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Check out these two charts from a great Wall Street Journal piece, “The Problem With Innovation: The Biggest Companies Are Hogging All the Gains,” on global productivity growth:
The point of the piece is that the innovation boom is here, it’s just not evenly distributed. Or as Andrew Haldane, chief economist at the Bank of England, is quoted as saying, “Whatever good stuff is happening at the high end is not diffusing down to the tail.” And some of that “good” stuff is technology and some is the ability to access global markets, which of course is enabled by technology. Moreover, it’s big companies that are most productive. From the piece:
Data show the most productive companies are usually the biggest. Globalization allowed them to grow bigger, while giving some specialized niche firms a big enough market to succeed. For digital titans such as Amazon, Google parent Alphabet Inc. and Facebook Inc., the benefits of scale are substantial. Not only are their customers not limited by geography, but whenever more sellers sign up in Amazon’s platform or more users join Facebook’s social network, the service they offer gets more valuable for everyone else.
Another advantage: Researchers have found that bigger firms are better at protecting their technological advantages by patenting them. Only 25 companies accounted for half of all tech-related patents filed with the European Patents Office between 2011 and 2016, official data show.
Scale makes it possible to experiment with advanced technology that is out of reach for many companies. A separate McKinsey Global Institute report, published in April, found early adopters of artificial intelligence may already have gained “an insurmountable advantage” in earnings over competitors who have yet to take the plunge.
Now there is nothing new about there being leading companies pushing the technological frontier. The concern is that innovation isn’t trickling down or diffusing to the rest of the economy. (I have previously addressed this issue here, here, and here.) Maybe there just aren’t enough tech-savvy, data-intelligence managers to go around at the moment as these high-paying multinationals gobble them up. This diffusion issue also needs more focus when discussing income inequality.
Then there’s this: If Big Tech is where the innovation is happening and is most effectively used, doesn’t it seem strange that this would be the moment to consider heavily regulating them or breaking them up? Then again, much of the anti-Big Tech movement seems more concerned with progressive politics than productivity growth.
As I wrote in a recent The Week column:
Google, Amazon, Facebook, and Apple — what Wall Street calls GAFA — are four of America’s most valuable and important companies, providing a massive benefit to consumers. Collectively they’re the Tony Stark of corporate America: They pay for everything, design everything, and make everyone look cooler. If the U.S. is going to remain the world’s technological leader against China’s challenge, GAFA will be pivotal. … What’s more, all are desperately fearful of even their core businesses one day being disrupted or displaced by new technologies. That’s one reason they spend so intensely on R&D. They’re all looking for the next big market or transformational technology — just the opposite of fat and happy monopolists who could care less about consumers and potential competitors.