Point-Counterpoint: The Government is Destined to Destroy Tech Innovation

TechCrunch founder Michael Arrington came out swinging against the growing conversation between Silicon Valley and Washington D.C. this weekend. The thesis of the post "Here's How the Government Can Fix Silicon Valley: Leave it Alone," was that the government is too in-bed with giant corporations and too heavy-handed in its regulations to do anything other than mess up the venture ecosystem. Is he right?

Point: The Government is Destined to Destroy Tech Innovation

1. Heavy-Handed Regulation: I'm not the type of person who thinks that "regulation" is a four-letter word. That said, I don't think that our government is particularly good at recognizing the difference between economic activity in which risk is essential (like venture capital) and economic activity for which too much risk is poison (like currency speculation).

This is a particularly sensitive area for investors and entrepreneurs who have seen the market for IPOs (where a company goes from privately held to publicly traded) decimated by the Sarbannes-Oaxley Act, which created costly hoops that make startups less and less inclined to IPO. The bill was intended to stem corporate fraud and abuse in the wake of the Enron scandal but has had unintended consequences for the venture community that it is still learning to deal with. More recently, the Dodd financial bill has included provisions that could undercut incentives for angel investing.

2. Sleeping with the Un-novators: Another big problem for Arrington is how in bed with the giant telecoms and media companies the government remains. I totally agree with him here. Companies like Comcast and ATT can and do spend an insane amount on lobbying to preserve their control over broadband and telecommunication access. And all too often in our current, money-ruled congressional system, opinions follow dollars. The FCC's slow-walking of Obama's Net Neutrality promises is one of the examples Arrington uses to make his point.

3. General Slowness: Whatever the government is good at, it is structurally designed to not move too quickly. It had a series of checks and balances designed to never let current opinion swing the fundamentals of our legal system to far to one side or another (and thank God, considering the Tea Party's approach to immigration). Still, this slowness impacts everything it touches, making it pretty incompatible with a venture space in which the pace of innovation is actually increasing.

Counterpoint: The Government Can Actually Support Tech Innovation

1. High Cost Cleantech: The decreasing cost of the software industry has shifted the venture model for supporting innovation on the web. That said, the last few years have seen a major increase in the funding for clean technology. This is technology that is not just valuable for US consumers but for our responsibility to steward the earth's limited resources for future generations, and I do believe the government has a role to play here. Case in point is the Department of Energy's Advanced Technology Vehicle Manufacturing Program which makes low-interest loans to folks like Elon Musk's Tesla motors -- $465m in loans in fact, without which it's unlikely that the ambitious project could have raised the money it needed.

2. (Mobile) Technology for Development: The Department of State has to receive high marks for its sincere efforts to bring innovative systems in mobile technology to developing world situations and humanitarian crises. One of the best examples is the efforts of State to work with FrontlineSMS, Ushahidi, InSTEDD and others in the wake of the January Haiti earthquake to get a working SMS short code for reporting emergencies. This is new territory, but I think it shows that the govt-private partnerships can be uniquely powerful in certain contexts, particularly those in which the financial returns from innovation may not justify traditional private investment.

3. Seeding the Next Generation: The government controls the keys to national educational curriculum, and decisions they make about how computer science, technology, and design make it into standard academic coursework at the K-12 level could have huge and dramatic consequences for the next generation on innovators. I'd love to see more advocacy from tech leaders about how to improve education.

Conclusion?

I think Arrington is rightly skeptical. There are types of interactions that the government has with Silicon Valley and the tech community more broadly that tend to come out with the innovation community worse off. Even in that context however, there are exceptions. I'm more on the side of Chris Dixon and Fred Wilson on the debate about a tax on venture "carries," than those who think it will obliterate incentives for venture investment.

And beyond that, there are areas such as those mentioned above where there is room for really profitable partnership, and indeed, where the government's different pace can potentially seed long-out innovation (electric cars) or unprofitable innovation (mobile tech for development) that the Valley just doesn't have time (or aligned economic interests) for.

Overall, I think that the best relationships between government and tech innovators will come from a concerted if sometimes skeptical engagement that knows that interests won't be aligned every time, but that that's okay.

Photo credit: rowdyman