July 28, 2022
A retooling of antitrust bills or a change to merger guidance could be on deck, the experts say.
Good afternoon! In today's edition, we wanted to look at cause and effect and dig into how tech policy might change in an economic slide. Questions or comments? Send us a note at email@example.com
President and CEO of the Consumer Technology Association
I hope economic headwinds will make politicians reluctant to rush through legislation gutting our globally dominant tech companies. These companies drive our stock market and provide free and low-cost services to millions of Americans. Legislative proposals racing through Congress would deny Americans the services they love – including Amazon Prime free shipping and Google maps in search results – and allow bad actors to infiltrate our devices. More, tech startups and VCs fear that investments in tech will dry up if big companies can no longer buy or invest in smaller companies.
Whether or not this is called a recession, average Americans are hurting. They want the government to lower prices, not create policies that make it difficult or costly to use important technology. That should mean removing tariffs and insisting the FTC return to its time-tested consumer welfare standard, rather than the new standard that protects existing companies. Innovation is our competitive strength. It makes our nation great and our economy strong. The economic challenges we face should refocus policymakers on issues that matter to our economic future, like fixing our immigration system to attract the best and brightest and passing national privacy legislation to provide businesses with certainty.
For the sake of our economy, our stock market, our competitive leadership and Americans’ access to their favorite tech products and services, I hope the silver lining of a tough economy is that it pushes Congress in a more productive direction.
Internet pioneer; Association for Computing Machinery Technology Policy Council; Google Chief Internet Evangelist
No one likes or wants a recession, but the right perspective can turn one into opportunities to refocus and concentrate on core business strengths, not least in the high-tech world where software is often both the product and the engine behind advanced products and services.
A recession typically slows innovation as it reduces startup formation and affects hiring which often adds friction to new initiatives. The pandemic, of course, has only heightened these effects. It has disrupted jobs requiring proximity and directly and negatively impacted supply chains, especially those associated with high tech such as supplies of various computer chips needed in myriad businesses.
Recessions also impede the reconstitution of supply chain resilience and function and cause collateral damage to education because affordability suffers. They affect mindsets too, reducing optimism and shifting focus to survival rather than bold and potentially risky new ideas.
But, perhaps ironically, recessions also can galvanize new thinking and catalyze enhanced focus and efficiency. Larry Page once referred to this as “more wood behind fewer arrows.”
High tech looks for leverage from the use of technology, computing and automation in particular. The scalability of software services, for example, can transform capital investment in computing resources into efficient revenue growth.
Yes, recession brings peril but – in technology like perhaps no other sector – reversal of fortune also favors the bold.
Sarah Oh Lam
Senior fellow at the Technology Policy Institute
A recession would shift the priorities of policymakers toward stimulating economic growth and less on regulating business activity. This shift would be a rational response to changing economic conditions. For instance, rather than more restrictive merger guidelines or lower Hart-Scott-Rodino thresholds, antitrust regulators may decide that it’s not the right time to make it harder for firms to find synergies, horizontal or vertical.
In recent good times, tech firms have been leading the way as growth engines for the American economy, generating cash earnings and profit margins that have led to investment into research and development and shareholder value. Near-zero — or in some cases, negative — interest rates have made it easy for firms to gain access to capital in financial markets, with higher price-to-earnings ratios and optimistic projections of future growth rates. With an economic contraction, however, tech firms will scale back on growth and deal with more challenging capital conditions and depressed stock market valuations. Economic headwinds make it harder for tech firms to grow when consumer spending goes down, lenders become more risk averse to extend business and consumer credit and venture capital for start-up formation becomes more expensive. Tech firms with weak revenues then reduce the rate of hiring of new employees and current payroll through layoffs. Expansion of new products and services gets put on hold when the cost of capital rises with interest rate increases.
In a recession, congressional committees, Federal Trade Commission, Department of Justice Antitrust Division and the Department of Commerce will focus their attention and resources on helping businesses and consumers survive the business cycle of economic contraction.
Policy director, Technology and Innovation at the R Street Institute
The tech sector, like others, is retrenching in the face of an economic downturn. Recent hiring freezes and tightening budgets serve as a gut check for tech, and we may see unprofitable or speculative projects fall by the wayside as companies focus on core competencies.
The larger tech companies are better suited to weather an economic contraction than small- or medium-sized firms that lack the capital to ride out a downturn. This is especially true of startups, which often focus on an exit strategy rather than bringing a product to market. Venture capital will become more scarce, making it harder to raise funds.
From a policy perspective, the proposed antitrust bills currently under debate in Congress would exacerbate the problem. Proposed restrictions on mergers and acquisitions would make it more difficult for the large tech firms that do have resources to invest in new technologies and products. Should acquisitions become difficult or impossible due to new regulations, the rate of innovation may slow, leaving consumers worse off while making it more difficult for startups to raise the necessary capital to turn new ideas into products that can enhance productivity and boost economic growth.
The current slowdown has the tech sector regrouping to identify a clear path forward; sweeping new antitrust laws would hamper the ability to make the adjustments needed for a swift recovery.
Director at the Aspen Institute's Tech Policy Hub
We could face the dot-com bubble 2.0. If tech companies lose a lot of their value, public policymakers will be faced with some unenviable choices. Is Amazon "too big to fail" and thus worthy of a bailout like the auto industry was? Will startups start selling off consumer data to keep afloat? Should government allow that to happen? I co-wrote a scenario exploring this issue and worry that while we got the timeline wrong, many of the forecasts may come true in a future recession.
President & CEO at the Information Technology Industry Council
The strength of the U.S. economy relies on consistent job growth and an approach to competitiveness that ensures the U.S. remains an economic powerhouse. The tech industry is vital to prosperity in all economic circumstances. Particularly in times of economic slowdown, business investment in new technology can drive efficiencies and strengthen supply chains. Policymakers can take concrete steps to ensure innovation continues to power the economy.
Tech creates a critical link for the economy to weather ups and downs, demonstrated by its vital role during the COVID-19 pandemic. Technology products and services allow Americans to work and attend school remotely, facilitate activities online and maintain vital links to keep governments and businesses connected and operating securely. Policymakers should thus promote policies that make broadband ubiquitous and modernize government and private sector infrastructure.
Tech is enabling the modernization of the U.S. infrastructure system with innovative design and deployment of projects to reduce costs, improve safety, mitigate negative environmental impacts, all while creating jobs in the process. By making investments in research and development, and semiconductor and advanced manufacturing, the industry is fueling U.S. global competitiveness. Through digital trade and sensible supply chain policies, government can ensure global market access for U.S. companies, create jobs across the country and expand technology options for U.S. consumers and businesses.
Finally, tech is promoting access to education and opportunities for individuals of all backgrounds, particularly in the STEM field. By advancing sensible immigration policy that brings innovators to the U.S. to create companies and jobs, policymakers can up-skill U.S. workers while attracting the best and the brightest from around the world to grow the U.S. economy.
Founding partner at Mehlman Castagnetti Rosen & Thomas
Generally in a recession not caused by business excess (such as the tech bubble or Wall Street-induced great financial crisis), there is a lot less enthusiasm for taxing, regulating or breaking up healthy employers. Many aspects of the techlash may prove luxuries of a healthier economy we can less comfortably afford in leaner times.
See who's who in the Protocol Braintrust and browse every previous edition by category here (Updated July 27, 2022).
Kevin McAllister ( @k__mcallister) is a Research Editor at Protocol, leading the development of Braintrust. Prior to joining the team, he was a rankings data reporter at The Wall Street Journal, where he oversaw structured data projects for the Journal's strategy team.
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