Is big tech too big? Watch Episode 4 of the Stakeholder Capitalism video podcast series

A generation of young people has never known a world without knowledge, entertainment and communication at the touch of a button for digital natives who have grown up with the internet and social media.

Life is as much online as in the real world. And almost all industries are now using big data, artificial intelligence, automation and the Internet of Things to improve their processes and products.

And that has meant boom time for the companies providing those services - companies that didn't exist a few years ago but now are among the largest in the world. Created in an ethos of the free market, does their size and power now mean that they are making it hard or impossible for competitors to thrive and innovate?

Is big tech just getting too big?

Watch the debate featuring leading academics Zia Qureshi and Marietje Schaake in the video above, or listen to the podcast here:

Natalie Pierce: In today's episode, we'll be exploring the topic of technology and particularly the market power of Big Tech firms. Peter, can you lay out the problem that we'll explore in today's episode?

Peter Vanham: Of course. Let's look at some graphs. Let's talk about Big Tech and their economic impact. I want to show you first a graph that shows the largest companies in the world by market capitalisation. In 2004, their average market capitalisation was close to 250 billion dollars. By 2019, it had quadrupled to, in some cases, over one trillion dollars. And what are those biggest companies in the world? Well, in 2004, they were all kinds of companies, industrial companies, you name it. By 2019, they were mostly tech companies, companies like Amazon, Apple, Microsoft - tech companies, 'Big Tech'.

And then let's look at what happened in the economy at the same time. I want to show you two things. First is what we call labour productivity growth. That is, how much faster are we getting at making things in a given unit of time. And that productivity growth fell from over 2% in 2004 to less than 1% in 2019. In other words, we didn't get much better at producing things as we did in the beginning of the century.

And the second thing that happened is that the income share of the bottom 50% of workers in that same period declined. In 2004, in the US, the share of the total of income of the poorest or the lowest 50% of income earners was 14.5%. By 2019, it was edging towards 13%. So the workers got a lower share of income and productivity growth in that time went down.

Natalie Pierce: So if I understand correctly, the value of companies is going up drastically. And yet we still see a decrease in the income of workers. So how linked are these two trends?

Peter Vanham: Well, we don't know. I think it's something that we have to find out.

Natalie Pierce: Our first expert guest is Zia Qureshi. He is a fellow at the Brookings Institute, where he explores economic development and the relationship between technology and productivity. Hello, Zia. Thank you for joining us on today's episode.

Zia Qureshi: Hello. Pleasure to join both of you.

Natalie Pierce: Zia, Peter just showed us a very interesting graph. And on that graph, he showed as big tech firms rose, productivity has actually fallen. I was wondering if you could tell me more about the correlation between those two things. But first, define what productivity actually is and why it matters for our economy productivity.

Zia Qureshi: It's the level of efficiency of an economy. If you can produce more with the same level of inputs, you have higher productivity. Better human skills, improvements in organisational capital, different ways of organising and managing things. So in order to achieve the same level of economic growth or to increase it, you need higher labour productivity. Productivity is not everything, but in the long run it is almost everything.

Peter Vanham: So, Zia, we see now that there is this correlation between the rise of Big Tech companies and a decline in productivity growth. What explains this contradiction?

Zia Qureshi: The successful firms, the big tech, now the tech giants, they are doing well. The problem is that the benefits of technological change, they have not diffused widely throughout the economy. There are several reasons why we see this phenomenon. There has been a decline in competition in markets. When you have the rise of monopoly power and a weakening of competition, that is not good for a wider diffusion of technologies and for future innovation, because competition is a major force that promotes these kinds of outcomes.

Also, the way big companies exercise market power matters too, to keep their potential competitors at bay. The number of other complementary things that need to happen, in terms of skill, in terms of adapting your organisation, making investment in new technologies, for small to medium firms, the slow response on the supply side in education and training system to respond to the change in demand for skills - these are all factors that have played a role.

Peter Vanham: You said that there is increased monopoly and oligopoly. What explains that? What does that look like in the market,

Zia Qureshi: For instance, in the US, if you look at the share of the top three or four firms in the total sales of the industry in which they function, they have captured an increasing share. The share of rents, that is profits in excess of those under competitive market conditions, is estimated to have increased to about one-fifth of national income, compared to negligible levels in the 80s. So this is a whopping increase.

Natalie Pierce: So building on what you just said, in Peter's graph we saw that the value of Big Tech firms is going up, but in turn decreasing is middle class incomes. Is Big Tech, do you think, to blame?

Zia Qureshi: These elements are connected with the emergence of tech giants, but there is also a larger overarching phenomenon, which is technology and the nature of technological change itself, which has shifted demand for labour away from low to middle level skills to higher level skills. So that has in a very significant way increased inequality of labour income and there has been a polarisation in markets, especially with the share of jobs which use routine mid-level skills declining because these these types of work are more easily automated. And some of this is just the larger macroeconomic impacts of technological change and how it has transformed the labour market

Natalie Pierce: Zia, as we close part one of this episode, what do you think are the specific policy responses that are needed?

Zia Qureshi: What has been happening is that technology has been causing major transformations in markets, but policies have not adapted to those transformations in a way that would produce better outcomes. So in terms of the role of policy, there needs to be a strengthening, revamping of competition policy. One is, of course, toughening antitrust. More importantly, responding to the new regulatory challenges of digital economy, the regulation of data. Second is to improve the innovation ecosystem so that it promotes innovation but at the same time it promotes a wider diffusion of knowledge embodied in new technologies through reform of patent systems. Third is the strengthening of infrastructure that supports digital transformation so that we reduce the digital divide in its various manifestations. I mean, today, access to broadband is as important as access to electricity was in the 20th century. Fourth is that we need to revamp education and training system to emphasise the acquisition of skills that complement new technologies. So there needs to be much more investment and the right kind of investment in upskilling, reskilling workers, lifelong learning, etc.

And then there are the social protection systems: we need to align them with the change in markets and the nature of work so that they better support workers in retraining and then transitioning to new jobs. If we have more responsive policies in these areas, policies that adapt better and quicker to the changes and transformation that technology is unleashing, that would make the growth process itself more inclusive. So before we pose the question how we redistribute gains from growth, we will have growth itself more inclusive.

Peter Vanham: So to get our economy more productive again and to have less inequality. There's a whole host of things we'll need to do. Thank you so much, Zia.

Zia Qureshi: Thank you, Peter. I enjoyed this conversation very much.

Peter Vanham: Our second guest is Marietje Schaake. She's a former member of the European Parliament for the Netherlands, and she's now studying tech policy at Stanford University. Hello Marietje.

Marietje Shaake: Hi, nice to see you.

Peter Vanham: We are looking today at the power of Big Tech. I want to ask you to start us off - we've seen, of course, that the biggest companies in the world today are indeed technology companies. They're just very big. What you've also looked at is, let's say, their market power and the structure of the markets in which they operate. Could you tell us a little bit more how those markets look?

Marietje Shaake: There is a handful of very big players, and there is a growing concern about what abuse of their market power these big tech companies might wage. So there are economic harms - a question of whether newcomers will ever be able to catch up. But there's also growing discussion in the United States and European Union, about what societal harms stem from having a handful of these excessively powerful companies, particularly because a number of companies are essentially data companies and advertising companies, they're commercially driven. That's not a surprise, but they fill a lot of spaces where the public debate takes place, where political debates take place. And so there are a lot of questions about what it means when advertising giants are actually designing the information architecture of our democratic societies. So it's a lively debate, I would say, about what is a proper role in the market for big tech, and where has it become excessive and in need of regulation.

Peter Vanham: Marietje, you talk about this market power as if it is self-evident that this market power exists. What is the reason, though, for big companies to have market power? Is it because they operate in a competitive market? That wouldn't be the case. Is it because they are operating in a monopolistic or oligopolistic market? What's your take on that?

Marietje Shaake: Well, my take is there is not enough competition and also that the rules that we have for preventing monopolies from existing, preventing cartels, at preventing price discrimination and consumer harms, really stem from an era before these big tech companies were so prevalent.

Now imagine a service where the consumer essentially doesn't pay, right? They're quote-unquote "free" services. But at the same time, the consumer contributes with all the data trails that they leave behind, through the friends that they make, through the hobbies that they have, through the purchases that they do. And so for the data giants, this is the most valuable contribution. But the rules that we have don't exactly match with assessing whether that is a fair proposition. Is the market being assessed for whether there's dominant players? Or rather, does all this data end up in one big pile, and should we say that the market really is that of data?

Another way in which these big tech companies have become so significant and so powerful is through mergers and acquisitions, and their scale and size plays another role because if you have billions in the bank, it's easy to buy your competitor before they even have a chance. Assemble more data, be less competitive. And this is kind of the vicious circle that we have to break.

Natalie Pierce: Marietje, is more regulation simply the answer.

Marietje Shaake: Well, I don't think there are simple answers, but regulation is certainly part of the answer. I think in the US, for a long time, the message from Silicon Valley has been: regulation stifles innovation. But, in fact, the inverse is also true. If there's not a fair market, innovation is stifled. If there's only a handful of very comfortable, very wealthy players, then small competitors and innovative start-ups don't get the chance that they deserve.

I think of regulation as an enabling condition for freedom, as a framework for an open society. I think it's time to get to the next step and ask regulation "of what for what" because regulation is a process. It can end in a gazillion different destinations. So we need to also look at the substance: what is the regulatory process leading to and is it an improvement? That's what public policy is all about, and I think that public policy decisions should be made with the public mandates, not in boardrooms the way that they are now. We've really seen a privatisation of public policy in an unprecedented way, which I do think also requires regulation in the interest of preserving democracy and the kind of transparent rule of law-based process that we believe in in democracies.

Peter Vanham: Another way that you said you can restore the balance in the markets is by introducing something you call 'middleware' companies. Could you tell us a little bit more about that idea?

Marietje Shaake: So the idea of middleware is that it sort of sits between the internet user and the big tech companies and could help them curate the information that they find on the internet to be more to their own choices, not the advertiser's choices or the big tech firm choices. So imagine you have middleware that is made by the public libraries and that will give you more search results with literature, for example, or middleware that could be made by the EFF, a civil rights organisation focused on the internet and digital rights - they could, you know, proffer privacy-protecting conditions when you surf the internet and so on. So the idea would lead to more agency for the individual internet user, more interoperability and also therefore more competition on these massively powerful platforms. And hopefully they would give, you know, more of an ability to to self-select instead of sort of being fed all this information that people don't really have a way of knowing why and how they got the results that they did.

Natalie Pierce: One potential solution could be for consumers to pool their data to collectively bargain against Big Tech firms. Of course, this was a solution advocated by prominent businessman Andrew Yang. And I'm curious, what's your take on this strategy?

Marietje Shaake: Well, there's a lot of talk about how data governance can be more in service of the public - public values, but also individuals. And I think data trusts, which is probably the direction of thinking that he was articulating, are an interesting thought. But it really depends on who then governs these trusts. And I think one pitfall of data trusts is that, you know, they could sort of entrench the model of commodifying data, whereas at least in Europe, there's also a big conviction that actually, for example, the right to privacy and therefore your personal data, are fundamental rights. And so you don't really want to go into a model where, for example, people who can afford it can pay more for better privacy protection, and others are incentivised to trade their data. So I think there's a real risk that data governance could end up being sort of a class battle. And I think that would be the wrong direction. I do think that we need democratisation of data governance vis-a-vis the big tech companies. And so I see a lot of potential to empower public values and both individual and collective rights

Peter Vanham: Is bigness in itself a problem in terms of corporate internet companies?

Marietje Shaake: The fact of the matter is that some markets are dominated by very few companies and it can very easily lead to abuse, as we have seen. I think it's important that not only through antitrust, but also through transparency, through better protection of anti-discrimination principles, the whole idea of having independent oversight over products and services should also really apply to tech companies. They've somehow carved out a bit of an exceptional position for themselves, and I don't think it's sustainable. We see a huge erosion of trust in tech companies, and it is also therefore in their interest to restore that trust. And I think the only way that can be done is by having clear and fair rules of the road that can be independently verified.

Natalie Pierce: Marietje, what is your call to action? What are the specific policies or regulations that you would recommend?

Marietje Shaake: Well, I really wish there was a silver bullet, but there's not. So it will have to be a series of initiatives that, on the one hand, for example, would force more transparency when it comes to political advertisements or the handling of data ... like micro-targeting - why are people seeing the ads that they're seeing?

Another aspect is this access to information. There is a real problem, particularly when we look at the growing use of AI to really be able as an individual, as a regulator, as a journalist, as a civil society actor to understand, to have insights into how these systems work. And the more powerful they become, the more important it is to have a sense of of how they work and an ability to learn not only on the part of companies, but on the part of the public and society.

We talked a lot about antitrust. I think antitrust competition rules need to be beefed up. But I'm also quite enthusiastic about what we see coming out of the EU when it comes to data governance provisions, when it comes to a democracy action plan that really seeks to protect democracy for its own sake. So a lot of this is inter-related. A lot of this is, you know, twisting one knob here and making sure it doesn't spill over, on the other hand. But it's just to say that there is such a vast impact of the digital revolution and of the fact that there is a handful of dominant players, but it is important to look into all the directions of where harms are felt, whether it's the mistreatment of minority populations or people in sensitive categories, or whether it's the lack of opportunity for new start-ups that just don't get a chance in the current environment.

So lots of work to do, and I hope we can continue this conversation about what the market looks like, why it matters to basically everyone, and what can be done to keep it fair and safe and open.

Natalie Pierce: Thank you so much, Marietje, for being with us and sharing your tremendous insight. Up next is our post-match analysis.

In today's episode, we explored the market power of Big Tech, and we asked the question: is Big Tech too big? This leads us to our post-match analysis. Peter, I found the paradox that you and Zia presented to be particularly striking. We're living in the modern era of tremendous technological innovation, and yet we see productivity declining, which has been a major driver of economic growth. I found this so surprising.

Peter Vanham: Yeah, it's surprising and indeed a paradox. And so that leads us to the question, well, what went wrong? And it seems that a possible explanation, strong possible explanation, is the fact that we've seen an increase in market concentration. Those companies that have created this huge technological progress are in fact holding on to them a little bit too strongly for it to translate into broader societal and economic progress.

Natalie Pierce: Thankfully Zia, he obviously presented the challenges, but he also presented some solutions and potential ways forward.

Peter Vanham: Yeah, that's right. Because of course, when you have established that the problem is the market structure, the fact that there is a lack of competition, then of course, the solution is to restore competition into the market. You need to make sure that there is enough new entrants that can come and create that competition, that they can grow into the markets, become challengers to the established large corporations. And of course, there's the question of tax policies. You have to make sure that that very, very large company, of course, pays its fair share of taxes, and you have to reform those tax policies if that's needed. Those two solutions stood out to me.

Natalie Pierce: Yeah, the policy reform element also came up in Marietje's conclusions. So she talked about particularly the need for policy reform to protect digital privacy, also to secure and safeguard democracy. So she talked about some solutions not only to combat the economic consequences, but also some of the social consequences of Big Tech.

Peter Vanham: Yeah, because, of course, we've been looking mostly through the lens of the economy to the impact of technology. But there is, of course, also the question of the societal consequences that it has. You need to make sure that there is better digital privacy. that data are better protected, that we have control over our data. And in turn, that may also lead again to a better competition into the market. So it all comes back to that question of market concentration and restoring competition.

Natalie Pierce: Thank you, Peter. What an insightful conversation. It feels like we've just scratched the surface, but I hope we'll continue to talk more.

That brings us to the end of today's episode. Thank you for joining us, and we hope to see you in the final episode of our series, where we will explore the tangible steps needed in order to implement stakeholder capitalism. See you next time!

For the full series, visit the Stakeholder Capitalism homepage.

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