Creeping Tech Cronyism

The high-tech industry should fight the urge to become entangled with big government.

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Customers walk past an Apple logo after its lighting was turned off to mourn the Apple founder and former CEO Steve Jobs at an Apple Store in Hong Kong, Thursday, Oct. 6, 2011. Jobs died on Wednesday at the age of 56.

High-tech America is getting increasingly cozy with Washington, and the result could be costly for the public as both consumers and taxpayers. 

Cronyism, which generally refers to a corrupting affiliation between government and special interests, has long been a problem in traditional communications and media sectors. Today, unfortunately, favor-seeking is spreading to newer information technology sectors.

Internet companies and other high-tech giants are among the fastest-growing lobbying shops in Washington these days. According to the Center for Responsive Politics, lobbying spending by information technology companies has almost doubled since the turn of the century, from roughly $200 million in 2000 to $390 million in 2012. The computing and Internet sector has been responsible for most of that growth in recent years.

What's wrong with all these companies getting more political and "playing the game" in Washington? First, more resources spent pleasing legislators and bureaucrats in the political marketplace means fewer resources devoted to making consumers happy in the actual marketplace. Not only does lobbying and favor-seeking deny consumers better products and services, but consumers may also pay higher prices or higher taxes extracted by the corporate-government agreement.

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Second, cronyism also raises the specter of greater government control of the Internet and of the digital economy. When policymakers dispense favors, they usually expect something in return. They also become accustomed to having greater informal powers over the sector receiving favors, contributing to D.C.'s infamous "revolving door" problem.

More government control–explicit or implicit–would be highly unfortunate for the information technology sector, since the Internet has largely developed and thrived in a less regulated environment. By contrast, Washington's slow, top-down administrative control of other industries represents the antithesis of the digital economy.

High-tech America's recent embrace of Washington could take it down the familiar path followed by the agriculture, telecommunications and automotive sectors (among many others), with government becoming both protector and punisher of industry. Today's dynamic tech industries will increasingly come under the "mother, may I?" permission-based regulatory regime that encumbered the older information technology businesses.

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How do we curtail creeping cybercronyism? The most obvious step is to limit the levers of government power and influence that companies can pull. That means reducing unnecessary regulations and abolishing various government subsidies or tax credits that firms might seek. Policymakers should also look to sunset dated laws and regulations on a regular timetable to reduce the potential for abuse.

For instance, the Federal Communications Commission for 80 years has excessively stipulated for what the wireless services spectrum can be used. This means wireless firms appeal to regulators' wants, not consumers'. Liberalizing these rules and auctioning spectrum would eliminate much of government-corporate collusion in this area.

Finally, high-tech innovators themselves should voluntarily disengage from politics as much as is practicable and instead refocus on marketplace innovation.

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Thus far in the technology sector's brief history, information technology innovators have not been burdened by the same regulatory obstacles faced by analog-era producers. If they hope to keep it that way, the first step is to avoid the cronyist favor-seeking that earlier industries employed and that opened the door to the marketplace meddling that continues to haunt communications and media providers today.

Adam Thierer is a senior research fellow at the Mercatus Center at George Mason University. Brent Skorup is research director at the Information Economy Project at the George Mason University School of Law. The authors recently released a Mercatus Center working paper, "A History of Cronyism and Capture in the Information Technology Sector."

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