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If the only tool you have is a hammer, everything looks like a nail.
Predictability — one of the things we have taken for granted for so long — has changed now. It is the foundation stone which every long term business decision is based on. Any arbitrary change in the rules is prohibited or at least not expected in a million years due to the inherent, quiet agreement among the contestants.
State actors know the importance of predictability and hence know their place in private enterprise. They just step in to set the rules or rebalance the playground. When a country arbitrarily bans a global consumer service (read as any worldwide digital product or network), you can be sure that the rule of law is questionable and democratic institutions are weak or non-existent there.
That is not the case anymore.
Governments only think they have three hammers in their hands to steer private enterprise, in order of preference:
1) Regulate
2) Tax
3) Ban
The rudimentary tools that are used by insecure governments such as ‘banning what they can’t control’ are coming into practice in countries which gave birth to the current rules based systems where global brands were born and flourished.
Take TikTok’s predicaments in the US lately, where the federal government openly threatens a private enterprise to shut itself down or else forces them to swallow the bitter pill of selling the US part of their business to a domestic player (Microsoft) to be able to continue to exist in a ‘free market’.
On top of that, the government asks for the treasury to be paid a handsome amount as they ‘enabled this transaction’ with no legal framework to validate such a request.
This news would have been ordinary for countries with one-man rule where forced asset sales or downright expropriation of assets is customary for many reasons including security, but not in the US.
Let’s say the government’s concerns around security and their citizens’ data protection are genuine. The truth is large tech corporations are global by nature regardless of their domicile and have no boundaries. Instead of taxing or banning or imposing random levies as these players become big and collect more data, the government could become a stakeholder in them instead.
This way, the government can have a seat at the table and understand the evolution of the technology, its full potential and societal implications while the technology is being developed. It allows them to have a proactive say in developments rather than playing catch up with regulation and taxes when the technology is already widespread. They can raise their opinion, but ultimately the companies make the decisions. There’s no intervention to innovation, but raising companies’ awareness for citizens’ rights and making them think twice at crucial policy moments is priceless.
Absolutist free market supporters would be horrified by this idea, but it is neither a foreign nor a new concept. There are precedents for this as far back as the mid 20th century such as the invention of the Internet, beginning of space travel, or more recently, Tesla’s rebirth thanks to a $465M government loan without equity to build Model S in 2009. In addition, sovereign funds invest in these companies anyways — not exactly the way the treasury department would do it, but their mandate is still to serve their nation’s best interests.
You might ask why become a minority shareholder with public money instead of regulating them for free? Besides, they can still do what they want!
Well, the government doesn’t know how to regulate these companies at the moment. There are several reasons for that, to name a few;
First of all, they don’t have the knowledge required to regulate them. They don’t understand the technology, the implications of that technology for wider society, the full potential of it. That’s why they’re inclined to slow it down or outright ban!
Secondly, if there’s one thing we need to learn from history is that you cannot prevent the progress of science and technology. The legal and societal frameworks always come later. You will be bound to be reactive.
If they were to take equity positions instead, they would have the front seat so they can understand it all better.
You might wonder how is this any different than what China does?
These companies are private enterprises so ultimately whether or not they will sell minority shares to the government is up to them. In China, this is not an option but an organic relationship so the approach is inherently different. Why would the companies want to do it? Looking at the number of lawyers, policy teams, external advisors and lobbyists these companies employ to navigate the regulatory waters is enough to see the incentive on their side.
Government is not a large homogeneous entity which acts without scrutiny, and their incentive in a democratic society is not to hinder innovation or disincentivise future big tech companies from growing so large. They represent the public’s best interests, allowing companies to keep innovating while being respectful of their rights as citizens wherever they live.
Governments’ lack of strategy and understanding on how truly global tech companies operate is not insurmountable. It requires due attention and expertise.
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