Can the giant techs survive government attacks?

The giant techs face their biggest threat to their survival. Can they somehow survive?

Article updated: 18 July 2019 1:00pm Author: Michael Baxter

Exxon Mobil and Chevron; they owe their existence to it. In 1911, the US Supreme Court broke up Standard Oil, the company founded by John Davidson Rockefeller. The result was lots of baby SOs, among them the two aforementioned companies. The move was not without controversy. Some argued that SO’s monopoly position was down to its success in offering consumers a superior product. More recently, it has been argued that SO was on the point of losing its monopoly position anyway.

The economist Joseph Schumpeter made the theoretical argument in defence of monopolies — that the creation of a monopoly is the motivation behind every company, but great gales of creative destruction can destroy their market dominance.

I read that if Standard Oil had stayed intact, today it would be worth around one trillion dollars.

Curiously enough, around one trillion dollars is what Microsoft, Amazon, Apple and Alphabet/Google are worth. Facebook is worth around half that amount.

So should they, or indeed will they, be broken up?

The French want to impose a three per cent sales tax on digital companies of a certain size. The British want to impose a two per cent tax.

President Trump, for so long a massive critic of the techs, says he will respond with a tariff on French and British goods.

Meanwhile, reacting to a suggestion from tech billionaire Peter Thiel that Chinese spies sit at the top of Google, the US President has said he will look into whether Google is guilty of treason.

At the other end of the political spectrum, Democrats slate Facebook for its plans to introduce a cryptocurrency called Libra.

For what it’s worth, I do think technology has been an underlying cause of populism. It has destroyed well paid jobs in manufacturing and replaced them with minimum wage jobs in the gig economy. Techs sit on huge cash piles, generate massive profits and suck up talent, helping to create greater inequality.

Yet tech can be the single greatest driver of wealth creation.

Of course, tech companies should pay more tax, and the revenue generated should be channelled into training, into helping displaced workers acquire skills that are appropriate for the digital economy. Maybe such tax revenue could fund universal basic income — maybe.

But global cooperation is required. Cutting corporation tax is a race to the bottom — especially at a time when the ratio of corporate taxes to GDP are near an all time high.

But we are seeing the very opposite of global cooperation.

How will this affect techs? Will they be broken up?

For me, this is their single biggest weakness. Technology is the future: technology is changing the world and the giant techs are in the vanguard.

They seem unstoppable, but dare government try to stop them?

It would be enormously controversial, even for the US to try and break them up. Maybe they would seek safe harbour in Europe, if it tried.

But if we ever see a return of global cooperation, this may well happen. The trouble is, if you believe tech lies behind populism, then it is by extension making global cooperation harder to enforce. Unwittingly, the techs may be the reason why their break-up might never happen.

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Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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