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The rise Scholars on The Supreme Court,
of the the international past, present,
Tea Party stage and future

November/December 2010 Vol. XXXII No. 6

The Sad
State of

don’t know if it would make him
smile or grimace, but someone should
give T. J. Rodgers a prize for his
predictive powers. Back in 2000,
Rodgers, the president and CEO of
Cypress Semiconductor, penned a prescient
manifesto for the Cato Institute with a
provocative title: “Why Silicon Valley Should
Not Normalize Relations with Washing-
ton, D.C.”
“The political scene in Washington is
antithetical to the core values that drive our
success in the international marketplace
and risks converting entrepreneurs into sta-
tist businessmen,” he warned. “The collec-
tivist notion that drives policymaking in
Washington is the irrevocable enemy of
high-technology capitalism and the wealth
creation process.”
Alas, no one listened. Indeed, Rodgers’s
dystopian vision of a highly politicized digi-
tal future has taken just a decade to become
reality. The high-tech policy scene within
the Beltway has become a cesspool of back-
n September the Cato Institute called President Obama to task for failing to honor his campaign
stabbing politics, hypocritical policy posi-
tions, shameful PR tactics, and bloated lob-
bying budgets.
Continued on page 6
I pledge to “go through the federal budget page by page, line by line—eliminating those programs we
don’t need.” Full-page ads setting out hundreds of billions in budget cuts—cuts explained in greater
detail at—ran in major newspapers nationwide, including the Wall Street
Journal, the Washington Post, the Los Angeles Times, the New York Times, the Washington Examiner,
ADAM THIERER, formerly president of the Progress and Politico, the Houston Chronicle, the Dallas Morning News, the Minneapolis Tribune, the Burlington
Freedom Foundation and director of telecommunications Free Press, the Oregonian (Portland), the Santa Barbara News Press, the Charlotte Observer, the
studies at the Cato Institute, blogs at Baton Rouge Morning Advocate, and the Lexington Herald-Leader.
Continued from page 1
Perhaps we shouldn’t find it surprising
“ The high-tech
policy scene within
the Beltway has
logical engineering—such as a mandat-
ed “broadcast flag” to protect the trans-
that so many players in the tech policy arena mission of high-definition video, or
now look to throw each other under the Big become a cesspool restrictions on “remote-storage” digital
Government bus to gain marketplace advan- of backstabbing video recorders, which would allow
consumers to save shows on servers run
tages. After all, that’s the story of many oth-
er industries that got under the covers with politics, hypocritical by cable TV companies. Some also want
Washington. But the sheer rapidity with policy positions, network operators and digital de-
vice makers to “do more”—potentially
which this sorry state of affairs has unfolded
in the tech policy world is shocking, even to shameful PR tactics, through force of law—to police their sys-
the most jaded among us. and bloated tems for piracy or help ensure content
can be monetized. Some news-gather-
lobbying budgets.
Lest you think I am exaggerating, here’s
a quick rundown of the cast of characters in
this Silicon-era soap opera and some of the
steamy plotlines:

struggling satellite radio industry com-
petitors (Sirius and XM) from merging.
They’d previously begged Congress and
ing institutions also want other Internet
intermediaries, especially search pro-
viders, to help ensure that readers and
advertisers don’t abandon them entire-
ly. Which brings us to Google.
• In recent years, telecommunications
and cable companies both asked the
the FCC to block those satellite opera-
tors from offering competing local pro-
• Everybody—and I do mean every-
body—wants Google dead, right now.
FCC to intervene to harm the other in gramming—an exercise in naked pro- Google currently serves as the Great
the “winback wars”—skirmishes involv- tectionism. Recently, broadcasters have Satan in this drama—taking over the
ing marketing efforts to capture or asked lawmakers to mandate that all cell role Microsoft filled a decade ago—as
retain consumers. Many years earlier, phones and mobile devices include FM just about everyone views it with a com-
both sides advocated “open access” man- radio tuners. Broadcasters argue this bination of envy and enmity. Of course,
dates be applied to each other’s networks should be required for “public safety” in a sense, Google had it coming. The
while insisting there was no reason such purposes, but it’s really just an attempt company has been the biggest cheer-
regulations needed to cover their own to hold on to fleeing audiences, even if leader in the push to impose “Net neu-
systems. there is little demand for such tuners or trality” regulation on the Internet’s
• But those physical infrastructure guys
have kissed and made up as part of their
the added cost such a mandate would
entail for consumers. And then there’s
physical infrastructure providers, which
would let the FCC toss property rights
unified effort to get the FCC to help the broadcast industry’s long-standing out the window and regulate broad-
them extract better contractual terms love affair with “must-carry” mandates, band networks to their heart’s content.
from the content creators and broad- which abridge the property rights of Meanwhile, along with Skype and oth-
casters for their video content. In the bat- video distributors by forcing pay TV ers, Google wants the FCC to impose
tle over “retransmission consent,” cable, providers to carry channels they might “openness” mandates on wireless net-
satellite, and telco video distributors not want (and which the public proba- works that would allow the agency to
have made an unholy alliance with bly doesn’t demand). dictate terms of service. It’s no surprise,
traditional regulatory advocates like
Public Knowledge and New America
• But broadcasters stand firm on their
own property rights. The spectrum
then, that the cable, telco, and wireless
crowd are firing back and now hinting
Foundation, asking the FCC to inter- they’ve occupied for decades may be we need “search neutrality” to constrain
vene in contractual disputes about pro- worth up to a trillion dollars, and they the search giant’s growing market
gram carriage and pricing. Rather than obviously don’t want anyone else get- power. File it under “mutually assured
focusing on dismantling the many other ting their paws on it. But the wireless destruction” for the Information Age.
legal privileges granted to broadcasters
and programmers, video distributors
industry covets thy neighbor’s wife, or at
least the spectrum that is hers. It wants
• Google had it coming in another
sense, having joined the decade-long
and regulatory advocates would instead the FCC to pressure—or even force— effort by myriad Silicon Valley actors to
essentially force broadcasters and con- broadcasters to vacate their spectrum so hobble Microsoft through incessant
tent owners to cut deals they might not it can be re-auctioned for other purpos- antitrust harassment. Google has ham-
find acceptable. es, especially wireless broadband. mered Microsoft in countless legal and
• But the broadcasters don’t exactly
have clean hands, either. They pulled out
• In the name of protecting copyright,
many in the entertainment industry
political proceedings here and abroad.
But revenge is a dish best served cold,
all the stops in an attempt to block their have called for various forms of techno- and Microsoft now relishes its role as

6 • Cato Policy Report November/December 2010

the ringleader of the rising War
on Google! Microsoft is using against
“ Perhaps we
shouldn’t find it
surprising that so
bying frenzy is now completely out of con-
trol. “The [high-tech] sector doubled its
Google the same antitrust playbook federal lobbying effort in a decade from
once used against them. Whether it’s many players in the $185 million in 1998 to a record $377.5
the legal battle over Google Books,
Department of Justice reviews of vari-
tech policy arena million in 2008,” reports the Center for
Responsive Politics. “The biggest share of
ous Google acquisitions, or other fights, now look to throw that increase came from the computer and
Microsoft now stalks Google at every
each other under the Internet industry and the TV, movies and
music industry.” Only the health care and
• Finally, there’s the subsidy circus, with Big Government bus financial/insurance/real estate sectors have
more high-tech companies lining up at
the taxpayer-funded trough than ever.
to gain marketplace spent more lobbying Washington in recent
years. Like other sectors, the recent reces-
One government report after another
lambasts the waste, fraud, and abuse
that runs rampant in America’s “univer-
sal-service” system, which is supposed
to guarantee that wireline telephone
” sion resulted in a slight downturn in tech
lobbying activity, but most expect things
tions. That’s nonsense, of course, and the to return to normal shortly. According to
scheme will only grow more expensive for National Journal, 4 of the top 20 spenders
consumers in the long-run as more com- on federal lobbying in the first half of 2010
service be widespread and affordable. panies line up for handouts. Worse yet, were broadband companies.
Just about everyone who wants a hard- the more checks government writes, the Although few Silicon Valley firms even
wired phone has one these days, and more opportunities it will have to exercise had a D.C. office a decade ago, today legions
Americans are “cutting the cord” faster control—subtle or blatant—over more lay- of their lobbyists descend on the Capitol
than ever. And yet, those old govern- ers of the Internet and the speech that and regulatory-agency hearing rooms each
ment programs just keep growing. travels over it. day. House and Senate Commerce Com-
Many had hoped increasing wireless mittee hearings on high-tech and media
competition would alleviate the need AT LEAST THE LOBBYISTS BENEFIT policy issues are packed like rock concerts
for such subsidies. Instead, the wireless Unsurprisingly, as a result of this inten- and have lines out the door that stretch lit-
industry’s lobby is content to demand a sifying political warfare, the high-tech lob- erally around the buildings some days.
subsidy system that “ensures
competitors have equal access
to support.” AT&T, the biggest Lobbying & Political Spending by Communications & Electronics Sector
recipient of such funds, justifies $400,000,000
being on the subsidy gravy train
in typical ‘better-us-than-them’
fashion: “In a competitive busi-
ness like wireless, it’s not easy to
sit idly by while your competi- $300,000,000

tors tap into a new revenue

Total Lobbying Spending

stream. Nor is it consistent with $250,000,000

your shareholders’ interests.”
• And the High-Tech Pork Barrel
is about to get a lot bigger. In

March, the FCC released a 360- $150,000,000

page National Broadband Plan
(none dare call it an industrial pol-
icy) that will invite even more of
this behavior, with its calls for sig-
nificant expansion of subsidies
for the diffusion of broadband
services. Amazingly, the agency
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
says its plan is costless, claiming
that the bulk of the bill will be cov-
ered by increased spectrum auc- Source: Center for Responsive Politics.

November/December 2010 Cato Policy Report • 7

“ ‘Net neutrality’
regulation of the
Internet’s physical
Indeed, an entire cottage industry of $11– motive sectors (among many others), with
35/hour line-sitters has developed, largely infrastructure the State becoming both protector and
to serve tech lobbyists’ need to make sure
they could get in the hearing room and get
providers would punisher of industry. The entrepreneurial-
ism that Hoffman and others care most
face-time with lawmakers and Hill staff. let the FCC toss about will then be at serious risk. Today’s
The only two major tech companies who’ve
generally resisted the urge to “normalize
property rights out dynamic tech industries will increasingly
stagnate as they come under the sort of
relations” with D.C. are Apple and Sony. the window and “Mother, May I?” permission-based regula-
They have just a handful of reps inside the
Beltway. Ironically, their lack of “engage-
regulate broadband tory regime that has crippled so much of
the rest of our economy.
ment” with Washington has been greeted networks to their
with a combination of puzzlement and ridicule
by everyone else in high-tech lobbying cir-
cles. The typical response one hears—apart
from subpoena threats from senators angry
at their disengagement—is “Don’t they know
what happened to Microsoft for being late

gain competitive advantage. In that sense,
this case study is also a prime example of
what Milton Friedman, in the March/April
There are some reasons for optimism,
however. First, it’s mostly been the largest
tech players who have normalized relations
with Washington. Smaller tech companies
have thus far largely resisted the urge. Hope-
to Washington?” In other words, we’re sup- 1999 Cato Policy Report, called “The Busi- fully that’s for principled reasons, not just
posed to believe that if only Microsoft had ness Community’s Suicidal Impulse”: the due to a shortage of lobbying resources.
employed hoards of lobbyists inside the persistent propensity to persecute one’s Second, the esoteric nature of many Inter-
Beltway in the early 1990s, the antitrust competitors using regulation or the threat net and digital technology policy discus-
cops wouldn’t have come knocking! Sadly, thereof. sions frustrates many lawmakers and often
Google seems to have bought into this myth It would be quixotic to believe this situa- forces them to lose interest in these topics.
and is now hiring new Hill and regulatory tion will be slowed or reversed anytime Third, the breakneck pace of technological
lobbyists at a frantic pace as the company soon. There’s enormous pressure on the change makes it difficult for regulators to
prepares for what will no doubt be the moth- high-tech sector to actually become more bottle up innovation and entrepreneurial-
er of all high-tech antitrust battles. entrenched in coming years, at least to remain ism. Policymakers can still create plenty of
“competitive” with other companies who short-term headaches for the tech sector,
CAPITALISTS AGAINST CAPITALISM have planted a flag inside the Beltway. Recent- however, and it would be foolish to think
Thus, in just a single decade, high-tech ly, for example, Reid Hoffman, founder of digital technology can magically cut through
America has not just “normalized relations” LinkedIn, a social networking site for pro- all the red tape Washington can produce.
with Washington, but gotten into bed with fessionals, worried that policymakers tend For that small remnant of believers in
Big Government and cuddled up tight. to ignore high-tech startups. “We don’t real Internet Freedom—freedom from inces-
What this sorry state of affairs proves, as have an entrepreneurship lobby,” he said, sant government techno-meddling—we
Rodgers aptly noted a decade ago, is “that “because entrepreneurs are off doing it.” As will never stop hoping that disputes among
many businessmen are not capitalists.” if that was a bad thing! In particular, he high-tech companies might be settled in
They’re only too happy to make peace with fretted about startups not getting their the marketplace instead of within regula-
Washington if they think it might serve a share of recent stimulus funding and argued tory agencies and congressional commit-
short-term interest—especially hamstring- that “It’s much easier when you’re embed- tee rooms. And we must continue our push
ing a rival. ded in the political infrastructure to respond to discourage high-tech companies from
High-tech America has refused to heed to immediate things” such as nabbing stim- an excessive “normalization” of relations
Rodgers’s warning that “Government can ulus dollars, he said. with the parasitic culture that dominates
do only two things here: take our money, Hoffman’s logic is impeccable; it cer- Washington by reminding them, as Rodgers
limiting our economic resources; or pass tainly is easier to get in on the action when noted in 2000, “that free minds and free
laws, limiting our other freedoms. Even in you have a small army of lobbyists inside markets are the moral foundation that
Washington, alluring subsidies come at a the Beltway shilling for taxpayer handouts. has made our success possible. We must
high cost to our industry. Washington’s But has he considered the costs? High-tech never allow those freedoms to be dimin-
money is never free.” Instead, the actors in America’s expanded embrace of Washing- ished for any reason.”
this tragedy scheme to wield the power of ton will likely take it down the familiar Let’s hope it’s not too late for high-tech
Leviathan to humble their competitors or path followed by the agriculture and auto- America to learn that lesson.

8 • Cato Policy Report November/December 2010