An important part of the Chicago Revolution in antitrust was the argument that no monopoly is forever. Eventually, someone will innovate and offer a superior product that the monopolist cannot match. And, just like that, the monopolist will be history.
Microsoft’s lock on operating systems looked assured in 1998 when the Justice Department tried to break the company up. But that remedy was never ultimately imposed. And in the end it didn’t matter. For, less than ten years later, smartphones arrived, and now most people do most of their computing on operating systems not made by Microsoft.
It seems to follow that antitrust action is a waste of time.
So interesting, then, to hear all the talk of late about how, despite its best efforts, China won’t be able to catch up with the West in chip production.
Not for decades.
We are told that chip production relies upon an entire ecosystem of designers and suppliers. That experience matters. And so on.
But if that’s right, then the view that no monopoly is forever must be wrong—or at least not absolutely true in all cases. If the Western chip fabs have a near-permanent lock on the market, then it can’t be the case that we can always rely on markets to erode monopoly power. It can’t both be true that China can never catch up with the West on chips and that no position of market dominance is forever.
So which is it?
I suspect that those who think China can never catch up are wrong.
It may well be the case that the learning curve on chip production is such that a latecomer will never be able to catch up with a first mover absent technology transfer. But the argument about the impermanence of monopoly power has never been that newcomers will one day master the incumbent’s technology. It has always been that newcomers will one day introduce a completely different technology that carries out the same tasks as the old technology, only ten times better.
To this day, Microsoft continues to dominate the market for PC operating systems. What eroded Microsoft’s power was the introduction of a different technology—smartphones—that required a different kind of operating system. Microsoft didn’t start out with a lead in mobile operating systems, and, in the event, Microsoft lost the race.
So the question about whether China can overcome her lack of cutting edge chip supply and find a way to go head to head with the West as computing revolutionizes everything from military equipment to passenger vehicles is really the question whether China can come up with different technologies that do computing better—not just more semiconductors.
I don’t know the answer to that question. But it is perhaps useful to note that while China is not a leader in the design and production of conventional chips, China is a leader in quantum computing—which promises vastly greater processing speeds—and in artificial intelligence.
Indeed, it is worth asking whether TikTok’s success at challenging both Google’s dominance in search and Facebook’s dominance in social media doesn’t contain a lesson. At the same time that at least some Americans were quaking in their boots regarding these American tech giants’ size—and calling for antitrust enforcement—TikTok was quietly applying superior artificial intelligence to revolutionize the core functionality of both companies. TikTok is a Chinese company.
The view that technological advance always ultimately erodes dominant positions is perhaps most closely associated with Joseph Schumpeter, who called this process “creative destruction.”
The question, then, is whether the West should worry that creative destruction will erode its dominant positions.
If the Chicago School of antitrust is right, the answer is “yes.”