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After the Dot-Com bubble burst in 2000, many individuals feared that the technology sector was primed to lose its global reach following an astounding period of mania. From the ashes of the crash, however, rose companies like Amazon, Google, Twitter and Facebook, far stronger than their predecessors and hell-bent on achieving worldwide prominence. Unfortunately, in their rapid rise to power, these companies have generated an endless flow of criticism. Politicians across the aisle are irate over their monopolistic tendencies, inadequate protection of free speech and murky privacy policies. These concerns have led to several high-profile hearings and the introduction of legislation in Congress, all with the aim of significantly reducing Big Tech’s influence. While this combative approach is understandable, in order to maintain America’s competitive advantage in tech on an international scale, it’s critical that the government shifts its regulatory efforts from haphazard antitrust maneuvers to more constructive approaches that improve the overall health of the technology sector while allowing companies to preserve their core business models.
Though there are many proposed regulatory bills, the most dangerous to innovation is likely the bipartisan Platform Competition and Opportunity Act introduced by Sen. Amy Klobuchar, D-Minn., and Sen. Tom Cotton, R-Ark., which would fundamentally alter the process of mergers and acquisitions for American tech companies. Currently, regulators bear the burden of proving that deals violate antitrust laws. The new legislation seeks to shift the responsibility of demonstrating that transactions maintain market competition to companies instead. This radical change would drastically increase the amount of red tape in the deal-making process and require Big Tech firms to engage in significant legal action for any potential moves. Since acquisitions far outnumber IPOs in startup exits, this disastrous proposal would actually serve to stymie competition in the startup ecosystem by stifling deal flow. By limiting incentives for startups and investors, the legislation threatens to deal a death blow to American innovation. Most tech startups are unable to achieve profitability independently. With a low volume of acquisitions, many companies will be unable to take advantage of Big Tech’s resources while building products, and will instead face the threat of bankruptcy.
If Congress is serious about promoting competition with Big Tech, a more impactful area to focus on would be individual and corporate tax codes. Since labor is already incredibly expensive in the U.S. relative to other nations, American startups inherently face tremendous expenses that make scaling a company challenging. Reducing corporate tax rates for small businesses in the industry could have an immediate impact on increasing competition by helping the cost structure of early-stage companies. Studies have shown that a 1% increase in corporate tax is correlated with a 1.8% decrease in new startups and a 3.7% decrease in startup employees, so lowering corporate tax could help stimulate innovation. Furthermore, by reducing the long-term capital gains rate, more individuals could be incentivized to join and launch companies without the worry of being exorbitantly taxed on their stock options upon acquisitions and IPOs.
Beyond modifying their approach to improving competition, regulators also must tweak their plans to preserve free speech and maintain data privacy. Although the need to collect user data in advertisement-based platforms is less than ideal, it’s unrealistic to expect Facebook, Twitter, Google and other companies whose revenue stems from advertising to steer away from data collection. A more fruitful approach would be to collaborate with the tech sector on standardizing the sharing of data collection practices with users. By having specific regulations on informing users of how their data is being aggregated, individuals will be able to make more informed decisions about which platforms they feel comfortable using.
In the realm of free speech, Congress would be best served by finding a balance between fully repealing Section 230 — the communications law permitting companies to moderate content on their platforms — and allowing censorship and misinformation to prevail. Regulators can explicitly prohibit extremist content from all platforms and place a ban on any direct political discrimination, while still leaving companies enough leeway to moderate and shape the culture of their own platforms.
Now more than ever, it’s important that America not upend the capabilities of its tech industry. With China intending to spend $1.4 trillion by 2025 to make its technology sector globally dominant in 5G, artificial intelligence and quantum computing, we can’t afford to weaken our own ability to compete. Big Tech is certainly not perfect, but with global penetration, Chinese technology companies have the potential to carry out widespread surveillance and data mining under the orders of a government with a death grip on the private sector. If we hope to stand up to China and other countries that threaten our technological prowess in the future, Congress must resist the temptation to blow up Big Tech and instead move towards less disruptive actions.
Nikhil Sharma is an Opinion Columnist and can be reached at [email protected].
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