Developed countries need to escape the growth malaise we’re in
: Kevin Dietsch/Getty
Big Tech has been an important driver of recent US economic growth and commentators are becoming increasingly optimistic about its potential contribution to economic growth and innovation over the next few years. This might seem paradoxical and surprising, however. After all, the US government, along with its counterparts in the EU and UK, are pursuing a number of anti-trust actions against the alleged monopoly power of Big Tech firms. Reports for these authorities have suggested that the market power of these companies has been increasing in recent years.
Don’t monopolists restrict the quantities produced (to force up the price) and aren’t they famously less driven to innovate (because they face less competitive pressure threatening their survival)? So how can they both be increasing their market power and be drivers of growth?
There are three parts to the answer. First, monopolies can arise even in rapidly-growing markets. However, it is important to recognise that even when there may be monopolists as a growing market matures, it can be a struggle to work out in advance which the monopolists actually are (or are going to be) under such circumstances, and it’s easy to get it wrong. A notorious example of this is some of the discussion about the social networking company MySpace. A Guardian article in early 2007 noted that “it may already be too late for competitors to dislodge MySpace”. Facebook had been opened to the general public five months earlier.
Second, monopoly can enable and speed innovation; it’s isn’t always an impediment. The profits that monopolists generate can be used to innovate, so as to keep the monopolist in the dominant position. Those innovations can add value, leading to the total value of the output of the monopolist rising.
Third, and perhaps most importantly the characterisation of Big Tech firms as being in general monopolists (as opposed to having significant market power in a relatively small number of narrow markets) is probably wrong. It is undisputable that there have been, and presumably continue to be, competition issues in the Big Tech sector. Notorious cases have included Microsoft’s anticompetitive behaviour towards Netscape and there will doubtless be others in future.
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