Milton Friedman warned the computer industry!!!

Milton Friedman was a man of common sense and great foresight. What he said in 1999 has come to pass and the Cato Institute article on 1-28-13 pointed that out.  

  • Updated January 28, 2013, 1:05 a.m. ET

Silicon Valley’s ‘Suicide Impulse’

The industry’s affection for Washington keeps growing. Facebook had 38 lobbyists working in 2012.

It’s a measure of how far Silicon Valley has strayed from its entrepreneurial roots that a top regulator is calling on technology companies to do less lobbying and more competing.In a letter to the editor responding to a report in this column on how Google GOOG -0.39%spent $25 million lobbying to stop an antitrust case against it, Federal Trade Commission Chairman Jon Leibowitz wrote that companies should not draw the lesson that lobbying pays. Instead, he urged: “Stop! Invest your money in expansion and innovation.” Mr. Leibowitz asserted in his letter, published Jan. 18, that “Google’s lobbying expenses had no effect on the care, diligence or analysis of the agency’s incredibly hard-working staff or the decisions reached by any of the FTC’s five commissioners.”Whatever the effect of Google’s big-ticket lobbying, regulators deserve much of the blame for companies calculating that lobbying is a good investment. Still, Mr. Leibowitz has a point: Tech executives should think twice before again lobbying government to get involved in their industry.The precedent for the potential antitrust case against Google was the massive prosecution in the 1990s of Microsoft, MSFT +0.14%the giant of the desktop era. Competitors such as Netscape, Oracle ORCL +0.45%and Sun Microsystems lobbied hard to get regulators to bring the case that did end up paralyzing Microsoft.

Getty ImagesMilton Friedman, a model of prescience regarding tech-industry lobbying.

In 1999, economist Milton Friedman issued a warning to technology executives at a Cato Institute conference: “Is it really in the self-interest of Silicon Valley to set the government on Microsoft? Your industry, the computer industry, moves so much more rapidly than the legal process that by the time this suit is over, who knows what the shape of the industry will be? Never mind the fact that the human energy and the money that will be spent in hiring my fellow economists, as well as in other ways, would be much more productively employed in improving your products. It’s a waste!”

He predicted: “You will rue the day when you called in the government. From now on, the computer industry, which has been very fortunate in that it has been relatively free of government intrusion, will experience a continuous increase in government regulation. Antitrust very quickly becomes regulation. Here again is a case that seems to me to illustrate the suicide impulse of the business community.”

Friedman was right. The Internet undermined Microsoft’s market power years before the litigation ended. Alas, his warning fell on deaf ears—and ironically, it was Microsoft that led the recent lobbying to investigate Google’s dominance of the search industry. Microsoft funded lobbyists under names such as

The FTC hired outside lawyers to prepare a case, but after a lengthy investigation concluded what was obvious from the start: There was no case against Google’s practice of delivering answers as well as just links in its search results. It may harm Google’s competitors, but it benefits consumers, whom the antitrust laws are supposed to protect.

Silicon Valley has long prided itself on avoiding the lumbering relationship between big government and most industries, but somehow it has become one of the top lobbyists in Washington. The Center for Responsive Politics reported last year: “Tech firms have doled out more and more lobbying money even as the amount spent on lobbying by all industries has decreased since 2010.”

Google has a former congresswoman, Susan Molinari, running its Washington office. Facebook FB +2.92%employed 38 lobbyists last year, up from 23 in 2011. Over the past few years, Microsoft, Apple, Google and Intel have all hired former top FTC staffers, spinning the revolving door that fuels the growth of lobbying.

The growth in tech lobbying reflects the eagerness of the Obama administration and its regulators to get involved in the industry. FTC and Justice Department investigations into antitrust cases are just part of the problem. The FTC has also involved itself in the core business operations of the Internet.

During the past few years, the FTC has extracted consent decrees from Google, Facebook and Twitter on how they generate advertising revenues by using information about their visitors. These decrees include vague standards such as that the companies must have “privacy controls and procedures appropriate to respondent’s size and complexity, the nature and scope of respondent’s activities, and the sensitivity of the covered information.”

Under this broad privacy umbrella, the FTC thus oversees the key revenue stream for several of the largest companies on the Internet. These consent decrees apply for 20 years, an absurd length of time in the fast-changing technology industry. Internet companies staffed up their Washington offices in part to fend off regulations that would undermine the ad-supported services they provide to consumers.

Rather than lobby government to go after one another, Silicon Valley lobbyists should unite to go after overreaching government. Instead of the “suicide impulse” of lobbying for more regulation, Silicon Valley should seek deregulation and a long-overdue freedom to return to its entrepreneurial roots.

A version of this article appeared January 28, 2013, on page A13 in the U.S. edition of The Wall Street Journal, with the headline: Silicon Valley’s ‘Suicide Impulse’.

Post a comment or leave a trackback: Trackback URL.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: