Will backlash against Big Tech play into China’s hands?

It’s been a dizzying tailspin. Long lauded for powering the economy, driving down prices, and pushing innovation forward with new devices and services, Big Tech this year finds itself wearing a black hat.

Consumers and politicians alike now criticize technology giants for slanting the news, invading privacy, and carelessly leaving back doors open for cybercriminals to steal data and foreign countries to influence elections. Federal and state authorities are investigating Amazon, Google, and others as possible monopolists over retail sales and ad revenues. The backlash against Silicon Valley has even spawned its own term: “techlash.”

But some tech experts are sounding a cautionary note. While data abuse and antitrust business practices need to be investigated, they say, overzealous prosecution and lawmaking could compromise America’s competitiveness vis-a-vis other nations.

“I worry that the techlash is going to have detrimental effects,” says Robert Atkinson, founder and president of the Information Technology and Innovation Foundation (ITIF), a Washington, D.C., think tank. “Ultimately, that’s playing into the hands of China.”

In the past week, the pressure on Big Tech has intensified. Attorneys general in 48 states plus the District of Columbia and Puerto Rico have announced antitrust investigations of Google, with at least eight of them also examining Facebook. This comes as the Federal Trade Commission has stepped up its investigation of business practices of Amazon, Apple, and others.

“It’s not surprising that people are very concerned about privacy rights and security of your personal data and also the social effect of the new media platforms,” says Thomas Hazlett, a professor at Clemson University in South Carolina and former chief economist of the Federal Communications Commission. “The question is: How do you best handle that with some kind of regulatory solution … that’s actually going to help?”

The strides China has made in next-generation technologies, such as 5G cellphones, gene editing, biometrics, and other areas, are creating pressures for the U.S. to refocus on competitiveness the way it did with the Soviet Union in the 1950s and ’60s, and with Japan in the 1980s and ’90s. If anything, the threat posed by China could be greater, since it combines the military rivalry of the Soviets with the economic rivalry of the Japanese.

According to one survey of academic research, China has already surpassed the U.S. in the number of published papers in artificial intelligence and is poised to move ahead in the number of papers on that subject most cited by other researchers (a measure of their importance).  

“We do need some serious updating and reexamination of our policies and our public-private partnerships because the challenges are very different than they were when the U.S. council was created in 1986,” says Deborah Wince-Smith, president and CEO of the Council on Competitiveness in Washington.

The current focus on Big Tech’s misdeeds is delaying this needed debate, says Mr. Atkinson of the ITIF. “That conversation is treading water right now.”

Americans have made adjustments before when confronted with new technologies that have given companies powerful sway in the market, says Professor Hazlett, who assigns his students an 1890 article called “The Right to Privacy” – a reaction to the news and gossip from the new mass-market newspapers of the era.

But problems have arisen when regulators and policymakers have gotten too aggressive in countering technology. Mr. Atkinson points to San Francisco’s recent ban on facial recognition by police and city government, despite the positive uses the technology has. On Thursday, California’s legislature passed a much less draconian three-year ban on facial recognition technology for police body cameras.

More pernicious, in his view, were antitrust regulators in the 1950s and ’60s, who forced leading technology giants of that time to license their patented technology. That’s how Sony got its hands on AT&T transistor technology and how Japanese copier firms acquired Xerox know-how, allowing the laggards to rapidly catch up to and surpass the U.S. firms. The major reason Japan came to dominate color TVs was because RCA had to license its technology, he says.

That Japanese dominance, in turn, pushed the U.S. to create a national competitiveness council and strategy in the 1980s, which included the funding of research and encouraging tech transfer from national labs and leading universities to U.S. companies. Encouraged by both Republican and Democratic administrations, the competitiveness push lost its focus after the fall of the Soviet Union and Japan’s economic and policy stumbles.

Not everyone is convinced that a new competitiveness policy will help the U.S. compete against China.

“I think it’s very important that the real issues, particularly intellectual property theft and security issues, be litigated,” says Dr. Hazlett, the Clemson professor. But “I don’t trust the government to pick the right winners nor to have the right policy that’s going to support the markets and not hurt consumers. ... That’s just not a task that’s worked well.”

To its advocates, competitiveness policy is a bipartisan issue that could gain strong support once the public’s concerns about Big Tech are dealt with.

“I’m optimistic,” says Ms. Wince-Smith of the Council on Competitiveness. “Both in the Obama administration, I’m very pleased to say, and in the Trump administration there is a dual support and understanding of the importance of investing in the research and development and the manufacturing capability for next-generation microelectronics.”