Big Tech Is Turning American Capitalism Into a Sovereign Power

EU should not copy the founder-led model that has driven the US technology boom. It needs a form of capitalism that can innovate without eroding competition and democratic institutions

While managerial capitalism tended to support an international order based on shared rules, Big Tech is more interested in a context in which the US can impose on global markets rules consistent with its own economic and technological interests. It therefore converges with Trump’s “America First” approach. In light of these developments, the different forms of capitalism operating in the European Union cannot continue with business as usual.

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As Big Tech companies were taking the top ten positions in the US stock market, some of their chief executives sat at the same table as G7 leaders in Evian, treated as their peers.

This should no longer come as a great surprise. Some of these companies have acquired quasi-sovereign powers in strategic infrastructure and security. It is no coincidence that several social scientists have drawn parallels between these firms and the colonial companies, such as the East India Company, which operated between the 16th and 19th centuries beyond the control of nation states.

The rise of Big Tech in its current form is the result of a profound transformation in American capitalism and in the way it relates to politics.

Until the global financial crisis of 2008, the dominant model was the widely held public company, governed by the principle of “one share, one vote”, run by managers accountable to shareholders and focused on corporate profitability. Relations with politics were significant but mainly indirect, mediated through lobbying.

The financial crisis and the digital revolution, however, favoured the emergence of a new form of capitalism, which Sandro Trento, in a recently published book, has defined as “charismatic capitalism”, or founder capitalism.

In this model, driven by large technology companies and by the expansion of artificial intelligence, founders retain control of the company even after its stock market listing through shareholding structures that give them voting rights far greater than those of other investors.

This arrangement has made it possible to overcome one of the limits of managerial capitalism: its excessive focus on short-term results. Innovative companies, especially those active in artificial intelligence and large-scale cloud services, the so-called hyperscalers, require enormous investment and long time horizons before they generate significant profits.

Stable control by founders therefore makes it possible to pursue long-term strategies and sustain projects with high technological risk.

The other side of the coin, however, reveals significant problems. Charismatic capitalism tends to favour the formation of monopolistic positions.

Competition is not in the market, but for the market. Once a dominant position has been achieved, companies preserve it by creating barriers to entry and acquiring potential competitors.

To achieve these objectives, direct relations with politics become increasingly important, aimed at influencing regulation, competition policy and the allocation of public contracts. The lengthening of the corporate time horizon is cemented by the capture of public regulatory power.

In recent years, many Big Tech chief executives have therefore increased their public influence through control of media and social platforms and through greater financing of electoral campaigns.

With Donald Trump’s arrival in the White House, a particularly close and unhealthy transactional-clientelist relationship developed between some large technology companies and political power, with important international repercussions.

While managerial capitalism tended to support an international order based on shared rules, Big Tech is more interested in a context in which the US can impose on global markets rules consistent with its own economic and technological interests. It therefore converges with Trump’s “America First” approach.

In light of these developments, the different forms of capitalism operating in the European Union cannot continue with business as usual. The structural changes generated by charismatic capitalism require their transformation.

One possibility would be to copy the US model, but in our view this would be both a losing and an undesirable choice. The model works much better for pioneers than for imitators.

Although charismatic capitalism has contributed to the development of sectors with high innovative potential, over the long term reduced competition and the use of political power for economic ends weaken innovation, productivity and growth.

Even more worrying are the political consequences: the growing interdependence between large technology companies and political power undermines the proper functioning of democratic systems, favouring a gradual drift towards forms of illiberal democracy.

As we argue in the EUI Florence Report, instead of trying to imitate the US, the EU must seek original paths towards a form of capitalism that operates at the frontier of innovation while preserving liberal democracy, the European social model, environmental sustainability and market contestability.

What will be essential is a combination of large-scale investment financed jointly, EU regulation that supports innovation without yielding to the lure of deregulation, and state aid discipline that guarantees the integrity of the single market.

The configuration of European capitalism over the next decade will be decided by this challenge.

A previous version of this article was published by Il Sole 24 Ore

Moreno Bertoldi

Moreno Bertoldi is Senior Associate Research Fellow at the Italian Institute for International Political Studies (ISPI).

Marco Buti

Since April 2023, Marco Buti has held the Tommaso Padoa-Schioppa Chair at the Robert Schuman Centre. Before joining the EUI, Buti was Chief of Staff of the Commissioner for the economy, Paolo Gentiloni. Between 2008 and 2019, he was Director-General for Economic and Financial Affairs at the European Commission. Moreover, he has been the Commission Finance Deputy at G7 and G20.

He is an IEP@BU fellow.

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