Finance
Lawmakers, technology and Michael Crichton
Michael Crichton once highlighted an unusual quirk in human thinking – something he called Gell-Mann Amnesia, after his friend Murray Gell-Mann. Chrichton said:
In short, the Gell-Mann Amnesia effect is as follows. You open the newspaper to an article on a subject you know well. In Murray’s case, physics. In mine: show business. You read the article and see that the journalist has absolutely no understanding of the facts or the issues. Often the article is so wrong that it actually presents the story backwards: cause and effect are reversed. I call these the “wet streets cause rain” stories. The paper is full of them.
Either way, you read with annoyance or amusement the many errors in a story, and then turn the page to national or international affairs, and read as if the rest of the paper was somehow more accurate about Palestine than the baloney that you just read. You turn the page and forget what you know.
Crichton was mainly concerned with journalism. If you see that news stories about an area you know well are often riddled with basic errors and written by someone who appears to have even a basic understanding of the subject, you should at least suspect that news stories about other topics are also full of with basic knowledge. errors and were also written by journalists who also had no basic knowledge of these topics. Yet we rarely seem to do this. But even more than journalists, I worry about what this topic says about lawmakers and other politicians. I find that legislators in areas I know well are even more likely than journalists to demonstrate a lack of understanding in the areas they so desperately want to control. And lately I’ve been seeing this a lot in regards to technology.
I’ve mentioned this before on the blog, but I’m a huge gadget and technology nerd. This, in addition to economics, has made me extremely interested in following news stories about lawmakers’ various attempts to integrate themselves into technology. The US government has recently gone after Apple as a monopoly and railed against various aspects of Apple’s business. And in almost every case, it’s clear that the person making this claim is someone who simply doesn’t understand the tech world at all.
I could give countless examples, but for now I want to focus on a claim from the Department of Justice, in which it blames “barriers to entry” for the failure of several companies in the smartphone space:
Many leading, well-funded companies have attempted to successfully enter the relevant markets due to these entry barriers, but have not been successful. Past failures include Amazon (which launched its Fire mobile phone in 2014, but was unable to continue operating profitably and shut down the following year); Microsoft (which shut down its mobile business in 2017); HTC (which exited the market by selling its smartphone business to Google in September 2017); and LG (which exited the smartphone market in 2021). Today, only Samsung and Google are meaningful competitors in the US performance smartphone market. The barriers are so high that Google is a distant third behind Apple and Samsung, despite the fact that Google controls the development of the Android operating system.
There’s a lot to unpack in the cacophony of errors. First, the Amazon Fire phone didn’t fail because of “barriers to entry.” It failed because, to put it bluntly, it was a really bad product. It lacked key features, the hardware was subpar, and it was too expensive for what it offered. You can search the internet for reviews of the phone when it was released, but I can’t find a single example of a reviewer actually recommending it to anyone. Companies with far fewer resources than Amazon have successfully broken into the smartphone market by offering products that were good, cheap, or both (think OnePlus).
Moreover, it is downright absurd to place the failure of Microsoft, HTC or LG on ‘barriers to entry’, because all of these companies were well established in the smartphone market long before their eventual demise and before Apple entered the phone market. . When the iPhone was first announced, Microsoft CEO Steve Balmer literally laughed at it and predicted it would fail. He confidently pointed out the following: “Right now we’re selling millions and millions and millions of phones every year. Apple sells zero phones a year.” Before the iPhone hit the market, Microsoft was entrenched as a smartphone company and had huge sales. The idea that their phone company wouldn’t be able to compete with Apple because of “entry barriers” can only be said by someone completely unfamiliar with the history of mobile technology.
Similarly, HTC and LG were also previously very successful smartphone manufacturers. HTC made the first Android phones, was the largest manufacturer of Android phones for many years, and by 2011 it was the largest smartphone manufacturer period – even taller then Apple and the iPhone. There are countless reasons why HTC balked and their smartphone business failed, but “barriers to entry” aren’t on that list. The same can be said for LG: they ran a very successful smartphone company for years, releasing phones that sold millions of units and earned great reviews and a devoted fan base. There are also a number of reasons for LG’s decline. (Tech YouTuber Marques Brownlee offers a variety of thoughts hereif you’re interested!) But to reiterate the main point: LG, HTC and Microsoft had been in the phone business for a long time for Apple entered the scene and they were all at once bigger and more successful in the smartphone market than Apple. Saying that they ultimately failed to compete with Apple because they faced “barriers to entry” is out of touch with reality.
