The Market Institute Senior Fellow John Tamny has a new piece in Forbes about the targeting of major tech companies by some in Congress. Excerpt below.
“It’s a presidential tradition that serious, tier one candidates for the office speak at the Detroit Economics Club. Young people must wonder why since Detroit is almost never the city mentioned as the destination of the modern ambitious. It’s yesterday, so why would Detroit’s Economics Club remain a major, well-covered presidential campaigning spot? The answer seems to be that tradition dies hard.
Right up into the 1970s Detroit certainly was a center of American commerce, and as such it was rare for someone on the verge of attaining a Harvard Business School degree to not have a few Detroit companies (think carmakers, of course) on the interview schedule. A speech in Detroit matters now because commercial activity in Detroit once mattered.
Individuals with degrees and MBAs from the top schools gave Detroit a serious look because the U.S.’s car business was once seen as the frontier of American business know-how. An ambitious person would choose Detroit to learn how to be a businessman. Memory says Microsoft co-founder Bill Gates long referenced Alfred P. Sloan’s My Years With General Motors as the business book that most influenced him. Yes, GM used to dominate. In the 1960s it was the picture definition of dominance. The influential of the 1960s said it needed to be broken up. If not, it would own the whole car market. How things change. In 2008 taxpayers bailed it out.
They did because the future of commerce rarely resembles the present. Certainly not in dynamic economies. And it doesn’t simply because herculean achievement begets copious investment. While politicians and economists focused on GM, intrepid investors happened on unthreatening (to GM) companies like Toyota, Volkswagen, and BMW that would eventually replace the giant.
What’s crucial about all this is that dominance is the impetus for the change at the top. Put another way, success is the powerful, intoxicating lure for investment meant to replace the successful. Conversely, sectors defined by stodgy businesses logically have reduced turnover at the top. Investment generally flows to where the money is being made.
This truth about the present and the future of business rates mention as Google increasingly finds itself a Washington target. Last Friday’s Wall Street Journal reported on legislation introduced by Democrat and Republican senators that “would take aim at conflicts of interest in the advertising technology industry and force Google to break up its dominant online-ad business.” Republican Ted Cruz is one of the senators who has joined hands with Democrats Amy Klobuchar and Richard Blumenthal. Where it becomes truly surprising is that Utah Senator Mike Lee is reported as leading the legislation. Call this the “Man Bites Dog” story of 2022. Lee doesn’t do these things.
Indeed, his explanation for the legislation doesn’t sound like him. As he explained it to the Journal, “When you have Google simultaneously serving as a seller and a buyer and running an exchange, that gives them an unfair, undue advantage in the marketplace, one that doesn’t necessarily reflect the value they’re providing.” Not explained is what the marketplace is.
Figure that for the longest time the retail marketplace was defined by – yes – retail. You walked into a business and bought things. Except that what politicians refer to as the “marketplace” tends to evolve. Thinking about retail, Amazon doesn’t have a market cap of over $1 trillion today because it invaded a marketplace dominated by Walmart; rather its valuation is nosebleed precisely because it redefined the market against all odds.
The marketplace for watching movies at home used to be defined by getting into one’s car, driving to a physical location, and searching for a VHS tape or DVD to bring home. Netflix doesn’t have a market cap of $186 billion because it invaded the movie rental market; rather it does because it redefined the market.
Considering automobiles, after a big slide Tesla’s market cap is still $687 billion. Think about that number for a second, think about what Tesla makes, and think about what Tesla could expand into with its technological genius. The main thing is that Tesla’s valuation isn’t rooted in it joining Toyota, Volkswagen and others in reducing GM’s market share. The true story of Tesla’s valuation is a market expectation that the technology company will redefine how we think of automobiles, all the while creating all-new markets that previously didn’t exist.
This is crucial in consideration of Lee’s expressed justification for trying to break up Google’s ad business. Lee’s rationale implies that the internet is the frontier of the information revolution, and that Google is the endpoint for advertising. What else could he mean by it having an “unfair advantage in the marketplace”? Except that the marketplaces where immense wealth is being created (Google is part of many) are also the ones attracting the most investment. This investment isn’t flowing the way of Silicon Valley because investors see what Lee sees about Google’s dominance; rather it flows that way precisely because they don’t see the marketplace in the static way that the Utah senator does.
Karl Marx thought capitalism would essentially hang itself, but the greater truth is that capitalists will, if left alone, perpetuate the profit motive by virtue of their unspent wealth flowing toward the highest risk, highest reward opportunities meant to grow the wealth. In other words, dominance fosters the kind of wealth too gargantuan to spend such that it as a rule flows to tomorrows visionaries. Lest we forget, Rockefeller, Vanderbilt and Phipps wealth is what backed the initial Silicon Valley VCs, while Rockefeller wealth more individually backed a garage-based company founded by Steve Wozniak and Steve Jobs. You’ve heard of it.
Thinking about all this in terms of Google, rather than erecting barriers to its power Lee et al should be legislating a do-nothing government. If Google’s dominance is the bother, the only answer is continued Google dominance.”