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

The American public has a fundamental interest in empowering our scientists and engineers to bring forth what is truly new and better, and in empowering ourselves—as a community and as individuals—to adopt these ideas at the pace and on a path that we alone choose. Why then have we almost entirely ignored, since the case against Microsoft, the role competition policy must play in promoting citizen-friendly technological advance?

The most obvious answer is money. In his 1942 defense of monopolists, Schumpeter wrote that dominant firms use their outsized profits to develop and introduce new technologies. In the real world, many goliaths invest their hoards in advertising old technologies, purchasing friendly treatment from Congress and the White House, and hiring “experts” at think tanks and universities to make their case with sponsored research.

The giants have also invested liberally in a powerful, but specious, political argument—that the “global” nature of competition today makes bigness necessary. They use this argument to justify more concentrated corporate power. The economist Michael Mandel distilled this idea in a recent paper. “In order to capture the fruits of innovation,” he wrote, “U.S. companies have to have the resources to stand against foreign competition, much of which may be state supported.” They also use this argument to justify greater control over intellectual property. The 1994 Uruguay Round trade deal, for instance, enabled these giants to reinforce patent and copyright protections not just in developing nations but also here at home, such as by extending patent terms from seventeen to twenty years.

Given how effective this “global competition” argument continues to be, even among sophisticated intellectuals, it merits a detailed response. The first point to consider is simple: the idea entirely ignores all historical evidence. Under the system Arnold pioneered, the American economy prevailed over and ultimately vanquished two rival economic systems, those of National Socialism and, later, Soviet Communism. America became the “Arsenal of Democracy” during World War II even as the Justice Department was busy slapping domestic monopolies with antitrust suits. In the 1950s and ’60s, while American prosperity was putting the lie to Soviet Communism, we were deploying a competition policy that today’s libertarians conflate with “command and control” but that was really the exact opposite.

Today, of course, global trade has vastly expanded. But that makes the idea that U.S. citizens must allow domestic monopolies to concentrate power so as to help “our” companies compete with “their” companies only that much less valid. For one, such arguments contradict the intent and existing structure of the interdependent international industrial system built with such care in the years after World War II.

The American architects of this system assumed that industrial integration with countries like Japan would make it all but impossible for the Free World’s industrialized nations to engage in armed aggression against one another. This strategy was so successful that it provided the argument for the subsequent extension of this system of “free trade” to countries like India and China in the mid-1990s.

The architects of the system also believed that such integration would provide an important economic by-product, namely more competition for big U.S. corporations—and, by extension, more rapid technological advance. Forcing companies like General Motors and RCA to compete with companies like Toyota and Panasonic, so the thinking went, was a great way to supplement antitrust enforcement, not an excuse to abandon it.

The architects of the system were completely confident that the U.S. government could—and would—use trade law to police the international system. One of the best examples of such enforcement took place in the mid-1980s, when Japanese electronics corporations including Hitachi and NEC made a play to capture control over key components of the personal computer, such as DRAM memory chips. The U.S. government responded by applying tariffs and quotas to Japanese-made components. The goal was not to bring the activity home to America but to spread it more widely. And, in fact, the action gave a huge boost to manufacturers in places like South Korea and Singapore.

Today, viewing corporations as national champions that need to be favored with expanded monopoly power is a form of protectionism and extremely dangerous. It leads to less innovation and to a loss of public control over how technology is deployed and for whose benefit. Worse, it distracts us from the challenge of working with citizens of other nations to ensure that our international system—which is, for all intents, now a form of global industrial “commons”—is structured to ensure its safe operation and resiliency at all times. The most important goal? The distribution of physical risk in the system, via the safe distribution of the production capacity we rely on for our foods, drugs, electronics, and other vital supplies. Which is, at bottom, just another way of saying we need a coherent competition policy.

So what technological gems lie hidden inside today’s giant corporations? Which vaults of patents should we crack open first? The fact is, we don’t know which ideas will prove most useful to us, over time. Those that now seem most promising might not pan out. Others, less glittery in their infancy, might yield wonders. The only way to find out is to drag the ideas into the light, and let the public pick through them and play with them just as we did in the golden age of American prosperity.

Today, we are being herded in a very different direction. A century ago, America’s lords of industry boasted of their power right in the names of their industrial estates; there was Standard Oil, Standard Distilling, Standard Rope and Twine. Today’s corporate chieftains often as not choose names that lend an aura of smallness, even cuteness, to the imperial enterprise. But it’s not hard to identify which corporations could be renamed Standard Operating System, Standard Semiconductor, Standard Enterprise Software, Standard Storage, and Standard Search.

The problem is not standardization per se. Some standardization is necessary in almost every technological system: think electrical sockets, doorframes, railroads, and television broadcasting. But too rigid a standardization, or standards setting left in the wrong hands, can be stifling. As the editors of Engineering magazine explained the conundrum a century ago, the challenge is “to suppress the folly of individualism which prefers sliding down a rope to using the standardized staircase, and yet not suppress the benefactor of standards who can evolve the escalator.”

That’s why it matters whether a standard is open or closed. And why it matters whether decisions about how and what to standardize are made by a democratic community or by a single private corporation operating in the name of a few individuals.

Today, in almost every key technological sector in America—including electronics, software, pharmaceuticals, medical devices, and the Internet—standardization is determined and enforced by private actors for private profit. The result is not merely to leave the decision about what technologies to deploy and under what terms in the hands of private corporate governments; it is also to force all of our scientists and engineers to goose-step down particular technological pathways.

Do nothing, and we will get the future they want, as fast as they want it, at the price they set.

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.