Big Tech Changes Coming Fast
Big technolgy has been dominating the news and is a major driver of US stock markets.
The sector’s narrative has changed with amazement at the power of disruptive innovation to change not just what we do but how we do it now and the consequences.
This, of course has raised Questions about interventions by governments, companies’ self-regulation, incentive alignments, corporate responsibility and financial prospects, all of this very fluid.
Take a few minutes, consider the Key issues, as follows:
- Speed of change: Many of those who are closely involved in tech inventions and innovations feel that we may now be in the midst of accelerating disruption. Some say that even highly informed insiders are no longer confident about predicting advances in their field and the implications. This is particularly true for AI (artificial intelligence), big data, machine learning and mobility, as well as their increasingly wide interactions.
- Competitive behavior: As big tech has gotten bigger and richer, and easily buy successful new entrants. This is so dominant now that most startups target such takeovers as their monetization goal.
- Risk of backlash: This process has accelerated so much that it is no longer just governments, users and competitors that struggle to keep up with the disruptions and their broader societal and political consequences. As the tech companies themselves are having trouble, increasing the probability of a regulatory backlash for which they may not be well prepared. Add to that more long-standing concerns about labor displacements and other wage pressures.
- Weak global coordination: Although tech is global, current government responses are national. There are no credible and effective forums for their coordination and alignment. The resulting often heard complaint is that big tech pays little attention to corporate responsibilities and social impact.
- Bipolar leadership: The US is losing its dominance. Helped by the advantage of size and government support, tech companies and scientists in China have been making major inroads. In the process, 2 models of big tech are emerging. In the US, government is kept at a distance. And in China, government is much more of an integral part of the business. But, is just a matter of time until the overlap becomes very important for leadership.
- Productivity impact: There is now more reason to be hopeful about a good solution to the productivity puzzle of why visible technological advances have not been reflected in a pickup in productivity measures. It takes time for companies to update their operating models and, thus, for economies to reach productivity tipping points, and the ability of companies to incorporate innovations may be further driven by the beneficial impact of the pick-up in global growth.
“The message is that tech-induced change is likely to become even more uncertain. Much will depend on the companies’ ability to respond to their greater systemic importance, how government regulation and other intervention evolve, cross-border coordination and society’s tolerance for highly publicized tech-related slippages.”–Mohamed A. El-Erian, Mr. El Erian is the chief economic adviser at Allianz SE.
That message for stock market participants is also clear. Add this to the list of factors contributing to an ongoing shift in operating regime, from the calm of Y 2017 to bigger, frequent and unsettling 2-way asset price volatility that we have seen so far in Y 2018.
Have a terrific week.