Government’s Efforts to Take on Big Tech are Political Theater (For Now) - 7investing 7investing
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Government’s Efforts to Take on Big Tech are Political Theater (For Now)

Dan explores the nuances of regulating big tech in todays' political environment.

October 22, 2020

Ideally, the government plays a very small role in influencing your investing strategy largely because it mostly stays out of the way. In the U.S. business regulation has generally been fairly limited with government only getting involved in somewhat extreme situations.

That, of course, has not always been the case. The Federal Communications Commission was ostensibly created for benevolent reasons — to regulate what goes out over the nation’s over-the-air broadcast platforms — but it has often been used as a political tool to attempt to control free speech or go after one party or the other’s perceived media enemies.

Recently, however, government has not been nipping at the edges or attempting to reign in excess. It has instead been overreaching and attempting to use regulation as a political tool. It’s something that both parties do and while it may not change my investing behavior it’s still something worth keeping an eye on.

Government overreach

The left wants to regulate or even break up some of the biggest players in technology over concerns that they wield monopoly power. Conversely, the right wants to do the same thing because of what they consider to be a bias against conservative ideas.

Both arguments are silly. Yes, Alphabet’s Google dominates the search market but there’s nothing stopping consumers from flocking to Microsoft’s Bing or even Verizon’s Yahoo. Those products may not be as successful as Google but both are viable, well-funded (especially in the case of Bing) alternatives.

Congress has ignored that nearly half the country has only one choice of internet service provider as of 2017 — an actual monopoly of a necessary service — but now it cares that Facebook dominates social media?

The conservative bias argument is equally ridiculous. Search results prioritize the media sources people use most often — and while some on the right don’t consider the mainstream media legitimate that doesn’t make that actually true.

In both cases, the efforts to legislate are political not based on actual reality. Taking on big companies for reasons that appeal to your base is good politics. It’s putting on a show because in reality, with the Democrats controlling the House and the Republicans controlling the Senate and the White House it’s unlikely that any sort of actual regulation gets passed.

Yes, there is bipartisan sentiment that big tech has overstepped, but there’s massive disagreement as to what the issues are. That means there’s going to be hearings, finger pointing, and fiery speeches but limited, or no, action.

Will the election matter?

A split government tends to lead to inertia. Both sides can make their points and wag their fingers knowing that nothing will actually happen, Threatening to break up companies or pass regulations is very different from actually doing it.

The upcoming election could change all of that. It’s possible that Democrats could capture the White House and gain control of the Senate while keeping their majority in the house. If that happens, it’s possible — but still unlikely — that the government takes some action to force some of these companies to spin off parts of their business.

That’s not likely because the best case scenario for Democrats involves them having a slim majority in the Senate. Some Democratic senators — especially the ones in states where Facebook, Google, and Amazon have a major presence — won’t support heavy regulation or the extreme step of forcing a company to break up its assets.

If Democrats end up controlling the White House and Congress, that will likely put increased pressure on big tech to regulate itself. We have already seen Facebook take some steps (albeit small ones) to control the spread of false information on its platform and a Democrat-led government would likely spur increased efforts for these companies to publicly address their perceived problems.

As an investor, I see most of this as noise. Politicians like to put on a show where they act like they’re standing up for the little guy (i.e. you). Talking and taking action are very different things. Breaking up any of these companies is a pretty extreme step and extreme steps have political consequences.

It’s not likely that anything actually happens here. There will be a lot of noise and finger pointing but actually taking action risks political fallout and even if the Democrats have full control of the U.S. government they’re not likely to have enough support to force meaningful changes.

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