Biden Executive Order Ignores Dynamic Tech Competition And The Value It Adds For SMBs & Consumers
President Biden’s new Executive Order fails to acknowledge the value that tech brings to the US economy. The free and low-cost products and services offered by tech companies facilitate economic growth in the form of new businesses and lower costs, and this order would make it harder for consumers and small businesses to benefit from America’s world-leading tech sector. It’s important to keep in mind:
- Leading U.S. tech companies help U.S. small businesses compete and grow.
- Tech competition is thriving and 2020 was a record year for new businesses in the U.S.
- Placing hefty restrictions on acquisitions harms innovation and consumers.
- Data benefits American consumers and is not a barrier to entry to new competitors.
Leading U.S. tech companies help U.S. small businesses compete and grow.
Hamstringing innovative tech companies would inadvertently threaten small businesses, remind more than 1,600 small businesses and Jake Ward, President of the Connected Commerce Council. “[T]he Digital Safety Net is real, and it kept millions of small businesses open during the pandemic. Elected officials must understand that digital tools are so effective for small businesses because the companies offering them are large, interconnected, constantly innovating, and engaged in fierce competition for small businesses’ dollars. Rather than launching investigations, government should empower small businesses and invest in increasing access to and educational resources for digital tools to help small businesses survive and prepare for the next crisis.”
Tech platforms help small businesses operate and grow amid the pandemic, contributing to the U.S. economic recovery, highlights John Dearie, Founder and President of the Center for American Entrepreneurship. “51 percent of small businesses reported increasing their online interactions with customers, 35 percent had expanded the use of digital payments, and more than a third of businesses that use online tools reported conducting all of their sales online.”
— Dearie continues: “Covid-19 has accelerated the shift to technology-powered e-commerce by at least a decade, significantly altering the nature and operation of the U.S. economy and the competitive requirements of business success. As a result, America’s post-Covid economic recovery depends in large part on new and small businesses operating, selling, growing, and thriving online.”
Hear from Aziah Thompson, a small business owner in Pennsylvania: “Free and affordable digital platforms have transformed the small business landscape for the better.” “Free and affordable digital platforms have transformed the small business landscape for the better. Small operations like mine have been able to quickly transition, faster than any large corporation could, by making smart use of the digital resources at our disposal.”
— “Let’s avoid making emotional remarks and policy changes that could disrupt access to platforms actively supporting small businesses through the pandemic.”
Tech competition is thriving and 2020 was a record year for new businesses in the U.S.
“Conventional metrics of concentration underestimate the degree” of tech competition, highlights Michael Mandel of the Progressive Policy Institute. “Our conclusion is that conventional metrics of concentration underestimate the degree of competition in the tech/telecom/ecommerce sector, given the way markets have evolved.”
— Policymakers should stick with “a sector-agnostic approach to competition policy,” Mandel continues. “In terms of policy, our conclusions suggest a sector-agnostic approach to competition policy. Regulators need to be alert for potential problems, but the strong economic performance of the tech/telecom/ecommerce sector across a range of measures makes it less likely that the tech giants are engaging in anticompetitive behavior on a wide scale. Moreover, we anticipate that the next decade of digitization will be larger and more disruptive than the past decade.”
More than 4.3 million new business applications were filed in 2020, marking a record year for new business formation, according to the U.S. Census Bureau Business Formation Statistics, highlights the LendingTree report on new entrepreneurs. Retail was the fastest-growing industry for small business applications.
Placing hefty restrictions on acquisitions harms innovation and consumers.
“Acquisitions contribute to the health of the startup ecosystem and overall economy,” Bobby Franklin, President and CEO of the National Venture Capital Association. “These acquisitions contribute to the health of the startup ecosystem and the overall economy as entrepreneurs who realize liquidity through the sale of their company regularly go on to found new, innovative companies, and often invest in other startups as angel investors or VCs. Furthermore, acquisitions help power the returns of VC funds, thereby supporting the pensions, endowments, and foundations that invest capital in venture funds. In addition, acquisitions allow VCs to raise new investment funds and invest in the next generation of entrepreneurs. This ‘recycling effect’ is one of the key drivers of dynamism in our economy.”
An analysis of M&A activity in 48 countries concluded that restricting M&A stifles VC investments, find Gordon M. Phillips and Alexei Zhdanov of Tuck School of Business Working Paper. “We examine the relation between venture capital (VC) investments, M&A activity, and merger competition laws in 48 countries around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with the hypothesis that an active M&A market provides viable exit opportunities for VC companies and therefore incentivizes them to engage in more deals. We also explore the effects of country-level merger competition laws and also pro-takeover legislation passed internationally on VC activity. We find significant reductions in VC activity in countries with stricter competition laws and find that VC activity intensifies after enactment of country-level takeover-friendly legislation.”
Restricting acquisitions would harm today’s healthy entrepreneurial ecosystem and broader economy, reminds Jeff Farrah, General Counsel of the National Venture Capital Association. “Members of Congress love to tout the benefits of entrepreneurship, be it Moderna that created a COVID-19 vaccine, Zoom that enabled communication during the pandemic, or many other innovative solutions that stepped up to meet society’s challenges. But what some fail to understand is these companies are only possible because of a healthy entrepreneurial ecosystem that is impacted by public policy. Restricting acquisitions of VC-backed companies would harm this ecosystem and the broader economy. The report from Professors Sokol and Dushnitsky concludes that acquisition restrictions will particularly harm first-time venture funds that rely on acquisitions, as well as corporate venture capital activity that has become an important source of capital for founders.”
Increased barriers to acquisitions could limit funding for startups, ultimately handcuffing innovation and harming consumers, notes a joint letter by the App Association, Developers Alliance, and Engine. “While some acquisitions certainly deserve regulatory scrutiny, presuming all acquisitions by larger companies to be anticompetitive fails to see the procompetitive nature of acquisitions in the technology sector. Startups and serial entrepreneurs often focus on creating new, innovative technologies, with the goal of selling to a larger company that can bring the product to scale. This procompetitive exchange has clear synergies and benefits consumers by making the latest innovations widely available. Past completed acquisitions can also serve as a track record of success, enabling entrepreneurs to attract capital for their future ventures. Making it harder for startups to get acquired—or injecting uncertainty about acquisitions being unwound down the road—will hurt the ability of some new and small tech companies to raise funding and get off the ground.”
Data benefits American consumers and is not a barrier to entry to new competitors.
From Springboard in 2020: “The leading tech services have taken on a leading initiative to promote data portability, giving users the ability to transfer their data to rivals. With data portability and multihoming, data is not a barrier to entry for new companies or their new products.”
Platforms and apps accumulate data to “benefit consumers by improving the quality of existing goods and services and by creating new ones,” notes Makan Delrahim, former Assistant Attorney General for the Antitrust Division at the DOJ. “The accumulation of data can benefit consumers by improving the quality of existing goods and services and by creating new ones. Platforms and apps pair large amounts of data with technology to create some of the economy’s most important innovations, including in medical diagnoses, weather forecasts, transportation safety, and language translations. These innovations are having a significant impact on almost every aspect of our daily lives, making possible many of the conveniences we have begun to take for granted.”
— Data can also enhance competition, Delrahim continues. “Comparison services, such as those for flights, hotels, shopping, and real estate, collect data from different sellers and provide consumers an easy way to compare products and services. This increased transparency puts competitive pressure on sellers in both digital and traditional industries.”
More accurate and voluminous shopping data provides more options for consumers, writes the Economist. “In fact the implications of technology, for producers and consumers, are more exciting and benign. More accurate and voluminous data about shopping patterns are breaking down the decades-long relationship between mass consumption and mass production. In its place is a more varied world in which the shopper can decide whether to buy online or in store, whether to shop via platforms or from individual brands, and whether to accept targeted ads or not.”
Prevalence of multihoming and switching debunks the claim that data provides a substantial barrier to entry, notes David S. Evans, economist at University College London. “The prevalence of multihoming, and switching between platforms is inconsistent with the claim that data provides a substantial barrier to entry. Time and again new platforms arise, with no data at inception, and acquire consumers and obtain data over time. That doesn’t mean that data isn’t valuable. It does strongly suggest that lack of data doesn’t pose significant obstacles to online platforms that develop valuable products that consumers like.”