TCS Daily

Washington Whacks Silicon Valley

By Michael S. Malone - May 8, 2000 12:00 AM

Is Washington strangling the new economy? In case you missed it, here's Michael S. Malone's excellent piece from the May 4th edition of The Wall Street Journal:

Copyright © 2000 Dow Jones & Company, Inc.

Buried amid last week's ruckus over a possible Microsoft breakup was another tiny news item. Cisco Systems fired two salespeople, suspended another, accepted the resignation of a fourth, and reassigned three more for alleged extortion, death threats and conflicts of interest. The Federal Bureau of Investigation is now on the case.

While it was a good job of self-policing, Cisco's problems may just be starting. After all, we here in Silicon Valley can't help noticing a pattern. What was America's most valuable company in the mid-1990s? Intel -- Federal Trade Commission settlement. At the end of the decade? Microsoft -- antitrust dismemberment. Today? Cisco. Get ready John Chambers; now that the G-men know there are nefarious doings behind the server farm, it's only a matter of time before the Beltway show trial begins.

If we've grown fatalistic out here, it's because Washington's strategy now seems clear. In a rare example of bipartisanship, Republicans and Democrats, the White House and Congress, are going to play Whack-a-Mole with each big company in turn.

Why? Because with good, solid 1910-style thinking, any big company is a de facto monopoly. Never mind that the history of high-tech shows the rate of innovation to be so fast and the competition so intense that a natural monopoly -- even long-term industry dominance -- is impossible to sustain. Rather, each new alpha firm that lifts its head above the pack is to be hauled off to Janet Reno's Ministry of Truth for punishment and self-criticism. If its executives apologize and abase themselves, as Intel's did, they'll get off with a slap; if they get stupid and cocky like Bill Gates & Co., they'll be drawn and quartered.

This new antitrust fervor is only a piece of growing government interference in the tech industry. Besides the predations of the Justice Department, there is the continuing struggle (again bipartisan) to stop well-educated foreigners from getting visas and helping U.S. companies stay competitive. Add to that the Security and Exchange Commission's perpetual effort to revise stock-option reporting and thus kill off entrepreneurship. Finally, in the spirit of federalism, throw in tireless attempts by state governments to tax the Internet.

None of this should come as a surprise. After all, high-tech is now America's largest manufacturing employer. Thanks to 40 years of laissez-faire competition, it has supercharged the economy, provided jobs for tens of millions of people and transformed our lives. High-tech has been the greatest human liberator and the most powerful wealth-creation engine of our time -- which is why many citizens now see it as more influential than the government itself. It's no coincidence that Air Force One has regularly flown over my Sunnyvale, Calif., home over the past eight years.

So now government is lashing back -- in the name of justice, of course -- to restore what it believes to be the natural order of things. But Washington and the 50 statehouses are playing a dangerous game that is based on a false assumption.

That assumption is that the pace of technological change is inevitable. The regulators have come to believe that Moore's Law -- the famous equation that predicts the power of microprocessor chips doubling every two years -- is a force of nature. Products, markets and companies are mere manifestations of this force. Change them, channel them, dampen them -- outlaw them -- and it still won't slow the engine itself.

This is exactly wrong. Spend time in a Silicon Valley company and you notice quickly that there is no vital force at work. There is only the creativity locked up in shockingly few heads. Distract those key creators by taking away their incentives, threatening their employment or punishing their success, and the dynamo goes dark.

Ethernet inventor Robert Metcalfe, another giver of laws, has noted that Moore's Law is not a rule of physics. Rather, it is a promise, made by Intel, its competitors and its clients, to remain forever innovative. In Silicon Valley, there are probably no more than 200 of these keepers of the flame. They work in research-and-development labs, executive offices, venture-capital firms and design shops. On them rest much of the prosperity of this country and most of the jobs of this century.

Right now, their companies, their careers and their reputations are under assault by their government. If we're lucky, the damage will be confined to the lobby. But if it ever reaches the hallways -- driving away the inventors and builders -- this golden age of innovation will suddenly end. Then we'll see what true monopolies look like.

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