If policymakers treat Big Tech’s bureaucratic stagnation as a justification for more bureaucracy, the outcome will be a self-fulfilling Schumpeterian slide into managerial socialism.

Conversations around artificial intelligence have dominated the news cycle and culture at large for the better part of three years, with concerns becoming amplified more and more as time has gone on. These concerns focus mainly on regulation, safety, and environmental impacts.

Many policymakers argue that the scale of “Big Tech” threatens innovation, a claim often more motivated by political incentives than true economic analysis. More helpful than anecdotal assumptions, however, is the work of two twentieth-century Austrian economists, F.A. Hayek and Joseph Schumpeter. It seems the real threats to innovation may be less about Big Tech and more akin to bureaucratization and central planning by regulators. While critics fear capitalism’s excesses, both Hayek and Schumpeter warn that overreaction can stifle innovation. Overall, the two thinkers demonstrate that the danger is not “unregulated capitalism,” but the merger of large corporate bureaucracy with state planning impulses.

As Schumpeter describes in his magnum opus, Capitalism, Socialism, and Democracy, the process of capitalism is a complex one. He describes the phenomenon of creative destruction, where an entrepreneur innovates a particular good or service. This eventually erodes the very entrepreneurial ambition that created the product, replaced instead by a large bureaucratized firm, drunk on its own success and unable to innovate with the same veracity as before, until the next innovative competitor comes along and the cycle continues. This is evident in Big Tech: Amazon, Apple, and Meta are no longer scrappy startups but what Schumpeter would call “perfectly bureaucratized industrial units.” The innovation that led to their initial success becomes routine inside R&D departments, layers of middle management, and the firm ultimately becomes technocratic. This erodes the risk taking that led to the innovation in the first place, and risk taking becomes less commonplace. The public then interprets this slowdown as a “market failure,” opening the door to the appeal of government involvement.

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