Small Business Rising — a small business coalition — authored a congressional letter urging lawmakers to prioritize the passage of the American Innovation and Online Choice Act (AIOCA). While small businesses are a politically popular group, lawmakers shouldn’t jump to do their bidding. The congressional letter is an attempt by special interests to use the political process to gain an advantage in the marketplace. Congress should instead focus on passing good policies to ensure a competitive business environment and consumer welfare.
The sheer size of Big Tech companies — Apple alone has a market capitalization of over $2 trillion — makes them an easy scapegoat for a litany of problems. Among the supposed harms is rent-seeking, which is when people, companies or industries turn to the political arena to ensure benefits for themselves.
Company size as a potential mechanism for political influence has even gotten the attention of the White House, which released a statement in September on a listening session held on tech platform accountability. Among the guidelines for reform was the goal to promote competition in the tech sector because “a small number of dominant Internet platforms use their power to exclude market entrants, to engage in rent-seeking…” However, as the letter from Small Business Rising shows, businesses of all sizes can engage in rent-seeking behavior.
The problem with AIOCA is not that small businesses support the legislation, but that the legislation would target select companies to benefit their competitors at the expense of consumers. AIOCA would set a size threshold — based on users, market capitalization or sales — targeting large platforms with a ban on self-preferencing. Despite being the focus of regulation, self-preferencing is not nefarious. It’s simply the process by which businesses of all sizes can offer generic versions of consumer goods and savings through bulk purchases and membership services.
Not only would this legislation limit consumer benefits, but it would harm the overall economy. In a report last February, the American Consumer Institute (ACI) found that Big Tech contributed $3.7 billion to the U.S.’s GDP in 2021 and had directly or indirectly created 12 million jobs. The direct costs to targeted companies are substantial. A study released by NERA Economic Consulting found that, if enacted, the package of proposed legislation — including AICOCA — would result in $319 billion in costs for Amazon, Google, Apple, Meta and Microsoft. This burden would result in a loss of $22 billion in consumer welfare each year.
Supporters of AICOA and the congressional letter don’t represent all small businesses. Many small businesses partner with Big Tech to reach more customers. Amazon’s marketplace helps over 500,000 third-party sellers reach customers and facilitates the sale of over 3.8 billion products each year. These sales add up to an average of $200,000 per seller each year.
Weaponizing legislation is not a practice unique to small businesses or large corporations, but lawmakers should be able to navigate the difference between good policy and special interest rent-seeking. Unfortunately for voters, AIOCA is not the only attempt to gain advantages via the government.
The Journalism Competition and Preservation Act, introduced by Senator Amy Klobuchar, is another legislative attempt to target Big Tech. Its objective is to provide small news outlets with a competitive edge by essentially creating carve-outs for collusion when it occurs in negotiation with large platforms. This proposal is in part a reaction to the decline in local journalism.
It’s important to note that Big Tech companies are also active participants in rent-seeking. They are prone to taking advantage of “corporate welfare,” a term used to describe government grants, tax credits or subsidies often given to incentivize businesses to locate in a specific area. While exact numbers are difficult to determine, companies like Amazon have received their share of government handouts. Since 2000 Amazon has been the recipient of over $4 billion in corporate welfare and is reportedly receiving $2.2 billion in incentives for its offices in New York, Virginia and Tennessee.
Consumers should be concerned when companies of any size turn to the government to compete in the marketplace. Rather than target successful companies with regulations that will risk consumer benefits like Prime shipping or generic products, lawmakers should instead focus on creating uniform rules to enhance competition for all businesses no matter the size.