To The Moon

Is Big Tech's R&D Spending Actually Hurting Innovation in the U.S.?

Innovation may not be what big companies are best at, but no other kind of organization can operate at their scale. Apple, for example, is great at hardware and logistics, which is why it continues to gain smartphone and PC market share with its iPhone, Mac, and the accessories that make them more useful. Google is still great at search and ads, and was able to use its enormous cash flow to subsidize YouTube and build its mapping products -- both of which started as acquisitions -- says Mr. Bardin. Microsoft, in returning to its roots as an enterprise software company, has thrived under CEO Satya Nadella.

But what's worrisome about OpenAI is that many of the same forces that allow big companies to be so dominant may be contributing to its need to partner early in its life with a company like Microsoft, says Mr. Bessen. (OpenAI's technology was recently incorporated into a number of Microsoft products, after a multibillion-dollar investment from the company.)

As technology becomes more complicated, and companies hold on to it more tightly, it takes much longer to spread to other companies than it did before, he adds.

Reining in the growing power and advantages of big companies will be difficult, says Dr. Akcigit. For example, it may require updating tax laws that offer advantages to big companies but don't help small ones nearly as much, such as the R&D tax credit, which can require the kind of complicated documentation and accounting that only large companies are equipped to carry out. It may also require that competition authorities like the FTC be more forward-looking, to cope with the way that tech companies can grow quickly.

The total number of inventors in the U.S., and the total amount of money invested in R&D in the U.S., continue to grow. Yet business dynamism -- the rate at which new firms arise, grow, and fail -- is down, according to a large body of research, and economic growth is slowing, says Dr. Akcigit.

"The idea that if you allocate more resources to R&D, you'll grow faster, " he adds, "that's now broken in the U.S."