Entrepreneurs to Congress: Don’t Take a “Sledgehammer” to Big Tech

February 7, 2022

  1. Regulation
5 minutes

On January 20th, the Senate Judiciary Committee voted on a bipartisan basis to approve the American Innovation and Choice Online Act, despite significant reservations expressed by many Senators regarding the details and implications of the bill.  “It’s difficult to see the justification for a bill that regulates the behavior of only a handful of companies while allowing everyone else to continue engaging in that exact same behavior,” said Senator Dianne Feinstein (D-CA).  Senator Mike Lee (R-UT) worried the bill could accomplish the opposite of what policymakers intend: “It may actually entrench the very four companies at which it is aimed by creating a strong incentive to simply cease doing any business with third parties.  This could crush thousands of small businesses, and it could actually worsen the state of competition in online markets.”

Senator John Kennedy (R-LA) was more blunt: “I’m a co-sponsor on this bill, but this bill is going to change.  It’s going to change dramatically, hopefully for the better…or I’ll be off this bill faster than you can say, ‘Big tech.’”

The bill is one of a number introduced over the course of 2021 intended to address antitrust and competition concerns associated with large technology companies.  The bills would, among other things, potentially break-up large technology companies, mandate a fundamental re-working of their highly successful business models, and impose severe restrictions on their ability to acquire smaller companies in the future.

To assess the likely implications for new and small businesses of the various antitrust bills, the Center for American Entrepreneurship conducted a roundtable of ten entrepreneurs from six states on November 18, 2021.  The principal conclusion of the discussion confirms the concerns of Senators Feinstein, Lee, and Kennedy: If enacted, the antitrust legislation currently before Congress would have profound and far-reaching implications for the nation’s entrepreneurial ecosystem – at a time when the economic growth and job creation driven by thriving entrepreneurship is more important than ever.

Pointing out that legislation by its very nature is blunt, focused on structural limits and activity restrictions, and inevitably introduces market distortions that often entail potentially severe unintended consequences, one participant stated: “We don’t need the sledgehammer of legislation, we need a surgeon’s scalpel” to carefully dissect, understand, and appropriately address the unique circumstances, details, and market implications of particular issues.  That scalpel, roundtable participants agreed, resides with the regulators – the Federal Trade Commission and the Justice Department’s Antitrust Division.

Since their introduction nearly three decades ago, the digital platforms and marketplaces provided by companies like Apple, Amazon, Meta, and Google – along with the various data analysis, marketing, advertising, and sales tools they provide – have helped spawn, nurture, and support thousands of new and small businesses.  The Covid-19 pandemic has only heightened the importance of digital platforms and tools.  Forced by Covid-related restrictions to limit foot traffic in stores or to close physical locations entirely, businesses have increasingly turned to online platforms like Amazon, Google, Facebook, Ebay, and Shopify to open digital storefronts, social media sites like Instagram, Twitter, and LinkedIn to communicate with and market to customers, video conferencing platforms like Zoom and Microsoft Teams to interact with suppliers and investors, and digital payment tools like PayPal, Venmo, and Square to facilitate sales.

According to a recent analysis by consulting firm McKinsey & Co, the Covid pandemic has accelerated the transition to technology-powered commerce by at least a decade.  As a result, America’s post-Covid economic recovery depends in large part on new and small businesses operating, selling, growing, and thriving online.

Most experts regard the change as permanent.  Speaking at a European Central Bank forum last November, Federal Reserve Board Chairman Jerome Powell said: “We’re not going back to the same economy.  We’re recovering, but to a different economy – one that is more leveraged to technology…You’ll probably see an acceleration of automation.  All of that was in the process of happening, but you’re going to see much more of it.”

The businesses launched by the entrepreneurs who participated in our recent roundtable represent a wide variety of industry sectors and, while all still young, are at various stages of their growth and development.  Participants were provided with background material on the various antitrust bills introduced into Congress from a number of public sources prior to the discussion.

The major insights and observations generated by the roundtable discussion included:

  • The problem the antitrust bills intend to address has not been clearly defined, and the bills do not reflect an accurate understanding of the operational realities and needs of technology-era new and small businesses.  As one participant observed: “The word ‘over-reach’ keeps coming to mind.  I’d really like to know what the ‘PITA’ is – the pain in the ass – the problem that policymakers are trying to solve here.  It seems that not enough thinking has gone into the impact on small businesses or how we do business – especially those of us using technology and operating virtually.”
  • The major digital platforms and technological tools provided by large technology companies are enormously important – even critical – to the operation and success of new and small businesses today.  Indeed, several participants shared that they could not have even launched their business without the analytic, marketing, and sales tools provided by large technology companies.  “We’ve built a profitable company by using AWS for data analysis and Amazon marketplace to sell,” another participant explained.  “We’ve only been able to do it because of the scaling opportunities offered by ‘big tech.’  Some of it is advertising on Google and Facebook, but, for us, without AWS and the Amazon marketplace, forget it.”
  • Because of the scale of large technology companies – and the integration of a wide range of products and services – the digital tools offered to new and small business are remarkably affordable.  As one participant noted: “For my first company, I had to buy a $10,000 Compaq server to put my technology stack on.  For my last two startups, I use the cloud for pennies.”
  • Participants also agreed that legislation to restrict acquisitions would threaten the startup ecosystem by obstructing the most common positive outcome or “exit” for entrepreneurs and their investors, thereby short-circuiting the process by which value-creating innovation helps fund the next generation of new businesses.

Despite the enormous value of the digital platforms and the various tools they offer, our roundtable participants made clear that problems related to terms of access and certain policies and procedures do occur and can cause significant challenges for new and small businesses.  But such issues, most participants agreed, are best addressed by the FTC and the Justice Department’s Antitrust Division, which have the authority to act and have been very effective when they do.  Indeed, between 2010 and 2020 regulators prevailed in 79 percent of challenges to mergers in federal court, according to the Review of Industrial Organization.

Thriving entrepreneurship is the essential pathway to faster economic growth, job creation, and opportunity expansion the American people need and deserve – particularly in the wake of the Covid-19 pandemic.  Legislation that would break-up the major digital platforms, mandate a wholesale restructuring of their business, require the divestiture of critical products and services, and severely restrict a major avenue of exit for entrepreneurs and their investors risks major damage to America’s entrepreneurial ecosystem and the post-Covid recovery.  Policymakers should heed the input from the participants in our November 18th roundtable – the regulatory agencies are the far more appropriate, nimble, proactive, and effective policy remedy to legitimate antitrust and competition concerns.

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