Recovering from Big Tech’s lost decade

For 65 years, the United States has counted on its digital tech industry to create amazing products and drive economic growth. For most of that time, the industry has exceeded expectations.

During the past decade, however, the tech industry has lost its way, with a culture, products and business models that have undermined democracy, public health and public safety.

Recent global events create an opportunity for the industry to reset and it is vitally important that it do so. America needs its technology industry to solve problems, not aggravate them. But we cannot expect the industry to transform itself without proper incentives, which must come from government and voters.

Today’s tech industry, much of which dates only to the early 2000s, has been allowed to operate with no regulatory constraints. Entrepreneurs and investors have focused their energy on growing as rapidly as possible to massive scale and profits, without consideration for community values such as consumer safety, democracy, public health and human autonomy.

For more than a decade after the financial crisis of 2008-2009, the global economy was stable, with exceptionally low inflation and interest rates. Stability in international trade enabled supply chains optimized for short term cost.

As a country, we might have used this environment to tackle the greatest challenges facing humanity, such as climate change and income inequality. Instead, we allowed corporations to set their own priorities. They pursued wealth and power, with strategies that aggravated every problem in society. No industry did more harm than tech.

Some new technologies, such as facial recognition, got financed without a constructive use case. Other new industries, like ride sharing, ignored existing laws and regulations, consumed massive amounts of capital and produced staggering losses, all in pursuit of a monopoly that might eventually lead to profits. In artificial intelligence, entrepreneurs asserted that huge data sets — even ones consisting largely of garbage content — would make our lives better, despite overwhelming evidence of bias and bad outcomes.

Low interest rates and inflation encouraged investors to take ever greater risk, so they kept throwing money at tech startups. The bigger the promise, the higher the valuation. Entrepreneurs responded with ever crazier ideas.

Eventually, investors funded business plans that depended on suspending the laws of physics or finance. The self-driving vehicles sector claimed not to need the special lanes or beacons on obstacles that are standard for autonomous aircraft and ships. They asserted that AI and sensors in the vehicle would be good enough, despite copious evidence to the contrary. The crypto industry built a Ponzi scheme on top of bad computer science.

Each of these ideas had skeptics, but their warnings were not enough to overcome the enthusiasm of investors determined to own a piece of the next big thing. At the peak earlier this year, more than 1,000 startups had a valuation of a billion dollars or more, many with little or no revenue.

The COVID pandemic and Russia’s invasion of Ukraine have shaken global stability. Interest rates and inflation have spiked, and geopolitical tension is forcing changes in the international economy. Governments are no longer willing to subordinate other concerns to economic growth. Supply chains built on low labor costs are being restructured. This might be the beginning of a new economic era.

Despite prospering in the early days of the pandemic, the tech sector has hit a wall. Nasdaq has declined by nearly a third in 2022, while 448 individual stocks have declined by 70% or more. It might get worse, as few of the new tech companies have produced material revenues. Of those that went public in the past decade, only one has made it into the Fortune 500, Coinbase, at No. 437. It remains to be seen what societal benefits, if any, will result from the tech industry’s past decade.

The transformation of the global economy creates big incentives for a tech reset. Consumers face shortages for many products. Corporations must relocate manufacturing closer to demand. Climate change calls for new energy solutions, a new power grid and new approaches to transportation. The U.S.’s exceptionally costly health care system is failing to address the nation’s need. The education system is not preparing children for adulthood.

The lesson Americans should learn from the past decade is that failing to regulate tech leads to catastrophic harm. Policymakers and voters sat back while it happened.

We clung to five myths: There is only one path for the tech industry; new technology is always better; markets are always the best way to allocate resources; industries will self-regulate in the public interest; and there is no meaningful role for government as a referee of capitalism.

In fact, the current path relies on perverse incentives — change the incentives to change the direction of tech. New technology is not necessarily better. Markets are not always good at allocating resources, as the pandemic demonstrated. Companies cannot be expected to regulate themselves if they can make more money by not doing so. If capitalism is to operate for the public good, government must act as the referee.

The path forward should require tech products to meet standards of safety analogous to food and drugs, with a new agency like the Food and Drug Administration to certify safety as a condition of market access. We should acknowledge that using personal data undermines human autonomy and should be banned. To enable new products and business models to emerge, we should eliminate the monopoly power of today’s tech giants.

This path would be a transformation in culture, business models and industrial structure. What seemed impossible a year ago, when tech was flying high, has become more plausible.

Of course, tech entrepreneurs and investors are fighting change. They are understandably reluctant to abandon the approaches that have made so many of them wealthy and powerful. But market forces have started the process. It is now up to policymakers and voters push change forward.