The world's largest technology companies have come under increasing media scrutiny and political criticism over the past several years. As I discussed last month, these pressures intensified to a fever pitch in 2020, setting the stage for potential antitrust action on a scale not seen in decades.
According to New York University's Scott Galloway, a widely respected authority on corporate governance and management, things are likely to only get worse for Big Tech in 2021.
A year of reckoning
In an article published by Fast Company on Jan. 21, Galloway made the bold prediction that 2021 will prove to be "a year of reckoning" for many tech sector titans, including the likes of Alphabet Inc. (GOOGL, Financial) Amazon.com Inc. (AMZN, Financial), Apple Inc. (AAPL, Financial) and Facebook Inc. (FB, Financial):
"I've been calling for the antitrust breakup of Big Tech for years, but the last few months of 2020 give me hope that this is going to happen. In that period, we witnessed a surge of legislative and legal actions that respond to the problems of concentrated capital generally and the dangers of Big Tech specifically...It began in July, when the House Judiciary antitrust subcommittee brought in the CEOs of the Four (Amazon, Apple, Google, and Facebook) for a day of public testimony...That was the starting gun. In the last four months of 2020, the Department of Justice, the Federal Trade Commission, and attorneys general from almost every state filed legal actions against Google and Facebook, calling for breakups and other remedies. These events are points on a line, and that line points toward the beginning of the end of Big Tech as we know it."
Galloway has long been, as he readily admits, an advocate for breaking up Big Tech. Yet, while his views are undoubtedly colored by some personal bias and ideology, he has also proven his ability as a clear-eyed academic researcher with a keen sense of the macro-scale trends impacting the technology industry. The litany of congressional hearings and the clear intensification of political pressure on Big Tech are undeniable. Whether it will end in the final reckoning Galloway foresees, however, is anything but certain.
The market remains unfazed
For decades, there has been little appetite, either among the public or in the halls of government, for undertaking heavy-handed regulatory and antitrust action against companies in the United States. While the idea of taking meaningful action against Big Tech companies has undoubtedly entered mainstream political thought, most observers seem unfazed, at least for now. As the BBC observed on Jan. 22, there is still no consensus on what type of action, if any, the federal government should take:
"Lawmakers of all hues are unlikely to be satisfied with that kind of self-regulation, but so far they have come up with few ideas of how the US government could decide for itself what is allowed to happen online...If the stock market is any guide, the tech companies may not need to be too frightened of President Biden...Facebook's shares are recovering from a recent dip and, along with the other big-tech beasts, have boomed during the pandemic, powering the Nasdaq and Dow Jones Index to record highs."
While the market may simply be complacent or discounting the risk, I see it as reflective of a general sentiment among market participants that any regulatory actions will be far more limited than prominent anti-Big Tech advocates, such as Senator Elizabeth Warren, might like.
My verdict
While the prospect of Big Tech actually getting broken up this year seems a bit far-fetched to me, I cannot deny that the "Overton window" of acceptable political ideology and policy has shifted markedly in recent years. The idea of the federal government breaking up these major players would have been considered utterly unthinkable just a few years ago, yet now it is a subject of serious debate. Tech investors should probably see that as a dangerous sign for the future, even if they are confident about the short run.
A breakup of Big Tech would be a major "black swan" event, with ramifications that would ripple across capital markets worldwide. My advice to investors is to keep an eye on this macro story as it plays out through 2021 and beyond.
Disclosure: No positions.
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