Consumers And Industry Innovators Should Not Trust Antitrust

Consumers And Industry Innovators Should Not Trust Antitrust

T.J. Rodgers, formerly the outspoken CEO of Cypress Semiconductor, once warned that the tech industry should not “normalize relations with Washington, D.C.” He wrote, “A normalized relationship between Washington and Silicon Valley … offers only disadvantages. The collectivism that Big Government espouses undermines capitalism and therefore the fundamental wealth-producing process of Silicon Valley.”

He further offered that Silicon Valley “is an island of capitalism and freedom admired around the world. We must remember that free minds and free markets are the moral foundation that has made our success possible.”

But the industry could not resist, and became particularly invested following its victory in stopping the “Stop Online Piracy Act” in 2012, leading the largest online protest ever. Tech companies never involved in D.C., or which only defended themselves against government encroachment, began hiring advocates. Those companies long established in D.C. began to expand their efforts, setting records for spending.

The issues in which they chose to get involved moved well past “traditional” issues for the tech industry and industry workers began heading to D.C. to fill staff positions in government and the offices of elected officials.

Now comes those disadvantages. Some members of Congress, even Silicon Valley Representative Ro Khanna, as well as some public policy commentators are coming after tech, calling for antitrust hearings and actions. Their push is going mainstream. Just last month Business Week asked “Should America’s Tech Giants Be Broken Up?” Axios observes that “The Walls Are Closing in on Tech Giants.”

Will tech industry leadership follow Rodgers’ advice this time? He advised fellow CEOs to stand together to vigorously defend high-tech firms subjected to antitrust suits. “Nothing is more dangerous to the ethic of success and innovation in Silicon Valley than the antitrust laws,” he said, understanding that innovation is seriously harmed if companies are afraid of gaining a temporary market dominance, particularly as new product categories are conceived and marketed. This is particularly true if government is too quick to pronounce judgment.

Who is helped by antitrust actions? Not consumers, because if they do not like something they can stop using it. Such action will not provide products or services consumers want and for which they are willing to pay.

The market experts, the companies themselves, face the daily challenge of understanding consumer preferences in an environment of rapid change, technology evolution and the rise and collapse of products. Even understanding which companies are actual competitors is challenging, and seeing into the future is impossible. These are features of an exciting free market not bugs.

Government bureaucrats will fail in predicting the market as they have before, as it did when government was obsessed with Microsoft gaining some sort of desktop dominance. U.S. citizens suffered economic loss because of the misadventure. And desktop dominance? A quaint notion in our cloud based world. Hopefully the damage government did will not be repeated.

Maybe competitors are helped? In an antitrust action, the government seizes control of the innovative direction of technology, or whether it advances at all, making government the arbitrary decider of winners and losers instead of a free marketplace. This is nothing more that government dictated redistribution of wealth from successful companies to their competitors, even as it ignores the harm to consumers, such as higher prices and the stifling of new innovation.

Particularly given the benefits being provided to consumers, such imposing government intercession seems like an odd choice. Furthermore, competition is seriously harmed if companies fear that merely gaining an edge on one’s rivals will cause the government to intervene. AOL and Yahoo! are just two examples where government actions would now seem particularly wrongheaded.

The speed of innovation in today’s online marketplace makes innovation and government nearly incompatible, which is why it is so difficult to develop a modern application of antitrust law. Innovation still holds the promise for our greater economic future if government does not get in the way. We might not be able to predict which companies will win, but when government unleashes the harsh dull tool of antitrust it is innovation and the public that definitely loses.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.