Does the government stifle innovation?

July 20, 2011, 10:10 PM UTC

Brainstormers were treated to a lively and spirited debate on the role the government has in the technology business on Wednesday.

On the one side was Consumer Electronics Association president and CEO Gary Shapiro, who argued forcefully that the government is attacking the technology industry at a time when tech is America’s biggest competitive advantage. “Everyone is looking at us to understand how to do it right,” he told the crowd.

Silver Lake cofounder and co-CEO Glenn Hutchins took a more moderate position, noting that there’s a “very important role” for regulators to play—when markets fail, for instance, or for the purposes of health and safety regulations. “We can’t just get up in a simple minded way and say government is bad.”

But he pointed out that when it comes to the tech industry, antitrust regulators have historically gone after the industry’s most successful companies—but by the time the investigation comes to completion, the marketplace has changed dramatically or gone away, and the end effect is minor.

“Antitrust policy was designed at a time when the nature of business models was so different,” he said. “They don’t really apply in a way that’s proved to be effective.”

Christine Varney, the outgoing assistant attorney general for antitrust at the Department of Justice and soon-to-be partner at whitest of white shoe law firm Cravath, Swaine and Moore, acknowledged that some of those complaints were legitimate—but said it’s important to remember what the government’s role is when it comes to antitrust investigations.

“My view is fairly straightforward,” she said. “You don’t like antitrust laws, repeal them.” Her point: the government’s role when it comes to antitrust is fairly black and white—to uphold the law. “We have very fundamental tenets of antitrust law in this country which go to the use or abuse of market power,” she said. “If you all believe those economic theories have outlived their usefulness, that’s a conversation we should have.”

But until then, she said, “Those of us who are asked to uphold the laws take an oath of office that we will in fact do so.”

Still, she heartily agreed with her copanelists’ complaints about the process: She said the system is broken in a macro way, referencing the current political showdown over the debt ceiling.

She acknowledged the government is inefficient, noting that in prosecuting an international cartel that was fixing prices for auto parts, she can’t get a vendor who provides translation software on a schedule without going through an 18-month vetting process.

“From the macro level to micro level we need to reinvent our government for the 20th century,” she said. “We have a v 19th century structure up and down. And it’s very difficult.

The inefficiency, she said as an aside, is to some degree by design, “Because if it’s efficient then the government will do things, and there’s a certain part of society that doesn’t want to see them do things.”

One pointed question came from Qatalyst Partners’ Frank Quattrone. One of the big uncertainties of any merger, he said, is the question of whether it will get antitrust scrutiny, noting that the authorities seem to “take different points of view on how narrowly they define markets.” Other than hiring Varney at Cravath when she gets there, he asked, how can companies and their lawyers get better certainty? “Can companies approach authorities and say, which ones would you really care about and which ones wouldn’t you, to reduce the chances of antitrust blockage?”

Varney gave a twofold answer: first, go into your company’s internal documents, she said. “If you want to buy someone you compete with, you’re going to have a problem. It’s that straightforward.”

But she also said companies can approach the government and ask those very questions. “Many people do, and I don’t think people know that. It’s not that hard to call up the FTC and say, ‘I’d like to come in and talk to you about a transaction.’ The staff will tell you right away, ‘here’s what we care about.’”

Whether anyone in the audience will be doing that soon is another question. After the session, at least one audience member sided with Shapiro hands down.

“+100 for Shapiro,” the tweet said. “He stands for the American Way. He stands for meritocracy. He stands for innovation.”

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