The Federal Justice Department announced a broad antitrust review of large tech firms with three of top companies often mentioned headquartered in California. If Facebook, Google and Apple are all found to be restricting competition with monopolistic behavior, they could face disciplinary actions with one option in the extreme case, forced breakup. California’s booming economy and government revenue has come to rely heavily on the tech industry.
Justice Department antitrust chief Makan Delrahim said in a statement, “Without the discipline of meaningful market-based competition, digital platforms may act in ways that are not responsive to consumer demands.”
The Justice Department review is just the first step and much has to happen before actions could take a bite out of the state’s economy.
But the step toward trust busting is no surprise.
I’ve reported in the last couple of years of a growing concern over the power centered in a few tech companies. The old trust busting efforts hailed in the early 20th century could make a comeback. While undoing the monopolies over 100 years ago centered on monopolistic control of commodities, like Standard Oil’s command of oil, tech controls massive amounts of data. And with their economic power, some Silicon Valley companies are moving into other industries.
The trouble for the tech firms is that their popularity is on the wane. Both Democrats and Republicans have raised concerns about the big companies’ dominance.
In fact, in her list of policy solutions, Democratic presidential candidate Elizabeth Warren, the senator from Massachusetts, has spoken of breaking up Google, Facebook and Amazon. Now the Trump Justice Department is following a path that could lead to breakup.
Investors have indicated their unhappiness with these developments.
If regulations and breakup come what damage would be done to the state economy and revenue gathering?
The state would feel a pinch. The potential for less pay for tech’s top executives would undoubtedly be reflected in the state’s income tax take. Remember that the top 1% of California income tax payers account for about half of the state’s income tax revenue which is around 70% of the General Fund. A hit on the incomes of rich tech executives could be felt in the state budget.
On the other hand, if a breakup leads to other or new California businesses filling the gap, newly created or increased state revenue could come from taxpayers added to the state’s rolls.
Further, while Apple and Google’s parent company Alphabet are in the top 5 publically traded companies in California, the state’s economy relies on other sectors of the economy to flourish. Finance, real estate, agriculture and manufacturing are all bulwarks of the state’s economy.
Still, the tech industry has been a strong sector partly responsible for the state’s rise to the fifth largest economy in the world. Damage to that sector would be felt.