This ugly destruction is endless and super great

Whatever you think of big tech (or other behemoths), political fixes aren’t the answer. Picture: AFP

Break up big tech? Pandering politicians say the sector’s behemoths are too dominant, requiring a regulatory crackdown.

It isn’t just Australian regulators and Senate committees. European pols yapped endlessly about tech “fixes” during the run-up to the EU elections. America’s looming November vote fans similar “break up the monopolies” talk.

It is all nonsense. Government intervention isn’t needed. Naturally, capitalism’s lifeblood – creative destruction – renders such plans counter-productive. Here is how.

Booming tech platforms, AI and other successes spur calls for punishment of supposedly monopolistic (or oligopolistic) firms: curtailed, fined or broken up. America’s lawsuit alleging an Apple smartphone monopoly is just one example. Australia’s antitrust suits against Apple and Google are others. Many see government as surely right to step in. Wrong!

Whatever you think of big tech (or other behemoths), political fixes aren’t the answer.

With patience, creative destruction – the perpetual churn of new start-ups eventually out-thinking, outflanking and replacing ageing giants – solves it naturally. It is a near-perfect self-regulatory feature.

Hugeness creates vast profits. As firms grow into societal Goliaths, new entrepreneurial Davids see Goliath opportunities. The old, fattened hunters become the hunted. New innovators emerge, rise and overthrow old titans that can’t change, adapt or innovate fast enough.

It takes 10 or 20 years – rarely more, recurring … always! This saga I have watched for 50-plus years and have always known. Dominance isn’t permanence.

To see it, consider the largest 20 global firms by market cap in 1970, 1990, 2010 and now. From 1970’s tally, only seven made 1990’s list – with several from then booming Japan skyrocketing into the top 20.

By 2010, all those hot Japanese firms vanished. Just four firms from 1970’s list made the 2010 cut. Four! None do now. What happened? Innovation.

Many formerly dominant Goliaths from 1970’s list got decimated – think Kodak, Sears, and Xerox. Poof! Others, like DuPont, General Motors and US Steel (recently gone) – slowly got whittled down to second or third-tier status. New entrepreneurial entrants ate their lunches – no government fixes needed.

Minicomputer firms toppled IBM. PCs toppled minicomputer firms. Smartphones decimated Kodak. Amazon and Walmart toppled Sears. Everyone toppled Xerox. Globally, former tech kings like Japan’s calcified.

It never ends. Consider today’s top 20 global firms: only five were on 2010’s list. Fully 15 newbies reached the top 20 in just 14 years. Only two of today’s top 20 were on 1990’s list. Creative destruction reigns. Yes, it causes business failures, threatening jobs and spurring angst. But, long term, failure benefits us all by freeing capital. It allows dynamic upstarts to provide world-bettering products and services, create better newer jobs and more.

The failure of businesses provides us with vital information – showing what works and what must be improved. Barring failure or inducing it governmentally muddles those key messages.

Like Japan and its notorious “zombie companies”, which can’t lead yet siphon capital from challengers, effectively subsidised by banks and cross-shareholders. Many would have died decades ago without governmental support and artificially low interest rates.

Sure, many cheer Japan’s relatively stable employment. But think bigger: Japan’s dearth of creative destruction contributed to a decades-long lagging, non-dynamic economy. Japanese GDP grew just 0.7 per cent annualised from 1994 to 2023, versus the US’s 2.4 per cent and Australia’s 3.1 per cent. It helped drive Japanese stocks’ puny 152 per cent return over that stretch in yen versus the ASX 200’s 1235 per cent and the S&P 500’s 1694 per cent boom in USD. Be careful what you wish for. Their “protections” didn’t prevent Japan’s strong presence in 1990’s top 20 list from fading.

Government interference often creates unintended market consequences. Consider the EU’s many and varied lawsuits, fines and attempts to hobble big tech for alleged excesses. The latest – EU regulators’ “investigation” into Apple, Google and Meta for supposedly cornering digital ad markets – is just one among countless over recent decades.

The effects? Europe’s tech sector is tiny. Only three of the world’s 50 largest tech firms are Japanese and three are eurozone-based. People should decry the lost competitiveness as old-line sectors lag. Meanwhile, the US has 35 of tech’s big 50.

Some now hail Australia as a pioneer in tech regulation, given your government’s efforts on multinational tax avoidance, online safety and the News Media Bargaining Code. There is talk of more coming. Maybe you like some of those moves. Maybe all of them. That doesn’t mean they won’t cause unforeseen negative impacts. Australia’s biggest tech firm barely cracks the world’s top 80 by market cap. Unfettered regulation won’t help that.

No, I don’t urge some no-regulation wild west. Government should enforce property rights, truth in advertising, safety rules and more – crucial to underpin investor confidence and risk-taking. But with regulating “market dominance”, creative destruction works best – bar none. Embrace it and thrive.

Ken Fisher is founder and executive chairman of Fisher Investments.