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Breaking up Big Tech would hand Beijing an advantage

Democrat Elizabeth Warren wants to break up big technology companies such as Google, Facebook and Amazon should she win the White House. This would hand an advantage to China.

Democrat Elizabeth Warren wants to break up big technology companies such as Google, Facebook and Amazon should she win the White House. This would hand an advantage to China.
Garry white employee

by
Garry White

in Features

21.10.2019

The calls to break up big technology companies are getting louder. Last week, Elizabeth Warren, the leading contender for the Democratic nomination in next year’s presidential race, renewed her call for the division of some of America’s largest businesses.

While the idea is proving popular amongst voters, such a move will hand a major advantage to the Chinese at a time when the struggle for dominance between East and West is accelerating – without solving the issues consumers have with these companies. Strategically, it’s a terrible idea for Washington and its western allies – and it’s not that good for consumers either. 

This debate is increasing in importance because Ms Warren is gaining traction. In the most recent George Washington University Politics Poll, the Massachusetts senator led the Democratic field with 28pc of the vote. Bernie Sanders was second at 21pc, and Joe Biden, the supposed front-runner, polled just 18pc. Ms Warren repeated her calls for a break up of large technology companies in this week’s televised primary debate between Democratic candidates. Reassuringly, none of the other 11 candidates endorsed this view. 

“Today’s big tech companies have too much power – too much power over our economy, our society, and our democracy.” Ms Warren says on her website. “They’ve bulldozed competition, used our private information for profit, and tilted the playing field against everyone else… That’s why my administration will make big, structural changes to the tech sector to promote more competition – including breaking up Amazon, Facebook, and Google.”

Popular support

There is no doubt that such a move has popular appeal. A poll released last month showed almost two-thirds of Americans would support breaking up technology companies by undoing recent mergers, such as Facebook’s acquisition of Instagram, if it means ensuring more competition in the future. But, ultimately, it would be a geopolitical disaster.

Currently there are two main clusters of big technology. One is based in the US, where the major names we all know are based, and one in China, which consists of businesses such as Alibaba, Baidu, Huawei and Tencent. Should the US cluster be forced to splinter it will hand a major advantage to the Chinese for years to come.

Artificial intelligence (AI) will be a major driver of future innovation. These technologies require a large amount of organised data to scrutinise. Breaking up these companies in the US will hand an advantage in AI to the Chinese – an area which is a priority for Beijing because of surveillance is an intrinsic part of the state’s model. The proposals are likely to result in the authoritarian state gaining an advantage over the west when it comes to monitoring and cyber interference in other countries’ affairs. Pitting fragmented US businesses against consolidated state-protected Chinese companies cannot be allowed to happen in this industry.

Does size matter?

It also doesn’t make sense because the problem with technology companies isn’t about size. Indeed, scale often makes services better for consumers. A global reach in social media is important for friends and family in different countries to keep in touch. Amazon has also brought both convenience and value to the shopping experience that has proved a real benefit to consumers. Users are better off with a few large players than with a fragmented industry.

Wanting to break up these companies is a result of the application of an old-economy mindset to the modern world. These businesses are completely different to the companies that the current antitrust system was designed to police. Users of sites such as Facebook do not actually pay for the service with cash. They pay for the service with their data, which the companies then monetise. It makes sense to break up monopolies that are price-gouging consumers because of their structural advantage – but Facebook’s service is 100% free to the user. Facebook is not Standard Oil, which was involved in perhaps the most famous antitrust case of the early 20th Century when it was branded an illegal monopoly and broken up.

Regulation works better

So, why are people so angry with these companies that they nod sagely when someone suggests smashing them up?

People are furious because of the way these companies have used their personal data to make money. They feel the benefits have been asymmetric. They also don’t like the way companies such as Facebook have allowed false political claims to spread without acting to stop the dissemination of questionable information. Then there’s the perceived tax avoidance of these companies to add into the mix. Wanting to break up these businesses reflects these concerns, but it will not solve these issues. The only way these issues can be sorted out is by sensible regulation.

Technology companies with deep pockets will also play hardball. Mark Zuckerberg, Facebook’s chief executive, is already getting ready. “I don’t want to have a major lawsuit against our own government,” Mr Zuckerberg said. “But look, at the end of the day, if someone’s going to try to threaten something that existential, you go to the mat and you fight.”

Elizabeth Warren claims she will be tougher on China than Donald Trump should she win the White House. However, one of her flagship policies will hand a major technological advantage to Beijing that could potentially do great damage to the west. If she really wants to be tough on China, Ms Warren needs to go easier on Big Tech.

A version of this article appeared in Friday’s Daily Telegraph.     

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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