Global companies are becoming a problem for the economy. This was the surprising message from The Economist in this week’s issue. Rather than disruption, today’s economy is dominated by entrenchment. Entrepreneurs expect to sell their companies to the incumbents, rather than compete with them. The global internet and freenomics contribute to the concentration of power. The leader reads almost like a Netopia blog post (much better written, of course!). The editor applauds the European Commission’s anti-trust cases against Google, but thinks the Apple tax case is a step too far, worrying that it could spark a tax war.
In the 14-page special report, the Schumpeterian theory of temporary monopolies is discussed, the idea that companies that spend on research and get an edge on the competition should be allowed to reap the advantages of such a position until the rest of the pack catches up. Legislators have to be cautious not to upset this balance, but should use competition rules to battle concentration. This paragraph captures it well:
Antitrust authorities need to start setting the agenda by examining the way that digital companies are using network effects to crowd out potential competitors, or invent new ways of extracting rent by repackaging other people’s content.
Great to see an influential publication such as The Economist take a position like this. The network effects of the digital economies tend to produce very powerful niche monopolists that put normal competition out of play. Tech pundits will argue that disruption deals with the problem, not via head-on competition but by offering a different way to access data. Google fears Facebook more than Bing in this logic. The problem with that approach (a sort of wishful thinking that the market will solve the problem if politicians will only leave it alone) is that every cycle creates even more concentration. Perhaps Google will eventually be brought to its knees by some company, but that company will be even more powerful than the last. Some may have seen Twitter as a potential disruptor of how information travels, now rumours say Google is set to buy it. The answer is instead just what The Economist points out: regulation. Except Netopia would add that regular, after-the-fact competition regulation is probably not enough to achieve this. In addition, an “upstream” approach to competition is needed. Competition needs to be built into the system. The network effects need to be curbed. When government research funds invest in the next cool technology, be it 5G mobile communication or smart cities or additive manufacturing, competition impact assessment needs to be part of the package. Technology is ideology and so it can be designed to do what we want. Next, the freenomics that power the monopolists must be challenged, ideally by making it possible to charge for content online. The first step would be for the EU to make internet platforms license content published on their platforms. Further on, blockchain and content protection technologies can support business models for paid content. Free services and big data business is a big driver of concentration.
The Economist points to something important. But in order to make a real difference, regulation needs to be on the inside of technology – not years after.
