25 Oct 2011

Every Conspicuously Successful Company Looks Like a Monopoly to Washington

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Eric Schmidt, executive chairman of Google

L. Gordon Crovitz, in the Wall Street Journal, quotes extensively from an interview which former Barack Obama-supporter Eric Schmidt, executive chairman of Google, gave after being hailed in front of a Congressional committee recently to answer charges that Google is a monopoly and guilty of unfair trade practices.

Mr. Schmidt had just given his first congressional testimony. He was called before the Senate Judiciary Antitrust Subcommittee to answer allegations that Google is a monopolist, a charge the Federal Trade Commission is also investigating.

“So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people. OK? I mean, I don’t know how to say it any clearer,” Mr. Schmidt told the Post. “It’s not like we raised prices. We could lower prices from free to . . . lower than free? You see what I’m saying?”

An absence of consumer harm didn’t stop senators from offering some improbable recommendations. Among them: that Google replace its algorithm with a panel of experts to ensure “fair” search results. As Google tries to improve the relevancy of its search results for consumers, some sites inevitably come up higher and some lower in the results. The losers now lobby Washington.

“Regulation prohibits real innovation, because the regulation essentially defines a path to follow,” Mr. Schmidt said. This “by definition has a bias to the current outcome, because it’s a path for the current outcome.” …

Washington is always slow to recognize technological change, which is why in their time IBM and Microsoft were also investigated after competing technologies had emerged.

Mr. Schmidt recounted a dinner in 1995 featuring a talk by Andy Grove, a founder of Intel: “He says, ‘This is easy to understand. High tech runs three times faster than normal businesses. And the government runs three times slower than normal businesses. So we have a nine-times gap.’ All of my experiences are consistent with Andy Grove’s observation.”

Mr. Schmidt explained there was only one way to deal with this nine-times gap, which this column hereby christens “Grove’s Law of Government.” That is “to make sure that the government does not get in the way and slow things down.”

Mr. Schmidt recounted that when Silicon Valley first started playing a large role in the economy in the 1990s, “all of a sudden the politicians showed up. We thought the politicians showed up because they loved us. It’s fair to say they loved us for our money.”

He contrasted innovation in Silicon Valley with innovation in Washington. “Now there are startups in Washington,” he said, “founded by people who were policy makers. . . . They’re very clever people, and they’ve figured out a way in regulation to discriminate, to find a new satellite spectrum or a new frequency or whatever. They immediately hired a whole bunch of lobbyists. They raised some money to do that. And they’re trying to innovate through regulation. So that’s what passes for innovation in Washington.”

Read the whole thing.

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SDD

Mr. Schmidt appears to be somewhat naive. His comments indicate that he believes Congress’ objective is to bring about more competition. It’s quite the opposite. Its objective is to extract tribute from incumbents seeking protection from upstart competitors in free markets.

Schmidt should read the seminal work on the subject by Nobel Laureate George Stigler, The Theory of Economic Regulation.

“As a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits.”

None of what we are observing about government is new (the principal role of the first federal regulatory body, the ICC, was to keep small railroads from driving freight prices down).
It’s just that the rate of change in business is so rapid today that the notion that government can devise all the “proper outcomes” is more ludicrous than ever.



El Polacko

Google’s unabashed support for progressive causes is the real reason to be concerned about this private sector “ministry of information”.

Few people seem to understand that when the service you receive is free, you are actually the product. Google makes its money by selling exquisitely detailed information regarding your personal preferences to what Jaron Lanier has called “tawdry third parties”, or advertisers.

Given their unflagging support for causes progressive, is it unreasonable to assume that this same information archive will be used in upcoming national elections?

When a company’s informal motto is “don’t be evil” they probably have a good reason.



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