'Super star' firms giving a lot for free, but will it continue asks Rajan
Davos: Former RBI governor Raghuram Rajan on Tuesday said consumers are benefitting in a big way from the business of scale with several services in the new technology age coming for free or very cheap, but it needs to be seen whether this can continue going ahead.
Speaking here at a session of the World Economic Forum annual meeting, Rajan said we benefit tremendously from business of scale, there are benefits of efficiency at large corporations and consumers are gaining in a big way from low prices.
For example, Google provides a big amount of free services, said Rajan, who teaches at the Chicago University and is regarded as a global voice on economy.
Rajan said that we all know nothing is free, so it needs to be known who is paying for it when consumers get it for free.
He also wondered whether the business of scale is creating "super star firms" and who has the real power -- is it large corporations or the governments?
"Obviously they are making money somewhere and we need to know whether the two revenue sides of consumers and advertisers are comparable when it comes to data and technology platforms," he added.
Rajan said we need to think whether competition would continue in the future.
"The concern is not so much about today, but about tomorrow. We need to think whether these benefits from scale would continue for the consumers," he said and added that "more than being about too big to manage, it is about too big to control. Our corporations are becoming too big to control for our political systems".
The panelists at the session also discussed big ticket mergers, digital platforms and market uncertainty that are transforming industries across the world. They also discussed how businesses are responding to this new strategic context.
Bank of America chief Brian T Moynihan, Google senior vice president Ruth Porat and Blackstone group CEO Stephen Schwarzman were among the participants.
Moynihan said the banking industry in US is still very unconsolidated, though there are big firms like Bank of America. He also defended strong regulatory framework for the banking industry, saying one cannot take money from people without having a strong set of regulations.
Asked whether data is the new oil, Porat said data is much better as it's not limited and data keeps getting generated by all of us.
Ning Gaoming from Sinochem group of China said the scale has certainly changed the way business happens and consumers are among the biggest beneficiaries.
Giving example, he said the quality of beer in Chinese market has improved tremendously and one of the reasons is that there are only four companies as against a lot many earlier. Of course there is competition, but business of scale has changed it a lot.
Rajan said the US has always been very uncomfortable with any entity being very big, starting with banks in 1930s.
He said Facebook and Google are being talked about a lot today, but the US has a history of proceeding against firms that became very big and they were broken down. However, things are changing now because of China coming into the picture.
