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High Tech Industry Suffers When Companies Curry Federal Favors

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High Tech Industry Suffers When Companies Curry Federal Favors

Delong Op-Ed on Tech Central Station.

This week I was talking with Roger Cochetti, vice president of Network Solutions and experienced observer of the high-tech scene. “The Internet is at a fork,” he said. “Over the next couple of years it could be confirmed in its existence as a free-market, free-wheeling, chaotic, fount of imaginative innovation and multiplying value. Or it could go down the road taken by broadcasting and telephone, becoming regulated, stodgy, hostile to technical progress, and lawyer-driven.” These comments are serious. A couple of years ago, Members of Congress boasted that they knew enough to keep their hands off the Internet. They must have lost some brain cells since, because in the current session over 400 bills were introduced to govern it in one way or another. Congress is even adopting the device of sticking mandates into appropriations bills, without hearings or real thought. You want to require all schools and libraries that get federal funds to impose filtering? No problem – this is now in an appropriations bill. Government regulators, including antitrust regulators, have also recovered their nerve. They are evolving new schemes as rapidly as their word processors can spew them out and their emails can send them around for comment. At the state level, middlemen are fighting back hard against the efficiencies of on-line commerce, brandishing legislatures like halberds. Individual businesses are often full participants in this process. Each company thinks that it can out-maneuver its rivals, thus capturing some political edge, so it eggs on the regulators. The strategy does not work, and in the process of learning that it does not the company becomes a destroyer of its own real interests:

  • With so many players, most companies must lose. Even if a company wins today’s battle it is likely to lose tomorrow’s, leaving it no better off on balance.
  • Companies pay fortunes to Washington middlemen and fixers, who have a vested interest in bigger, more intrusive, and less predictable government.
  • Business organizations can seriously cripple their internal processes, structures, and strategies in an effort to curry favor with ignorant regulators. Finally, the overall effect of multiple efforts at rent-seeking is to justify increasingly intrusive government interventions. (The Microsoft prosecution, for example, opened the gates to unending actions based on government whim, not law, economics, or principle. The current impositions on the AOL/Time Warner merger are one result.) The short-term gains turn out to be temporary, while the expansion of power is forever. If the Internet is to remain free and vital, the members of the high-tech community must become self-consciously aware that each of them separately and all of them collectively have an over-arching interest in defending the free market. This long-term imperative far outweighs any ephemeral advantage from winning a particular battle. As the old saw goes, the members of the community can hang together on this principle, or they can hang separately without it. In a 1999 interview with The Economist, Warren Buffet, legendary investment guru, worried that politicians are waking up to the true monetary worth with which they are imbued by Washington’s influence over the economy. He foresaw that business people would be forced to devote increasing time and resources to dealing with the government, and, further, that this would create pressures toward plutocracy. The richest companies would buy the most political favors, which would produce more wealth, and so on, in a vicious cycle. By definition, in such a politicized system most companies must be losers. A free market, in contrast, provides infinite niches for the energetic and innovative. So the long-term interests of high tech businesses are clear. But will they learn? Will they stop their ears to the siren songs of statists, rent seekers, and Washington middlemen, who constantly push them to sell out their long-term interest in a principled, predictable system in an effort to secure vaporous short-term advantages? Who knows. But watch next year’s Congressional session to find out. __________________ James V. DeLong (delong@cei.org) is a Senior Fellow at the Competitive Enterprise Institute in Washington, DC, where he works on the Project on Technology & Innovation.