Leave big tech alone: breakup would harm the economy, think tank warns

Large corporations, including big tech, are dominant in the market. However, the independent think tank Information Technology and Innovation Foundation (ITIF) argues that breaking them up or otherwise limiting them may not be the best approach as it harms innovation and efficiency.

Small Business Committee Ranking Member Nydia Velazquez (D-NY) released a staff report late last year blasting big tech and large corporations in general, asserting that small businesses promote higher income growth, lower poverty rates, and higher returns to local communities.

“Big Tech is just the tip of the iceberg,” Velazquez argued in The Hill. “A survey of our economy reveals monopoly power in nearly every sector.”

She expressed an opinion that not only mergers that harm smaller firms should be blocked, but the Federal Trade Commission should “work to revive existing authorities to ensure a level playing field.” Dominant firms used their power “to crush smaller companies and discourage new entrants.”

The problem is that the Velazquez report’s assertions rely on flawed research, and its contentions are likely inaccurate, ITIF said in a publication. There is little evidence to suggest that this concentration has increased, as other studies show that it has remained about the same in recent decades. Small businesses don’t appear to return more revenue to the local economy.

“The Velazquez report contends that small businesses benefit from the economy more than larger companies do, but this assertion relies on shaky foundations. Indeed, the assertion that small businesses promote higher income growth and reduce poverty in local communities does not have strong supporting evidence,” writes Trelysa Long, a policy analyst for antitrust policy with ITIF’s Schumpeter Project on Competition Policy.

Long argues that large businesses had a statistically significant positive effect on employment growth and likely a positive effect on local communities.

“Locally owned firms from 1 to 10 employees have a statistically significant negative effect on per capita income growth in metropolitan areas,” Long quoted from one study.

While local firms may have good intentions to keep the money within the community, they are not able to grow and maximize scale economies.

The Velazquez report advocates for Congress to target technology companies and their practices, including restrictions on large tech platforms, breaking up large technology firms, and requiring that platforms be interoperable.

“However, these bills would harm consumers, innovation, and the economy, which is partly why they have not become law,” Long argues.

Another analysis showed that only 35 of 851 industries were considered “highly concentrated,” and only in rare cases does a rise in concentration result in an increase in market power. The data shows that even if concentration did rise significantly, so would the number of start-ups in the industry.

“The Velazquez report repeats the long-standing, but false, nostrum that large firms are using their market power to pad their profit margins while increasing prices through higher markups,” Long noted.

“Smaller companies have larger increases in markups than their larger counterparts, refuting the claim that market power is causing higher markups for the economy.”

ITIF warns that attacking large and highly productive firms might raise prices and limit innovations, and politicians should not embrace the anticorporate agenda based on false assertions.

“Congress should embrace firm-size neutrality in all its policies,” Long said.

ITIF agrees that the US needs new business creation, but the country seems to do this very well, as recent rates are very high.

The non-profit recommends policymakers focus on policies that help businesses succeed as innovators, “such as reforming the Small Business Innovation Research Program, expanding the refundable R&D tax credit for start-ups, and assisting universities with commercializing technology.”

“New firms that succeed through innovation rather than through government handouts level the playing field by picking winners and losers that are more likely to grow large and benefit the economy with novel products, lower prices, and higher efficiency. That is the sort of competition that really benefits America and its consumers most,” Long concluded.