Setting The Record Straight: Warren Proposal Would Hurt Consumers And Punish Economic Growth
Earlier today, Sen. Elizabeth Warren published a Medium post outlining a plan to “break up” the country’s most successful technology companies. A statement from CCIA president Ed Black is available here. When reading, it’s important to remember a few key facts:
—Competition in the tech sector is thriving.
—Venture capital deals for start-ups are at all-time highs.
—Apolitical, evidence-based antitrust policy has served consumers well.
Read more below.
The tech sector is highly competitive, and both consumers and workers are better off for it.
—Intense competition and the pace of innovation in the sector is driving America’s leading tech services to invest record levels in research and development.
—Leading tech services provide significant economic benefits for consumers and the American workforce. “Larger companies actually ‘provide higher-wage jobs, better workplace benefits, lower prices, stronger environmental protection, and promote diversity, safety, and stability.’ According to the Department of Commerce’s Bureau of Economic Analysis, employment in the digital economy grew at an average annual rate of 3.7 percent yearly – compare that to the overall economy’s 1.7 percent rate of growth.”
—According to research from Michael Mandel at the Progressive Policy Institute, the tech/telecom/ecommerce sectors outperform the rest of the private sector. “We also find that the tech/telecom/ecommerce sector has outperformed the rest of the non-health private sector across a wide range of important economic measures since the tech boom started in 2007. Productivity rose by almost 60 percent in the tech/telecom/ecommerce sector between 2007 and 2017, compared to only 5 percent in the rest of the non-health private sector. Because of these gains, the tech/telecom/ecommerce sector accounted for almost half of non-health private sector growth between 2007 and 2017.”
Venture capital funding is at all-time highs.
—A recent Crunchbase analysis found U.S. startups dominate the venture capital funding race, making clear the robust investment in entrepreneurship and small business.
—Crunchbase confirms the findings from Oliver Wyman’s 2018 report, affirming tech is an exceptional performer compared to VC investment trends.
—Oliver Wyman’s study found that deal value in the tech sector is at historically high levels, indicating a vibrant sector. “The global venture-investing market has seen broadly uninterrupted growth in total deal value since the dot-com crisis. The market is at record levels, with about $150 billion of venture investment in 2017, compared to about $55 billion prior to the dot-com crisis. Growth has come from both technology and other sectors, with technology experiencing marginally higher growth in recent years.”
—Despite leading tech services’ heavy investments, artificial intelligence startups are some of the fastest-growing — demonstrating a clear lack of kill-zone. From January 2015 to January 2018, the AI Index 2018, from Stanford’s Human-Centered AI Initiative, finds active AI startups increased 2.1 times while total active startups increased 1.3 times. Graph below:
Plus, VC funding for AI startups increased by 4.5 times from 2013 to 2017, while all VC funding increased 2.08 times.
—Investment in the sector is at a 20-year high, driving 57 startups worldwide (32 in the U.S.) to unicorn status last year. A World Economic Forum study found that in 2017, there were “57 startups that crossed the unicorn threshold, and they range from well-known companies, such as Reddit or Quora, to rapid-risers like China’s Toutiao (now valued at $20 billion), which has seemingly come out of nowhere.”
—As Assistant AG for Antitrust Makan Delrahim has stated, mergers and acquisitions have helped beloved products grow:
—”We may not have had what we have today had those transactions [like Google/Youtube and Facebook/Instagram] not occurred, and that’s sometimes the pro-competitive benefits of mergers.”
—”Would YouTube be what it is today without the investment, the search engine, the technical capabilities that was provided to YouTube when Google bought them?”
Existing antitrust policy has worked for decades, and continues to — both in enforcement and as a deterrent.
—Matt Lane writes for the Disruptive Competition Project that the rare non-merger breakup could “undermine efficiencies, stifle innovation, and harm stakeholders.” “The breakup is something that has been normalized in our conversations about large companies. One may be forgiven for thinking that a breakup is a relatively simple and common remedy. However, the non-merger breakup is actually something we have little experience with. There are only three instances of a breakup being used in non-merger cases, with the last being the breakup of AT&T in 1982. Breaking up a company is very difficult to do and the results could make everyone – not just the company – worse off. It’s a little like brinkmanship in global politics: the strategic threat of an extreme policy can sometimes get a country what they want but the plan is to always back away from the policy without executing. In antitrust, the threat of breakup could encourage good behavior from companies that have grown large. But actually executing a breakup could undermine efficiencies, stifle innovation, and harm stakeholders.”
—The consumer welfare standard in antitrust law goes well beyond pricing harms to consumers and is flexible, notes ITIF senior fellow Joe Kennedy. “Regarding the claim that the consumer welfare standard does not adequately take into account nonprice harms such as reduced product quality and slower innovation, it in fact does incorporate nonprice harms, including threats to innovation. Specifically, it allows regulators to focus on the long-term trajectory of value and price, and take innovation effects directly into consideration. As UC Berkeley professor Carl Shapiro points out, the consumer welfare standard defines welfare broadly and encompasses nonprice aspects such as improved product variety and more rapid innovation.”
—As Assistant Attorney General for Antitrust Makan Delrahim emphasizes, the consumer welfare standard is flexible: “As you are all aware, some critics assert that the antitrust consensus is not equipped to address competitive threats posed by new developments in technology—digital markets and platforms in particular. I don’t endorse that view. Indeed, last month at the University of Chicago Booth School of Business, I emphasized that the bipartisan antitrust consensus is flexible to challenges posed by digital platform markets because it can incorporate the latest economic wisdom in determining whether business practices or transactions are harmful to competition and consumer.”
—In a separate conversation, AAG Delrahim notably stated, The goal of antitrust is to “protect competition, not competitors.”