ICYMI: Larry Downes Takes On Scott Galloway’s Flawed Calls To Break Up Leading Tech Services
In the latest issue of Esquire, NYU marketing professor Scott Galloway offers his latest salvo on leading tech services. But in the Harvard Business Review, Georgetown’s renowned Internet industry analyst Larry Downes’ writes “How More Regulation for U.S. Tech Could Backfire.” Downes highlights how the best regulator of technology is “simply more technology.”
Taken together, Downes is best read as a rebuttal to Galloway’s most common attacks on America’s leading tech services.
Downes points out history is littered with “corpses of supposedly invulnerable giants” and today’s successful companies have shorter lifespans than they have had in the past. Galloway argues that today’s leading technology companies are too successful and therefore dangerous.
Downes goes on to note break ups “almost always backfire” and “the constant threat of a forced divestiture can be disastrous for consumers and enterprise alike.” And yet, Galloway has repeatedly called for breaking up America’s leading tech services as a the only viable option.
Downes explains that “antitrust is meant to punish dominant companies that use their leverage to raise costs for consumers,” such as by raising prices or impeding innovation. Today’s free or low cost leading tech services are verifiably only benefiting consumers, showing Galloway fundamentally misunderstands the role of antitrust.
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Georgetown University Center For Business And Public Policy’s Larry Downes Argues The Best Regulator Of Technology Is “Simply More Technology.” The best regulator of technology, it seems, is simply more technology. And despite fears that channels are blocked, markets are locked up, and gatekeepers have closed networks that the next generation of entrepreneurs need to reach their audience, somehow they do it anyway—often embarrassingly fast, whether the presumed tyrant being deposed is a long-time incumbent or last year’s startup darling.” (Larry Downes, “How More Regulation for U.S. Tech Could Backfire,” Harvard Business Review, 2/9/18)
“Break-Ups Almost Always Backfire,” According To Downes. “More to the point, break-ups almost always backfire. Think of the former AT&T, which was regulated as a monopoly utility until 1982, when the government changed its mind and split the company into component long-distance and regional phone companies. The sum of the parts actually increased in value —except for the long-distance company, which faded in the face of unregulated new competitors.”(Larry Downes, “How More Regulation for U.S. Tech Could Backfire,” Harvard Business Review, 2/9/18)
The Constant Threat Of Break Up Can Be Harmful For Both Consumers – Not Just The Company – Says Downes. “On the other hand, the constant threat of a forced divestiture can be disastrous for consumers and enterprise alike. IBM prevailed against multiple efforts to break it up along product lines, but was so shaken by the decades-long experience that the company became dangerously timid about future innovations, missing the shifts first to client-server and then to Internet-based computing architectures, nearly bankrupting the business.” (Larry Downes, “How More Regulation for U.S. Tech Could Backfire,” Harvard Business Review, 2/9/18)
AEI Fellow James Pethokoukis Says Antitrust’s Purpose Is Not To Dismantle Big Companies. “That’s not how antitrust works in the modern U.S. economy. Companies do not get dismantled just because they are big and dominate a particular market sector. If consumers are benefiting, government generally keeps its hands off. Tax policy or campaign finance reform usually tackles concerns about economic and political power now.” (James Pethokoukis, “The Astonishingly Weak Antitrust Case Against Facebook, Google, and Amazon,” The Week, 1/19/18)
Carl Shapiro, Former Deputy Assistant Attorney General For Economics At The Department Of Justice’s Antitrust Division: “Dismembering Our Most Successful Companies Will Significantly Reduce Economic Efficiency.” “Any call to break up large tech firms based on economic considerations needs to address the concern that dismembering some of our most successful companies will significantly reduce economic efficiency. We know that firms vary greatly in their efficiencies within an industry, and we know that the more efficient firms tend to grow relative to others, at least until they run into diseconomies of scale. On this basis alone, breaking up the largest and most successful firms makes me rather nervous. On top of that, we know that there are substantial economies of scale of various types in the technology sector, including network effects and the economies of scale resulting from the fixed costs associated with developing new products, especially software and content.” (Carl Shapiro, “Antitrust In A Time Of Populism,” SSRN, 10/25/17)