18 December 2017

Why the tech giants are nothing to fear


Monopolies are a very real economic and political problem. That much is uncontroversial. The difficult question is what to do about them. And the answer varies depending on whether we are dealing with fast-moving new technology, or a more established industry.

Unfortunately, that distinction is lost on most people at the moment. Consider Google, which has market dominance as a search engine. The European Union has decided that this is a problem that demands a response, threatening further multi-billion fines on top of those already levied.

Because different industries work in different ways, arguing that Google’s dominance might not be as serious a problem as the EU thinks is not the same as stating that monopoly is never a problem about which action should be taken. The national grid is a natural monopoly. It should therefore be regulated. (No, it doesn’t have to be state owned, just regulated.) Make sure that all who would put electricity into it are capable of doing so, given technical standards being met, and cast a beady eye on the charges being made. And that is about as good as we’ll get.

The tech world is different. The EU once made a grand foray into this field over Microsoft’s dominance of operating systems and attempts to tie that into browsers. That intervention was quite possibly unnecessary for two reasons.

The first was the sheer frightfulness of the Microsoft browsers, which left plenty of space for competition. It really has been true, for a long time, that Explorer is the world’s leading choice for downloading a better browser.

The second reason is rather more important. While the EU was protecting us all from Microsoft’s operating-system dominance, Microsoft has lost it entirely. They’ve gone from nearly 100 per cent of shipped operating systems for personal computing units to around 15 per cent. For, yes, a smartphone really is a personal computing device, rather more powerful these days than the PC of a decade back too.

Therein lies the crucial truth about all monopolies – or at least those that aren’t created by legislation. They all, without exception, eventually get destroyed by advancing technology. This was Robert Bork’s argument in an earlier round of worrying about Microsoft. He was derided for saying there was nothing to worry about, but he has been proved right.

The only question is how long ‘eventually’ takes. Complete control of the water system of an area can embed power for millennia. Water empires like Egypt or China can be decapitated, but the state monopoly doesn’t change much. Until, of course, water is no longer the limiting technological boundary of the society.

There is another important point about our responses to monopolies. It takes government years if not a decade or two to first note, then do something about, a monopoly problem. In any marketplace with significant technological development going on this is more than the life cycle of such a monopoly. Facebook is only 13 years old after all, the dinosaur MySpace ruled before that asteroid event.

The case against action is strong without factoring in the likelihood that the government intervention could go wrong. Views will obviously vary on this, but in my view, a grand cock up is highly likely when it comes to government action of this sort.

Monopoly can indeed be a problem and sometimes it is even one we should do something about. But intervention is very much less needed, if at all, where there is significant technological advance going on.

Technological change is what causes the death of all monopolies, eventually. The tech field, where we’ve more than just a handful of giants, almost unlimited flows of available capital, and a lightning-fast rate of progress, is an area we can leave well alone. Simply because all of those things are already doing the job of the regulator.

It’s not that the EU bureaucrats, necessarily, are going to be partial in their regulation or even incompetent. It’s that they’re unnecessary. Those markets red in tooth and claw have it all in hand already.

Tim Worstall is senior fellow at the Adam Smith Institute