Despite legislative efforts motivated by techlash against big tech, state governments are creating perverse financial incentives to draw them and other businesses to their states by implementing corporate welfare packages. Not only do taxpayers end up footing the bill for these financial incentives, but too often, these programs fail to live up to their lofty promises. Eliminating special treatment rather than creating exclusionary regulations is the most consistent way to create a level playing field.
Sen. Amy Klobuchar (D-MN), fervent big tech critic, introduced two of the primary antitrust bills in the Senate, which also have companions in the House. The first is the Platform Competition and Opportunity Act (PCOA), which puts additional limitations on mergers and acquisitions for covered platforms by establishing “that certain acquisitions by dominant online platforms are unlawful.” The second, the American Innovation and Choice Online Act (AICOA), would ban covered platforms from preferencing their goods and services over their competitors’, prohibit the grouping of services with preferential platform access, and require the platforms to share data with third-party business partners.
Fears regarding alleged big tech’s political and societal influence have helped drive bipartisan support for current legislative efforts. This, however, frequently means turning a blind eye to the social and economic contributions of big tech.
Distrust of tech by legislators seems to be increasing. Yet, according to polling by The Center for Growth and Opportunity, a clear majority—between 79 and 86 percent of respondents either support or are unsure about whether big tech companies, including Amazon, should be broken up. Unfortunately, bipartisan support for antitrust reforms increases the chances of onerous legislation becoming law.
In February, the American Consumer Institute (ACI) found that big tech directly or indirectly contributed $3.7 trillion to global economic output in 2021 and had directly and indirectly contributed to the creation of 12 million jobs. Apart from clear economic benefits, these companies help consumers stay connected with loved ones, increase the ease of shopping, and enable remote working, church services, and even fitness classes.
However, if passed, the proposed antitrust bills could put these benefits at risk. A study released by NERA Economic Consulting found that federal proposals would result in $319 billion in one-time costs for Amazon, Google, Apple, Meta, and Microsoft and result in a loss of $22 billion in consumer welfare each year.
While some federal lawmakers are pushing to hamstring big tech through targeted regulations, many of their state counterparts are creating financial incentives to attract big tech to their state. For example, billions of dollars states offered Amazon for its HQ2 and other tech companies, and even Sen. Amy Klobuchar’s—who is the prime sponsor of 2 antitrust bills—home state of Minnesota gave same tech company $5.8 million for a distribution center. There are many examples of government incentives to tech companies as cities strive to be major technology hubs, but the practice has long included tax incentives for various manufacturers, billionaire sports stadiums, and others.
Research on this preferential tax treatment suggests that many of these programs fail to deliver. For example, a 2018 paper from the Upjohn Institute found that incentive programs influenced location decisions in firms between only 2 to 25 percent of the time. Additionally, a 2019 report from the Pennsylvania Independent Fiscal Office reported that 95 percent of jobs created under the New Jobs Tax Credit would have occurred even in the absence of such programs.
This type of perverse preferential treatment by the government is easily comparable to Kanye West’s Yeezy example—when it received millions of dollars of loans through federal Paycheck Protection Program (PPP) loans. During pandemic lockdowns, when many businesses were struggling to stay open, Yeezy, which earned revenues of $1.3 billion in 2019, was benefiting from government programs designed to help small companies survive.
Although federal and state level governments are separate entities, the combination of local corporate welfare policies with efforts to increase onerous regulation at the federal level, create a confusing maze of interests. The goal of attracting businesses to states and the objective of promoting competition can both be achieved without creating an unlevel playing field. Many large companies that are under scrutiny at the federal level, are also receiving a step-up from states.
The way to create a fairer and more competitive system is to eliminate the preferential advantage that large companies enjoy without jeopardizing the consumer benefits that these companies contribute by passing onerous and conflicting laws.