musk fired back with a tweet: “I've talked to Mark about this. His understanding of the subject is limited.”
This clash of the tech titans shows how difficult it will be for government to decide how this technology should be dealt with.
David Teece, a global business professor at UC Berkeley’s Haas School of Business, said it’s wrong to confuse fear of technology with fear of big tech companies. “Little tech (companies) can have just as much impact” as big ones, he said.
“If you keep the opportunity to compete wide open, market forces will take care of dominance,” Teece said. “It’s hard to remain on top when you are a big company. Smaller companies are more entrepreneurial, more nimble.”
Supermarkets threatened corner stores, Walmart threatened supermarkets, now Amazon is threatening Walmart. The economist Joseph Schumpeter called this “creative destruction,” Teece said. Now it’s called “disruption.”
Galloway says tech companies “are doing what they are supposed to do: pursue shareholder value above all else.” The problem is everyone else. “We worship at the altar of innovation. (We’ve) created a society where it’s winner take all.” Tech companies “have created incredible wealth and now have celebrity power. Fanatical idolatry we used to have for celebrities we now have for CEOs. (Facebook’s) Sheryl Sandberg is more interesting than LeBron James.”
Google, Facebook, Apple and Amazon “are the quarterback and the prom queen,” he explained. Everyone wants to date them, but end up in “abusive relationships” they can’t get out of. If our elected officials “were to go after these four, they might as well show up with a cane. It makes them look 20 years older.”
Galloway is not arguing they should be broken up. He wants them to pay their “fair share in taxes” and “play by the same rule book as the rest of us.”
Amazon, he said, has chosen to run more or less at break-even, putting “growth and vision” over profit. Investors have rewarded Amazon, but because taxes are based on profit, Amazon has paid relatively little for a company its size.
The online retailer was also allowed to grow into a behemoth without collecting sales taxes in most states, giving it an advantage over brickand-mortar stores. It didn’t begin collecting sales tax nationwide until this year.
Many tech companies have avoided taxes by placing intangibles such as patents and copyrights in subsidiaries in low- or no-tax countries, then attributing income likely generated elsewhere to those subsidiaries. Pharmaceutical companies have also employed this strategy, said Matthew Gardner, a senior fellow with the Institute on Taxation and Economic Policy, a research and education think tank.
“The tax code gives breaks of all kinds to all companies,” Gardner said. Some can reduce (their tax bill) to zero.” Utilities typically enjoy the lowest effective tax rates because they can write off large capital expenditures immediately.
Rather than revising the corporate tax code, which most economists consider inefficient, “it would be better to have a higher individual rate,” argues Greg Rosston, director of Stanford’s public policy program. “The ownership of these companies tends to be among higher-income people.”
Galloway also wants regulators to take a harder line against tech companies for “lying” about acquisitions. In May, the European Commission fined Facebook $122 million for giving regulators misleading information in 2014 about its proposed buyout of WhatsApp for $19 billion. Facebook said the errors it made were “not intentional” and “did not impact the outcome of the merger review.”
In June, the commission hit Google with a $2.7 billion fine for using its near-monopoly in search to steer users to its own online shopping service. Google said users prefer its shopping site because it takes them directly to products they want; it is considering an appeal. Alphabet said this week that it still faces investigations in Europe over its Android mobile operating system and AdSense, an advertising placement system.
The FTC, on the other hand, investigated Google and decided in 2013 that it did not manipulate its search results “to reduce or eliminate a nascent competitive threat.” During the investigation, Google executives and lobbyists visited the White House and trade agency offices frequently.
Teece says European regulators are looking for ways to “undermine successful American companies” and protect their own. “It’s the politicization of antitrust.”
Melamed sees it differently. “Why are none of these big innovator companies European? It could be precisely because European competition law is more aggressive.”