Creative destruction, not government intervention, will ‘fix’ Big Tech
Some regulation is necessary, but political interference to break up industry behemoths could be counterproductive
BREAK up Big Tech? Pandering politicians in the United States of America, Asia and Europe say the sector’s behemoths are too dominant and require a regulatory crackdown.
European politicians yapped endlessly about Big Tech “fixes” during the run-up to the European Union (EU) elections. America’s looming November vote fans “break up the monopolies” blabbering.
It is all nonsense.
Government intervention isn’t needed. Capitalism’s lifeblood – creative destruction – naturally renders such plans counterproductive. Here is how.
For years, Singapore’s fintech “regulatory sandbox” has demonstrated regulatory cooperation – not confrontation. Globally, that is rare.
Most major governments shoot first and ask questions later – such as those now pushing to punish supposedly monopolistic (or oligopolistic) tech firms.
The EU’s antitrust charges against Microsoft over bundling Teams with Office is one example. Suing Apple for violating digital competition laws is another.
Closer to Singapore, Indonesia’s 2023 ban on social media goods transactions sparked a TikTok tiff. India’s slew of recent rules – and new tech taxes – makes firms squirm.
America is suing Apple for alleged smartphone monopoly practices, while Japan pursues antitrust claims against Google.
Most see the government as right to intervene. But this is wrong.
Whatever you think of Big Tech (or other behemoths), political “fixes” aren’t the answer.
New challengers
With patience, creative destruction – the perpetual churn of new startups eventually out-thinking, outflanking and replacing ageing giants – solves it naturally. It is near-perfect self-regulation.
As firms grow into societal Goliaths that generate huge profits, new entrepreneurial Davids see opportunities. Old, fattened hunters become the hunted. New innovators emerge, rise and overthrow stodgy titans who can’t adapt or innovate quickly enough.
It takes 10 or 20 years – rarely more. And it is always recurring. This saga, I have watched for 50-plus years and always known. Dominance isn’t permanence.
Consider the largest 20 global firms by market capitalisation in 1970, 1990, 2010, and now. From 1970’s tally, only seven made 1990’s list – with several from then-booming Japan skyrocketing into the top 20.
By 2010, all those hot Japanese firms vanished. Just four companies from 1970’s list made the 2010 cut.
Now, none of those companies exist. What happened? Innovation!
Many formerly dominant Goliaths from the 1970 list imploded – think Kodak, Sears, and Xerox. Poof!
Others, such as DuPont, General Motors and US Steel, slowly got whittled to second- or third-tier status.
No government “fixes” were needed. New entrepreneurial entrants ate their lunches.
Mini-computer firms toppled IBM. PCs toppled mini-computer firms. Smartphones decimated Kodak. Amazon and Walmart toppled Sears. Everyone toppled Xerox.
Globally, Japan’s biggies – Nippon Telegraph and Telephone, Toyota, Nikko, NEC and Tokyo Electric – deflated.
It never ends. Only five of today’s top 20 were on 2010’s list. Fifteen newbies reached the list in just 14 years. Only two of today’s top 20 were on 1990’s list. Creative destruction reigns!
Yes, it causes business failures – threatening jobs and spurring angst. But long term, failure benefits everyone by freeing capital. It allows dynamic upstarts to provide world-bettering products and services, create better jobs, and more.
Failures provide vital information – showing what works and what doesn’t. Barring failure or inducing it governmentally muddles those messages.
Like Japan and its infamous “zombie companies” – which can’t lead and yet siphon capital from challengers, effectively subsidised by banks and cross-shareholders – many would be long dead without government support and artificially low interest rates.
Sure, many cheer Japan’s relatively stable employment. But think bigger.
Japan’s dearth of creative destruction created a decades-long malaise. The country’s gross domestic product grew just 0.7 per cent annualised from 1994 to 2023 versus America’s 2.4 per cent (and Singapore’s rocket-ship 5.1 per cent).
It helped drive Japanese stocks’ puny 152 per cent return over that stretch. But the Straits Times Index – tilted towards financial and real estate stocks – beat it with a 223 per cent return. The S&P 500’s 1,694 per cent boom crushes it.
Notably, these “protections” didn’t prevent Japan’s 1990s stars from falling.
Interrupting progress
Government interference often creates unintended market consequences. Consider the EU’s many and varied lawsuits, fines and attempts to hobble Big Tech for alleged excesses. The new Microsoft and Apple suits are just the latest among countless ones over recent decades.
The effects? Europe’s tech sector is tiny. Only three of the world’s 50 largest tech firms are Japanese, and three are eurozone-based.
People should decry the lost competitiveness as old-line sectors lag. Meanwhile, America has 35 of tech’s big 50.
While Singapore doesn’t have global tech giants, it isn’t because of regulatory interference. The Competition and Consumer Commission of Singapore’s lighter touch – as illustrated in the recent review of the Grab-Delivery Hero merger – is a plus.
No, I don’t call for a no-regulation Wild West.
Governments should enforce property rights, truth in advertising, safety rules and more – crucial to investor confidence and risk-taking.
But with regulating “market dominance”, creative destruction works best, bar none. Embrace it and thrive.
The writer is the founder, executive chairman and co-chief investment officer of Fisher Investments, an independent investment adviser serving both individual and institutional investors globally
