When your columnist first started writing Schumpeter in early 2019, he had a romantic idea of travelling the world and sending “postcards” back from faraway places that chronicled trends in business, big and small. In his first few weeks, he reported from China, where a company was using automation to make fancy white shirts; Germany, where forest-dwellers were protesting against a coal mine; and Japan, where a female activist was making a ninja-like assault on corporate governance. All fun, but small-bore stuff. Readers, his editors advised him, turn to this column not for its generous travel budget but for its take on the main business stories of the day. So he pivoted, adopting what he called the Linda Evangelista approach. From then on, he declared, he would not get out of bed for companies worth less than $100bn.
This is his final column and, as he looks back, that benchmark seems quaint. At the time, the dominant tech giants were already well above it. Microsoft was America’s biggest company, worth $780bn, closely followed by its big-tech rivals: Apple, Amazon, Alphabet and Meta. Their total value back then was $3.4trn. Today the iPhone-maker alone exceeds that.
Since early 2019 the combined worth of the tech giants has more than tripled, to $11.8trn. Add in Nvidia, the only other American firm valued in the trillions, thanks to its pivotal role in generative artificial intelligence (AI), and they fetch more than one and a half times the value of America’s next 25 firms put together. That includes big oil (ExxonMobil and Chevron), big pharma (Eli Lilly and Johnson & Johnson), big finance (Berkshire Hathaway and JPMorgan Chase) and big retail (Walmart). In other words, while the tech illuminati have grown bigger and more powerful, the rest lag ever further behind.
It is tempting to view this as an aberration. This column is named after Joseph Schumpeter, the late Austrian-American economist who made famous the concept of creative destruction—the relentless tide of disruptive innovation toppling old orders and creating new ones. Surely these tech firms, founded decades ago in dorms, garages and dingy offices, should be vulnerable to the same Schumpeterian forces that they once unleashed on their industrial forebears.
But creative destruction, at least as framed by the original Schumpeter, is more complicated than that. To be sure, he revered entrepreneurs. He considered them, as we do today, the cult heroes of business, driving the economy forward with new products and ways of doing things. But late in life, after he had witnessed decades of dominance by big American corporations, he changed his tune. He decided that large firms, even monopolies, were the big drivers of innovation. They had the money to invest in new technology, they attracted the best brains—and they had most to lose if they did not stay alert. That may disappoint those who see business as a David v Goliath struggle of maverick upstarts against managerial apparatchiks. But it was prescient. It helps explain why today’s tech Goliaths vastly outspend, buy up and outflank startups before they get the chance to sling a stone.
The figures bearing out this Schumpeterian hypothesis are striking. Since 2019 the five tech giants and Nvidia have doubled their capital expenditures, to $169bn last year. Tot up the 25 next firms’ capex and it was just $135bn—up only 35%. As for brain power, over the same period, the big six added 1m jobs, doubling their headcount. No one can accuse them of resting on their laurels. They have invested in AI startups, ploughed fortunes into building large language models and, in Meta’s case, created open-source offerings that almost anyone can use. This year they are doubling down on their AI spending if only to protect their flanks.
You could argue that startups are better incentivised to devise revolutionary ideas, that venture capitalists bankroll entrepreneurs, and that much of big tech’s spending is wasteful and aimed mostly at erecting walls around their fiefs. All that is true. But do not over-romanticise the little guys. They can be as full of hot air (think WeWork, the delusional hot-desk firm, and FTX, the crypto scam) as business bureaucracies are of flab. Moreover, advancing the frontiers of technology is hard. It takes decades of incessant innovation to create products like Apple’s iPhones. Amazon pioneered not just online shopping but cloud-computing. Such inspired thinking creates genuine defences.
The perennial gale
No doubt their walls will one day be breached—either by strong-armed governments or by new forms of competition. The possibility that America’s Department of Justice could pursue a break-up of Google after this month’s monopoly conviction suggests trustbusters are out for blood. Then there are the threats that Schumpeter, in his 1942 book, “Capitalism, Socialism and Democracy”, said keep the capitalist engine in motion: new products, new ways of making and transporting things, and new forms of business organisation. Eventually the tech conglomerates will tear themselves—or be torn—apart.
In the five and a half years of your columnist’s tenure, some of America’s once-mighty industrial behemoths—in 2019 worth far more than $100bn—have suffered such a fate. GE, brought down by overreach and mismanagement, was broken up this year. Dow and Dupont, two chemicals firms that merged in 2017, have been split into unrecognisable reconfigurations. Boeing cannot manage its civil-aviation business, let alone space and defence.
Simultaneously, new corporate titans are emerging. The biggest is Nvidia, maker of AI accelerator chips and software, which proves that even veteran businesses can be insurrectionary. At the start of 2019, its value was below the $100bn cut. Now it is above $3trn. That surely is worth getting out of bed for. ■
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