How Corruption Is Strangling U.S. Innovation

From Harvard Business Review:

One of the prime drivers of economic growth inside America over the past century has been disruptive innovation; yet the phenomenon that Lessig describes is increasingly being used by large incumbent firms as a mechanism to stave off the process. Given how hard it can be to survive a disruptive challenge, and how effective lobbying has proven in stopping it, it’s no wonder that incumbent firms take this route so often.

The process by which firms do this is rarely overt, and usually couched in the language of regulation. When it involves nascent disruptors running headlong in to regulation that protects the incumbents, then the innovators are painted as “cutting corners.” Conversely, when new regulation makes sense in order to foster innovation and disruption, but it isn’t suit the interests of the incumbents, then that regulation will often be characterized by incumbents as “stifling red tape.” It seems to be happening more and more frequently, across sectors:

Automotive. A good friend who has been working in one of the US’s new electric auto companies described how the regulation governing selling cars was being used by NADA (the National Automobile Dealers Association, one of the largest industry and lobby groups in the country) to make the new entrants’ lives very difficult. NADA, for instance, recently sued Tesla for running “company-owned dealerships” in Massachusetts and also in New York because the law states that it’s illegal for a factory to own a dealership. (To give you some sense of how ridiculous this is, the equivalent in the tech world would be Best Buy suing Apple for launching its own retail stores).

And this is but one of many such ridiculous regulations that new entrants must contend with; another example is legislation in Indiana that requires dealerships to be a minimum of 1,300 square feet, and be able to house at least 10 vehicles of the type that the dealer is selling.

Intellectual Property. When Walt Disney penned Steamboat Willie — the first cartoon with Mickey Mouse in it — copyright lengths were substantially shorter than they are now (but still enough such that it gave encouragement to Walt to create his famous character). And yet somehow, it seems that every time that Mickey is about to enter the public domain, congress has passed a bill to extend the length of copyright. Congress has paid no heed to research or calls for reform; the only thing that matters to determining the appropriate length of copyright is how old Mickey is. Rather than create an incentive to innovate and develop new characters, the present system has created the perverse situation where it makes more sense for Big Content to make campaign contributions to extend protection for their old work.

When the Government steps in to allow a group to control  e.g. fees for performing rights, it should also define the circumstances when that group’s existence can be challenged.  Nothing is forever.

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