Big tech continues to dominate the news and has become a major driver of US stock markets - but the sector’s dominant narrative has changed in the last few months. Amazement at the power of disruptive innovation to change not just what we do but also how we do it is now accompanied, if not tempered, by concerns about misuse and other unintended adverse consequences.
This has raised important questions about interventions by governments, companies’ self-regulation, incentive alignments, corporate responsibility and financial prospects.
It is also an inherently fluid situation. Consider the following six issues:
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 artificial intelligence, big data, machine learning and mobility, as well as their increasingly wide interactions.
Competitive behaviour: As big tech has gotten bigger and richer, its willingness and ability to buy successful new sector entrants have increased. This behaviour is fuelled by considerations relating to both offence and defence: to provide an enabling platform for the new innovative entrants to flourish and to preempt significant competition down the road. Indeed, this behaviour has become so dominant that most startups target such takeovers as their major monetisation objective.
Risk of backlash: This process has accelerated so much that it's no longer just governments, users and competitors that are struggling to keep up with the disruptions and their broader societal and political consequences. Even the tech companies themselves are having trouble, increasing the probability of a regulatory backlash for which they are unevenly prepared. Add to that more long-standing concerns about labour displacements and other wage pressures. No wonder it seems that public policy experts are as much in demand in Silicon Valley these days as engineers.
Weak global coordination: Although tech is inherently global, current government responses remain overwhelmingly national. For now, there are no credible and effective forums for their coordination and alignment. The resulting incentive for cross-border arbitrage would only add to the often-heard complaint that big tech pays insufficient attention to corporate responsibilities and social impact.
Bipolar leadership: The US is losing its traditional lead and dominance. Helped by the inherent advantage of size and government support, tech companies and scientists in China have been making major inroads. In the process, two models of big tech are emerging. In the US, government is kept at a distance as much as possible. And in China, government is much more of an integral part of the business. For now, both countries are largely operating on their own playing field but it's only a matter of time until the overlap becomes consequential.
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. Harvard's Ken Rogoff recently suggested that it takes time for companies to update their operating models and, thus, for economies to reach productivity tipping points. Prof Rogoff has also suggested that the ability of companies to incorporate innovations may be accelerated by the beneficial impact of the synchronized pick-up in global growth.
The one clear and consistent message from these six factors 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 publicised tech-related slippages.
The resulting message for market participants is also clear. You can add this to the list of factors currently contributing to an ongoing shift in operating regime: from the unusual calm of 2017 to bigger, frequent and unsettling two-way asset price volatility.
Mohamed El Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz, the parent company of Pimco, where he served as chief executive and co-CIO. He was chairman of the president's Global Development Council, chief executive and president of Harvard Management Company, managing director at Salomon Smith Barney and deputy director of the IMF. His books include "The Only Game in Town" and "When Markets Collide."