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Nicklaus: At $2 trillion in value, Apple illustrates both the promise and the problem of Big Tech

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Apple CEO Tim Cook is fulfilling another Steve Jobs vision

FILE - In this June 3, 2019, file photo, Apple CEO Tim Cook waves after speaking at the Apple Worldwide Developers Conference in San Jose, Calif. Cook has forged his own distinctive legacy. He will mark his ninth anniversary as Apple’s CEO Monday, Aug. 24, 2020 -- the same day the company will split its stock for the second time during his reign. (AP Photo/Jeff Chiu, File)

David Nicklaus is a business columnist for the St. Louis Post-Dispatch.

At a market value of $2 trillion, Apple is now worth more than the gross domestic product of Brazil or Canada.

That mind-boggling comparison illustrates how lucrative today’s innovation economy is. Apple became the first company worth $1 trillion in August 2018, then doubled that record in just two years.

The accomplishment also is a reminder that a handful of technology companies have come to dominate today’s stock market and, in some ways, the global economy. Five firms — Apple, Microsoft, Amazon, Alphabet and Facebook — represent 22% of the Standard & Poor’s 500 index, the benchmark for the U.S. market.

That’s a lot of eggs in a very few baskets, but this sort of concentration isn’t new. The market was almost as top-heavy in 1999 and more so in the early 1960s, when the must-have investments included AT&T, General Motors and Standard Oil.

Norman Conley, chief investment officer at JAG Capital Management in Ladue, is a growth-stock investor who doesn’t own Apple. He figures smaller firms offer better opportunity.

“The best growth is probably not going to come from the biggest five, six or seven companies,” he said. “If history is any guide, there probably will be companies that perform better than those behemoths. There also may be a fall from grace or two.”

As if to remind us that bigness isn’t permanent, Exxon Mobil was kicked out of the Dow Jones industrial average this week. Exxon’s value has fallen 60% since 2013, when it was the world’s most valuable company.

Meanwhile, politicians on the left and right argue that Big Tech is too big. Elizabeth Warren wants to break up Facebook and Amazon, while Josh Hawley worries that the companies stifle conservative voices.

John Horn, an economics professor at Washington University’s Olin Business School, says market power could become a concern. “The concern that comes into play is, has their size gotten to a point where it’s going to limit future competition and growth?”

The Big Five have all been accused of anticompetitive behavior. Apple and Google have been sued by Epic Games, which wants to sell in-game currency without paying a fee to the giant companies’ app stores.

Horn says that the app stores’ 30% commission does reflect some monopoly power, but that breaking up Big Tech is the wrong solution.

Consumers probably do benefit from Apple controlling the software for their iPhone. “It feels too blunt to say you can only compete in one space,” Horn said. “The digital industry is less linear than products like automobiles or consumer packaged goods.”

Startup activity in the U.S. has been falling for 20 years, and the big-is-bad crowd argues that the decline must be a byproduct of monopoly power.

Not so, counters Robert Atkinson, president of the Information Technology and Innovation Foundation. He studied startup activity and found that, outside the retail sector, entrepreneurs are founding more firms than ever.

Atkinson argues that the number of mom-and-pop stores declined not because of monopoly power, but because big chains got better at giving consumers what they want — ample selection at low prices.

In the rest of the economy, he found no correlation between startup activity and industry concentration.

Atkinson says antitrust policy should focus on conduct, not size. If Apple or another company competes unfairly, the courts should step in.

The mere existence of tech behemoths, though, isn’t a problem. If we try to punish them merely for being big, he says, we risk crippling some of our most innovative companies.

David Nicklaus • 314-340-8213 @dnickbiz on Twitter dnicklaus@post-dispatch.com

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David Nicklaus is a business columnist for the St. Louis Post-Dispatch.

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