As U.S. lawmakers and regulators consider policies born out of their concerns about Big Tech, such as data privacy and artificial intelligence, they should carefully consider how such changes could end up trampling on the small and medium-sized businesses that drive technology. innovation and competition.
While policymakers may have Google and Facebook in mind, actual policies could unintentionally create new regulatory burdens that could deter investment in smaller companies and prevent new companies from emerging. For example, calls to end Section 230 (part of a 1996 law that protects Internet companies from some lawsuits) portray it as a handout to Big Tech, when in practice it would mean that social media startups would face liability from the start. making it more difficult to compete and discourage them from posting user-generated content that provides new opportunities or ways to connect.
In this way, regulations that policymakers might think target Big Tech could ultimately serve larger companies by imposing increasing burdens on potential competitors.
In the United States, the government has generally taken a hands-off approach to the tech industry, keeping barriers to entry low and encouraging entrepreneurship. Today's leading companies were once small startups, and the light touch of regulators allowed them to thrive, creating benefits for consumers that could not have been predicted. The economy and consumers need this approach to continue so that today's startups also have a chance.
We can see how this theory plays out in the real world. Europe has taken a significantly different approach to technology policy, which has stifled small businesses. For example, after a European privacy law, the General Data Protection Regulationcame into effect in 2018, investment in small and new businesses declined, largely over concerns that small businesses would struggle to comply with the new rules.
In the short term, this investment decreased by 36%and great players gained market share in the advertising sector. An effect of regulation, according to a Study by the National Bureau of Economic Research, is a “lost generation” of innovation; Smartphone app stores have added almost a third fewer apps.
To protect consumers from exploitation by Big Tech companies, some policymakers in the United States have been flirting with a more European approach. However, many proposed policy changes would increase compliance costs or liability burdens for newer, smaller players who may not be able to afford them. This includes a state-level data privacy policy that risks creating a onerous and expensive mosaics as well as the calls of the senators to impose AI licenses.
Beyond issues that have compliance costs, such as data privacy and artificial intelligence, some critics of Big Tech have called for antitrust measures to protect small businesses from the “death zone,” the time period in which a large company buys a growing startup before it can become a rival to that company. These critics also call for changes that would potentially limit mergers or acquisitions.
But this approach creates a false dichotomy between “big” and “small” companies that misunderstands the way the startup ecosystem works. This strategy could hurt small businesses in many ways. Some may want to become challengers, but others were created in hopes of being sold; Investors in startups usually look for the right time to acquire the company and recover their money. That is also valid; This cycle leads to more investment and more innovation.
Blocking mergers and acquisitions could force small businesses to stay small or, worse, put them out of business. Antitrust regulations that are concerned with stopping Big Tech would end up hurting the industry, the economy, and consumers.
We saw this recently when regulators blocked Amazon's acquisition of IRobot. The result will most likely not be renewed competition, but rather consumers will have fewer options as IRobot faces a crisis. terrible financial situation and lay off workers. If additional burdens for mergers and acquisitions and a shift away from consumer focus continue, this could become a more prevalent phenomenon, to the detriment of both small businesses and consumers.
Small businesses and startups play an important role in the technology ecosystem and have flourished under the light touch of American regulators. After decades of experience, allowing policy to be shaped by the current enmity toward Big Tech would be a dangerous turn and could have unintended consequences for startups and consumers.
Jennifer Huddleston is a senior fellow in technology policy at the Cato Institute and an adjunct professor at the Antonin Scalia School of Law at George Mason University.
