How Corruption Is Strangling U.S. Innovation (2012)

http://blogs.hbr.org/2012/12/how-corruption-is-strangling-us-innovation/?utm_campaign=Socialflow&utm_source=Socialflow&utm_medium=Tweet

by hype7 • 12 years ago

122 97 12 years ago

blogs.hbr.org

hapless• 12 years ago

to summarize: regulatory capture is an existential threat to the American economy, and any regulation that restricts a silicon valley firm is prima facie regulatory capture.

I, too, am alarmed by the changes in campaign funding we have seen in the last 20 years. The author applies his alarm narrowly to problems in his private equity portfolio. I do not share his alarm on that particular topic.

By and large, I prefer to live in a world with taxi and hotel regulation, even if it impairs the ability of some bay area millionaires to add to their fortunes. Not all regulation is a sign of regulatory capture. Not all lobbying is intrinsically bad. Not every improvement in efficiency improves outcomes for society.

WildUtah• 12 years ago

I prefer to live in a world with taxi and hotel regulation

Please enjoy them, then. The rest of us whose judgment is sufficient to choose our own taxis would appreciate if you kept the cops out of our private choices.

yarrel• 12 years ago

Express kidnappers agree with you.

alayne• 12 years ago

Sure, just make sure the taxis only drive on your private road.

marcusf• 12 years ago

Stockholm, Sweden, has a fairly unregulated taxi market in that pricing is set independently. This causes massive issues, specifically for tourists who have no idea what to pick. They end up paying $500 USD to go from the airport to town, a ride that is usually closer to $60-70 USD.

I guess what I'm saying is judgement is contextual.

gutnor• 12 years ago

You judgement is sufficient because you live in a world where taxi are regulated and as such any legitimate unregulated competition will strive to provide you the same guarantee you get with the regulated ones.

Now I'm not saying that the current regulation shouldn't get refreshed to consider what is currently available. But I'm amazed how people are just all or nothing about regulation.

You should want enough regulation so that a basic level of service is guaranteed. If that is not the case, it becomes too hard for customer to efficiently compare services. Like in this case, you should be able to compare taxi companies in less than a few minutes. If you need more than that, then chance are that you will stick with the reliable provider you know. Good competition happens when consumers are willing to try alternative.

brianmcc2• 12 years ago

Don't assume you represent "the rest of us". You don't. Your choice is valid, but it's not mine, and that will be true for many others.

pizza2343• 12 years ago

Well, dividing the world in them and us is certainly not a very good beginning of a conversation :-|

But aside, the problem is not in the individual problem theirselves.

The problem is that an excessive deregulation is a part of a large process of demolition of the human rights of the great majority of the population.

Paradoxically, such huge problem is difficult to notice, because it requires vision.

In a world where there would be an excess of human rights and slow economy, deregulation would be fine. In such world, I would agree to liberalize the taxing and housing.

We're on the opposite side, though. So keeping deregulating is going to make the disaster we're already in even worse.

AutoCorrect• 12 years ago

Let's take a look at that:

Quick, tell me which ISP provides fiber to the home with unlimited bandwidth? Only 1, so far, and only in limited areas. If it was ONLY our judgement that determined the quality, then I would be all for it. Unfortunately, there's sometimes a race to the bottom. Regulations help, to a certain extent, to control that. I know I wouldn't want open heart surgery provided by the lowest bidder.

NoPiece• 12 years ago

You don't need to care about the millionaires in silicon valley, but you should care about the poor unemployed guy who is denied the right to earn a living by driving people around in his car.

res0nat0r2• 12 years ago

What about the guy driving the car and the family of the girl who were killed accidentally by an Uber driver, and Uber trying to skate responsibility? Regulations aren't in place contrary to popular opinion here just to make rich people richer...

ahomescu12• 12 years ago

By and large, I prefer to live in a world with taxi and hotel regulation

I can see why you'd want licensing for taxi drivers (to help against customers getting ripped off or mugged), but what's the point of limiting the number of taxis (which is really one of the main points against taxi regulation)? I'm not sure it restricts the number of cars in the streets, if people who would otherwise take a cheap taxi now have to own a car instead. My point is there is such a thing as too much regulation.

glesica• 12 years ago

  > My point is there is such a thing as too much regulation.

Or just poorly constructed regulation. I agree with you. I want taxi regulations, because I've got enough historical and international perspective to know what will happen without them and to know that they are, at worst, the lesser of two evils.

However, I absolutely want smart regulation that gets out of the way where it isn't helping anyone and ensures that the services people want can be delivered.

That being said, I would prefer better public transit than more taxis, but that's just another side of the same many-sided die.

bowlofpetunias• 12 years ago

In some places we have this thing called public transport. In some very odd places we even use bicycles.

Taxis, like all other cars, clog up the roads with their inefficient size to passengers ratio, and pollute the air. Limiting the number of taxis can be a matter of maintaining a half way liveable city.

If there were plenty of cheap taxis in my town (Amsterdam) I would use them a lot, because I'm a big fat lazy motherfucker. Unfortunately, there are too many people like me, and our selfishness would be detrimental to the society around us.

(I'm typing this as it's pouring outside and I have to get to the office. I would love a cheap taxi right about now, but the world doesn't revolve around me.)

comicjk• 12 years ago

Models of NYC traffic show that increasing the number of cabs would not cause a proportional decrease in the number of private cars, and that the congestion would make the average taxi trip take longer, even including the time spent waiting for a taxi.

http://www.npr.org/blogs/money/2012/07/31/157477611/does-new...

atom-morgan4• 12 years ago

By and large, I prefer to live in a world with taxi and hotel regulation

Why, exactly?

gaius4• 12 years ago

Well, for a start, if you buy or rent an apartment in a nice quiet building, you didn't sign up for one of your neighbours deciding to run a hotel with strangers coming and going at all hours.

Regulation prevents people getting profits by externalizing their costs onto others without their consent.

tim333• 12 years ago

Looking at the case of Uber I think it's not so much corruption as vested interests that are fighting against it. NY taxi medallions for example are worth about $13bn or $1m each and the guys who have spent $1m are going to lobby against Uber, corrupt politicians or not.

dalek2point3• 12 years ago

Step 1. take a bunch of stories in the news about tech firms.

Step 2. rehash them together without a discussion of the individual issues at stake in each case, which can be quite different and complex.

Step 3. slap on a catchy title.

voila, your HBR article is ready!

ATLobotomy• 12 years ago

Step 0. Find stories where the software industry isn't benefiting from the frivolity of the system.

wehadfun3• 12 years ago

Yea I was a underwhelmed that Tesla, AirBnb, and Uber where the examples in Harvard Buriness Review of corruption stifling innovation.

These are billion dollar companies and their political problems are dam near mainstream news. How about this guy [0] who invented a needle that could cut down needle prick injuries by over 99% and cost the same as the regular accident prone needles in use but was blocked by medical monopolies with legal kickbacks.

[0] http://www.washingtonmonthly.com/features/2010/1007.blake.ht...

PythonicAlpha• 12 years ago

Good that also the problem of Intellectual Property has been touched in the article!

This is an important one. Because they always claim, that make the IP rights stronger does strengthen the innovators. The opposite is true!

You see it also in the patent system. When old (and stupid) patents hinder innovation (what happens all day today), than the patent system becomes the biggest hindrance to innovation.

The point is good: When it is better to "own" old IP than to make new one, the system is strangling innovation, nothing else.

This system is for the "owners" not for the "creators"!

apsec112• 12 years ago

In Africa, the arrow usually goes money -> power: you want pull with the government, so you buy it.

In the US, the arrow usually goes power -> money. People with power use it to enrich themselves, as this article demonstrates. The reverse almost never happens.

Much ballyhoo is made of "money in politics" and how terrible it is. But those who believe US companies can "buy legislation" are welcome to explain how (e.g.) Google, the second-largest corporation in the US by market cap, was not allowed to build a bridge by the Mountain View City Council (http://www.mv-voice.com/news/2013/12/12/council-deadlocks-on...).

Nothing big. Nothing unethical. Just an ordinary twenty-foot bridge over a creek between two Google offices. Denied for unspecified "environmental reasons", even though the bridge would save thousands of miles of polluting car travel every day. Google offered to conduct an environmental impact review at their own expense, but even that was denied.

pedalpete• 12 years ago

Is it possible your example of Google actually proves the point? Maybe Google didn't pay the right people in government to get the bridge approved? I don't know anything about this bridge proposal, but I would think that the 'money in politics' issue is less of an issue in regional/city politics than it is in state and federal.

Local representatives look their constituents in the eye on a regular basis. State and federal members don't have the same reminder of who they work for.

davidw2• 12 years ago

Is it possible your example of Google actually proves the point?

One of the classic signs of a conspiracy theory is that it is not falsifiable: evidence to the contrary is actually evidence of the the theory!

I would think that the 'money in politics' issue is less of an issue in regional/city politics than it is in state and federal.

Not at all, it's just that it's less money. How do you think the area where Google is got transformed from a rural-ish area full of farms and orchards into what it is today?

imrehg• 12 years ago

The Power -> Money direction indeed seem to be such, and everyone's picking up on it, including popular culture

"Such a waste of talent. He chose money over power. In this town, a mistake nearly everyone makes. Money is the Mc-mansion in Sarasota that starts falling apart after 10 years. Power is the old stone building that stands for centuries. I cannot respect someone who doesn't see the difference." -- Frank Underwood / House of Cards US

vacri2• 12 years ago

Power is the old stone building that stands for centuries

It really isn't. Politicians fear scandals because the powerbase that they spend many long nights and hard years building can be undone in a heartbeat. "A week is a long time in politics".

doktrin2• 12 years ago

This is one of the axioms of the show, and it's utter nonsense. It doesn't stand up to rational analysis. Political "power" is incredibly ephemeral and brittle - just look at Chris Christie.

cafard• 12 years ago

I should say that the Rockefellers have done better at lasting than the Tafts did.

crag2• 12 years ago

"In Africa, the arrow usually goes money -> power: you want pull with the government, so you buy it."

Hate to break it to you, but it's the same in America (and most "western" countries). There are too many examples of corruption in our [American] government, in the last 6 months, to even list - from local traffic cams to the new F-35 fighter jet. And it's at all levels of government.

Don't kid yourself, America is not liberty, it's Negative Liberty. And money buys power. it always has.

vijayr• 12 years ago

most "western" countries

Can anyone suggest a country, where there is relatively less corruption?

falconfunction3• 12 years ago

That indicates bureaucracy more than standards.

pizza2343• 12 years ago

But those who believe US companies can "buy legislation" are welcome to explain how (e.g.) Google, the second-largest corporation in the US by market cap, was not allowed to build a bridge by the Mountain View City Council (http://www.mv-voice.com/news/2013/12/12/council-deadlocks-on...).

A single event doesn't certainly demonstrate anything; a disproportionate amount of "legislation purchasing" happened and is happening - and this is very factual.

If you have a look at what's happening in the sectors... well, all the sectors, but especially the financial, food and military ones, you would have a clear idea of which process are we in.

rando289• 12 years ago

A single event doesn't certainly demonstrate anything.

It demonstrates what is possible, not probable, and as long as we keep that in mind, there is nothing wrong with it. My life is string of single events, and I will refuse to believe it "doesn't demonstrate anything."

Symmetry• 12 years ago

Money does have a big influence on politics, but only indirectly. Each factor of two a politician outspends their competitor in an election by only tends to get them another 1% of the vote. Not nothing, but not really worth the appearance of corruption that you risk if you just give your donors what they want.

But the important thing that money does is allow you to hire lobbyists. Congresspeople need to pass legislation on a wide variety of issues. As anybody who's ever heard their rep talk about the "intertubes" knows, our legislators aren't necessarily experts on everything. The executive branch gets around this by hiring experts, but somehow we've decided to steadily cut Congress's staffing budget for the last few dozen years.

But there are a class of people who are personable, who have been cultivating relationships with the right people for years, and who have persuasive sounding plans for legislature that could "Save America and benefit your constituents" who are perfectly happy to step up to help out. And if their advice isn't exactly impartial, well, I honestly worry a bit more about incompetence than venality so I won't say this is the worst possible thing. But I'd be very supportive of any motion to say, bring back to the Office of Technology Assessment[1] or such.

And many of the other things the article brings up are just standard Public Choice[2] problems. Taxi cab drivers will vote as a block to stop Uber, consumers will vote based on other issues. Dealership owners and employees vote for state legislators, Teslsa employees are mostly off in some other state and consumers have more important things to care about, etc.

[1]http://en.wikipedia.org/wiki/Office_of_Technology_Assessment

[2]http://en.wikipedia.org/wiki/Public_Choice

nabnob• 12 years ago

Each factor of two a politician outspends their competitor in an election by only tends to get them another 1% of the vote.

Source? That's really interesting - I would have expected it to have a much larger impact.

crag2• 12 years ago

How much did Google spend on lobbying for that brige? In Mountain View, who opposed the bridge?

Maybe the denial had nothing to do with money. I've seen projects denied at the city level for lack of proper permits, zoning, insurance, studies, etc, etc. Even a bad presentation at a council meeting could derail a project (I've seen that too).

Compared to a company like ATT, Google spends peanuts on lobbying. In fact, the whole tech sector does, compared to the health sector, banking, or defense.

araes• 12 years ago

It helps too that the local level has much less attention, less stakes, and is much less of an echo chamber. Google's (probably) not going to offer to fund your next city council campaign war chest for allowing them to put a bridge in, but they might fund a senator who could help them crush their competitors on a national, or international, scale. It also helps that at the national level, its often not "me vs you" specifically, but rather amorphous lobbying groups that theoretically represent an industry's wishes. "Don't you want to help promote strong, beneficial laws for competitive American businesses?" vs "Want to do me a favor?"

falconfunction3• 12 years ago

Amazon has a patent on 1 click to buy, and I am supposed to believe that mickey mouse remixes are stifling competition? Are you a child or do you write for children?

euank• 12 years ago

It's not mickey mouse, the extension of copyright that resulted. The point he's making is that a big business (Disney) can sway legislature for their own benefit.

If you're not aware, the copyright period has been extended several times up to the point of ridiculousness based mostly on Disney's lobbying.

Patents are a massive problem in tech, but copyright is a problem for innovators in the arts - especially authors.

The insult at the end is entirely unneeded. Hell, I wouldn't be surprised if a child saw the issues presented more clearly for not having had to deal with reality nearly so often.

falconfunction3• 12 years ago

anjc• 12 years ago

Two things. As much as I don't like the idea of incumbents using their weight to protect against innovative competition, is this not just the nature of a strategic view of competitive advantage? I mean, it's not nice, but it seems like strategy 101 to bolster barriers to entry to protect against new entrants. Without these barriers being possible, incumbents would presumably create barriers in a different manner (through acquisition etc)? It's not like massive incumbents will whither and die because they can't encourage legislation to be adopted, it's just a currently effective strategy.

Secondly, a semantic point, it talks about 'disruptive innovations', but surely the key characteristics of disruptive innovations, at least in the sense that Christensen described them, is that incumbents either don't see the value in them or else the product targets a segment with a low-performance product that incumbents don't see the threat of.

Tesla and Uber don't seem to fit this bill for me, they seem more like maybe sustaining and radical innovations, respectively, and I don't think existing value networks will be affected. They seem like they're just segmenting and differentiating to me. I can't see everybody driving around in Tesla-type cars bought in manufacturer-owned dealerships in 20 years, say, because as the article says itself, it only suits "innovative manufacturers like Tesla and Fisker that only have a very few number of models and who want to locate in high-traffic areas".

I don't think it's disruptive.

marcosdumay• 12 years ago

As much as I don't like the idea of incumbents using their weight to protect against innovative competition, is this not just the nature of a strategic view of competitive advantage?

Yes. What is wrong is that the government shouldn't be helpping them.

hibikir• 12 years ago

This is just a partial look of the problem, which is inherent to a republic, and goes kind of like this: If a law would be a big economic boost to 50 people, but a minor loss to 50K, chances are those 50K will put less pressure on the legislature to stop the law than the 50 people to at making sure it passes. So established players with money can make sure we get laws that help them, hurting the majority of the electorate.

Lobbying is pretty much unavoidable. For more on the concept, and on why some groups can form a lobby, while others just can't get anything effective passed, there's 'The Logic of Collective Action' from Olsen, 1965. It talks a lot about unions, but the argument is the same for groups that represent companies.

cwp• 12 years ago

Yes, this is a general problem, but that doesn't mean that it can't be ameliorated.

One of the most insightful things I read about health-care reform in the U.S. was this: a lot of people on the left would have preferred a single-payer system to what was actually enacted, but that really wouldn't have been feasible in the U.S. The reason single-payer is successful in keeping costs down is that the government sets prices. There's a committee of experts somewhere that sets prices of drugs, procedures etc, and periodically adjusts them based on technological advances, market conditions etc. This couldn't work in the U.S. because the pricing body would be subject to intense lobbying by medical suppliers, and would quickly reflect their interest in keeping prices high, rather than the public interest in lower prices. (I wish I had a citation, sorry.)

So does that mean single-payer medical systems are impossible? No, of course not. It works fine the U.K., Canada and Taiwan to name a few. In those countries, the kind of lobbying that dominates politics in the U.S. is simply illegal.

At the same time, not all special-interest lobbying is harmful. Consider the case of wheel-chair users. They represent a tiny fraction of the citizenry, but they benefit greatly from a law that requires public buildings have wheel-chair access ramps. That would saddle the majority with a small cost, but the public doesn't care either way. So the wheel-chair lobby has to put effort into getting the law passed, and it's a good thing if it succeeds!

So, yes, this is a general problem that has no solution. But that doesn't mean that corruption on the scale and scope that exists in the U.S. is inevitable, or that it's not really hurting U.S. democracy. It is.

snarfy2• 12 years ago

If you've ever visited DC, it's plainly visible in the skyline. There is a law stating no buildings can be taller than the monuments, so all the buildings are the roughly same height.

There are a handful of true government buildings, and everything else is associations, thousands of them, things like american dental association, metal workers association, etc. There are so many associations there is an association of associations.

It is these people writing the laws. The congressmen don't even read them all before they sign them.

dvcc• 12 years ago

Aside from the point of congressmen not reading bills prior to signing them, this is not really an issue.

Why should we expect every member of congress to be an expert in dentistry? We shouldn't as that would be a waste of time. That is what the numerous associations/think tanks are there for. To guide legislators in their decisions.

Abuse exists, but that does not mean we should abolish the idea of it.

snarfy2• 12 years ago

None of those people represent me. They represent dentists, steel workers, etc. My representation is severely drowned out by all of the money. This is the problem. Their laws may benefit me, or they may hinder, but they certainly do not benefit democracy. I should not need a million dollars to throw at capitol hill for my vote to count. Sure, we should have experts from the industries to guide the laws, I'm just not sure they should be paid by industries when they do it.

bippi• 12 years ago

my "cool story, Hansel" that goes with this: I worked in electronic bingo. One of the things we faced was that paper bingo card manufacturers routinely wanted to limit the effectiveness of electronic bingo markers so-as not to drive themselves out of business. One method they did was limit the number of cards that could be sold to any one person, electronically or otherwise.

Also, in some jurisdictions we had to have a paper copy of each card sold to match what was in the bingo machine.

Thus, the paper market would never, ever die. So-much-so that the electronic company we were, invested in a printing press.

wehadfun3• 12 years ago

Why can't Tesla just have regular dealerships and let people buy them?

Why can't airbnb just collect and pay the taxes?

Why can't uber properly license the drivers?

glenra3• 12 years ago

Why can't Tesla just have regular dealerships and let people buy them?

"Regular dealerships" are a horrendous waste of resources. It's a business structure that made sense 50 years ago and makes very little sense today. Tesla doesn't need regular dealerships, so you're asking why they shouldn't be forced to waste money buying land and buildings and hiring people that could all be doing something MORE useful, just in order to make their company look more like the rest of the industry they're trying to disrupt.

It's like asking "Why can't Apple just use Windows on its computers like everybody else does?" Or "Why can't Walmart just set up tiny little stores that sell a few things - why do they have to make these huge box stores that sell everything?"

wehadfun3• 12 years ago

Dealerships don't make since today?

I like being able to take my car to the place I bought it to be fixed.

I like that I do not have to try and convince some sales guy to come take a look at my car.

I like the fact that I can touch, get in, kick, and drive the car I buy before I but it.

at-fates-hands• 12 years ago

This is pretty interesting considering most conservatives want less regulations and most liberals want more.

In every example, they cite over regulated industries where the biggest players are using those regulations as a means to stifle innovation.

How Corruption Is Strangling U.S. Innovation (2012)

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