High-profile venture capitalists are demanding that Kamala Harris, if elected president, fire a top regulator for her aggressive policing of Big Tech. Not only do I disagree with them, I see their attacks as evidence of a bigger problem with the venture capital industry and, ultimately, our technology sector, which is a critical driver of our economy and society.
Venture capital may be a small segment of the finance industry, but it has been a linchpin of the modern computing era. Over the past 75 years, venture capitalists repeatedly nurtured early-stage companies to the point where they could replace big, established firms and drive markets in new directions. From Fairchild Semiconductor to Intel, Apple to Google — all benefited from early venture capital support.
Times have changed. The power of major technology incumbents is now so great, and the dependence of venture capital firms on those incumbents so complete, that today’s V.C.s are now siding with the monopolies — and fighting government agencies that are trying to advance competition.
These tech monopolies were enabled in part by our government’s decision to loosen the reins on our biggest corporations. For much of the history of antitrust policy, which dates to the late 19th century, courts remained suspicious of market consolidation and used antitrust to maintain competition. In a landmark case in 1911, the Supreme Court ruled that Standard Oil, which controlled nearly 90 percent of the U.S. oil market, had used predatory pricing, control of oil pipelines and leverage with railroad shippers to unfairly obstruct competitors. It ordered the company be broken up.
That began to shift in the 1970s and 1980s, when legal scholars, influenced by free-market economists, argued that markets can police themselves, and the focus of antitrust should be on maintaining the quantity and prices of goods rather than on the levels of competition or number of businesses. If a large corporation wanted to undercut a smaller rival on price, that isn’t predatory, but a benefit to consumers.
As the internet matured in the early 2000s, there was hope it would spur a new generation of businesses by lowering the cost of reaching national or even global markets. Instead, a handful of enormous companies dominate key technology markets. To this day, and notwithstanding a surge since the pandemic, rates of entrepreneurship languish below the rate set in 2006.
The most successful of the new tech giants found ways to leverage online markets to their advantage. Take Amazon. By offering below-cost prices its rivals couldn’t match, it established itself as the gateway for digital commerce, and over time it has been able to erect further barriers to entry only possible in the internet age, like its rich data on consumer behavior and its huge repository of consumer reviews.
And when rivals did emerge, Amazon often bought them. Third-party retailers lacking an alternative sell their wares on Amazon’s marketplace only to say they found their most successful products copied and sold by Amazon itself. Meanwhile, the company routinely changes and obfuscates prices, making it harder for consumers to obtain the supposed benefits of online shopping.
Now, Amazon controls something like 40 percent of online retail in the United States. Google controls 90 percent of the global search market. Meta owns three of the four largest social media platforms. And already Amazon, Meta and Google, along with Microsoft, are positioned to control the future of artificial intelligence.
In 2017, Lina Khan, then a student, identified the problem in an influential law review article that argued that Big Tech was amassing market power in ways that failed to register in the current legal regime. Appointed chair of the Federal Trade Commission four years later, she immediately set about pushing for a return to the more expansive antitrust jurisprudence of earlier eras.
You would think that venture capitalists — who purport to be in the business of displacing incumbents — might support the F.T.C. Instead, many have attacked. Ms. Khan is “not a rational human being,” said Vinod Khosla, founder of Khosla Ventures. Reid Hoffman, an entrepreneur and venture capitalist who sits on the board of Microsoft, has argued that Ms. Khan is trying to “dismantle companies” and called on a future President Harris to replace her.
These venture capitalists argue that regulators are chilling mergers and acquisitions, which can help larger companies to become more efficient and thus offer better, cheaper services. I think that is a red herring. M.&A. activity is heavily correlated to interest rates and has recently begun to rebound as rates have dropped, and in any case the F.T.C. blocks fewer than 1 percent of deals.
Instead, I believe the attacks on Ms. Khan and the F.T.C. are an effort to protect the few very large technology companies that dominate markets. Venture capitalists must find ways to cash out on their investments, and in a world where four out of five of those cashouts involve selling startups to bigger firms, Big Tech is now venture capital’s biggest customer. The game might be rigged, but it’s the only game in town.
American capitalism is at its best when firms compete and incumbents feel pressure from below. As markets concentrate, newly entrenched monopolies start exercising their power to foreclose challenges. They lock up talent, hoard patents and engage in predatory pricing. Entrepreneurs face more and more hurdles. Consumers and the economy suffer.
I don’t blame Google or Amazon or any other technology business for those conditions. The founders of those companies were just more successful at doing what many entrepreneurs hope to do: build incredible products, create value for shareholders and consumers, and secure monopoly positions. But strong antitrust enforcement is also essential. It is how we curb unhealthy market power as it emerges and sustain a dynamic economy.
A robust federal antitrust program may be the only force that can liberate technology markets from the hold of Big Tech and restore venture capitalists to their true calling: advancing the cycle of innovation that powers American capitalism.
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