If there's been one topic that has entirely dominated the post-election landscape, it's the fiscal cliff. Will taxes be raised? Which programs will be cut? Who will blink first in negotiations? For all the talk of the fiscal cliff, however, I believe the US is facing a much more serious problem, one that has simply not been talked about at all: corruption. But this isn't the overt, "bartering of government favors in return for private kickbacks" corruption. Instead, this type of corruption has actually been legalized. And it is strangling both US competitiveness, and the ability for US firms to innovate.
The corruption to which I am referring is the phenomenon of money in politics.
Lawrence Lessig's Republic, Lost, details many of the distortions that occur as a result of all the money sloshing around in the political system: how elected representatives are being forced to spend an ever-increasing amount of their time chasing donors for funds, for example, as opposed to chasing citizens for votes. Former congressman and CIA director Leon Panetta described it as "legalized bribery"; something which has just "become part of the culture of how this place operates."
But of all the negative impacts this phenomenon has had, it's the devastating impact it has on US competitiveness that should be most concerning.
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 doesn'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. This might make sense for GM and Ford, but for small, innovative manufacturers like Tesla and Fisker that only have a very few number of models and who want to locate in high-traffic areas (not suburban strip-malls) to expose consumers to their products, it's stifling.
But short of a massive lobbying budget, don't expect anything to change — and especially not if it goes against the interests of an incumbent organization that's contributing millions of dollars to candidates.
rest at http://blogs.hbr.org/cs/2012/12/how_corruption_is_strangling_us_innovation.html
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