July/ August 2013 Estates of Mind

The answer to America’s techno-malaise is to force big corporations to compete more. And to open their patent vaults.

By Barry C. Lynn

thurman arnold
Intellectual riches: Thurman Arnold, who headed the Antitrust Division of the Justice Department during the New Deal, forced large corporations to share their patents with competitors, a policy that resulted in a golden age of American innovation.

For many Americans, the economy is still a cold and hard place. Wages are down, job numbers are barely creeping up, and the latest asset bubble drifts high out of the reach of most folks. About the only hot business around is the rivalry to identify a root cause for our woes. Even as Democrats and the GOP continue to argue the value of stimulus, two new schools of thought have shot into fashion. Importantly, both focus on the role of technology. Strangely, they do so from diametrically opposed points of view.

One is led by MIT professors Erik Brynjolfsson and Andrew McAfee, who proudly write in the Luddite tradition. The problem, they say, is too-rapid automation. In short, robots are taking our jobs. The other viewpoint, epitomized by the writings of economists Robert Gordon and Tyler Cowen, says no, the real problem is that we have entered a “great stagnation.” The digital revolution has reached maturity, and no other transformational technology is in sight.

Both groups muster an abundance of evidence. It hardly needs saying that we live in an era in which millions of workers have been displaced by technology. Less obvious to some, but also demonstrably true, is that we live in an era in which the pace of technological progress has stagnated in many key realms. Where, for instance, is the “century of biology” we were promised only a few years ago? And that once-vaunted pharmaceutical “pipeline” looks awfully dry these days.

But what if both camps are right about the effects they observe and wrong about the causes? What begins to make sense of this odd picture is a problem that previous generations of Americans also had to confront—a concentration of economic control that enables a few corporate bosses to manipulate technological advance entirely outside of any open and competitive marketplace. Put another way, what can explain both of these problems is that the masters of America’s biggest technological corporations increasingly enjoy the power to speed the rollout of technologies that favor capital and to slow those that disfavor their own private interests.

Back in the 1930s, America suffered from a similar set of ills, and the government took direct aim. Specifically, starting in the second half of the New Deal, Franklin Delano Roosevelt’s administration combined stepped-up antitrust enforcement with the forced licensing of key patents held by monopolistic enterprises. Today, few people know this history, but the policy laid the groundwork for the long era of prosperity and technological progress that followed, including the birth of Silicon Valley.

Indeed, when the late industrial historian Alfred Chandler Jr. set out to research his second-to-last book, Inventing the Electronic Century, he came to a conclusion that surprised even him. What was most responsible for America’s astounding technological advance in the twentieth century? It was, Chandler wrote in 2001, the men and women of the Roosevelt administration’s antitrust division. They were the “gods,” he wrote, who “set the stage” for the information revolution. Follow where Chandler points, and we may yet recover the key to restoring broad prosperity, along with the ability to devise the technological tools we need to fix many of our most pressing problems.

Our first challenge is simply to recognize how few companies now govern our technological economy. A good starting example is the chemical and biotech giant Monsanto. Here is a corporation that wields almost complete control over the basic genetic traits of key crops, including corn and soy; that over the last decade has buttressed that power by spending upward of $12 billion to buy direct competitors such as Dekalb Genetics and Delta and Pine Land as well as at least thirty companies that breed and retail its seeds; and that has brought at least 145 lawsuits against small farmers to enforce those rights.

Or consider the business software giant Oracle. Its CEO, Larry Ellison, once said that acquiring another company was “a confession that there’s a failure to innovate.” Then in 2004 Ellison began to gobble up precisely those competitors most likely to force Oracle to innovate. This included PeopleSoft, Siebel, Sun Microsystems, and more than eighty other firms.

The story is not much different at Google, which has vacuumed up more than 120 former competitors, along with their products, patents, and, often, their scientists and engineers. If you think of Google as an innovative company, remember that it was the smaller companies it swallowed that actually developed most of its key components. These include YouTube, DoubleClick, and the ITA airline reservation system, as well as ten search companies that no longer compete with Google because Google now owns them. Much the same is true of Intel, Corning, Pfizer, and Microsoft. These giants don’t merely set standards for certain formats of semiconductors, glass, pharmaceuticals, and software. Their mastery over patents and markets empowers them to block or buy most any newcomer that might threaten their sovereignty. What technologies are developed, and how and where they are developed, is increasingly up to these small clubs of executives alone.

Such private dominance over whole precincts of applied science does not lack for defenders. In academia, an entire industry has emerged to preach the gospel of Joseph Schumpeter, the Austrian economist who in 1942 wrote an eloquent defense of the monopolist as the prime mover of innovation. He claimed that monopoly is of social value because of “the protection it … secures for long range planning.” A good example of a modern-day Schumpeterian is Michael Mandel, the former chief economist at BusinessWeek. Noting that society faces “enormous challenges” in remaking our energy, health, and other sectors, Mandel concluded in a recent paper that “only large firms have the staying power and scale” to “implement systemic innovations.”

What’s odd is the almost complete lack of attention to this roll-up of control over our system of industrial science, especially given the public’s fascination with the last high-stakes antitrust suit against a tech goliath. This came in 1998, when the Justice Department charged Microsoft with leveraging its monopoly over operating systems to capture control over lines of business such as browsers. The case resulted in a court order to break Microsoft in two, which the Bush administration later set aside. It also resulted in controls over Microsoft’s actions that, many argue, cleared the way for the initial emergence of companies like Google.

Barry C. Lynn directs the Markets, Enterprise, and Resiliency Initiative at the New America Foundation.


  • POed Lib on July 22, 2013 10:59 AM:

    Anti-chain store - now that is a concept that many should get behind. We are in an era of relentless homoginization. Every shopping center has the same stores. We need to end that.