Who were the rubes? They were the rubes:
The first surprise to many Valleyites is how innately anti-entrepreneurial the new Administration has turned out to be. Candidate Obama looked like a high tech executive – smart, hip, a gadget freak – and he certainly talked pro-entrepreneur. But the reality of the last six months has been very different. One might have predicted that he would use the best tool in his economic arsenal – new company creation and the millions of new jobs those firms in turn create – to fight this recession. But President Obama has instead appeared to be almost exclusively interested in Big Business as the key to economy recovery.
By comparison, almost every move the new Administration has made regarding entrepreneurship seems to be targeting at destroying it in this country. It has left Sarbanes-Oxley intact, added ever-greater burdens on small business owners, called for increasing capital gains taxes, and is now preparing to pile on cap-and-trade, double taxation on offshore earnings, and a host of other new costs. Even Obamacare seems likely to land unfairly on small companies.
Entrepreneurship has been the single most important contributor to the economic health of this country for at least a century now – and if you were going to systematically destroy that vitality, you couldn’t come up with a better strategy than the one Washington has put in place over the last six months. Indeed, you can make the case that the sole contribution the Obama administration has made to entrepreneurship in America to date is to force all of those millions of unemployed people to desperately set up their own businesses in order to survive.
But as he points out (and it’s a long-standing truism), big business has no interest in free markets:
…you may think that the competitive challenge that big tech companies fear most is from other big tech companies. You know: Apple v. Microsoft, HP v. Dell, Cisco v. Juniper, MySpace v. Facebook. But in fact, that isn’t the case. Sure, those are dangerous competitors; but far more threatening is that clever new start-up that seems to appear out of nowhere. That’s the threat that wakes up Fortune 500 tech CEOs at 3 a.m. That little start-up not only competes with you, it can render your entire business – even your entire industry – obsolete and you don’t even see it coming. Think desktop publishing and the printing industry, the iPod and the music industry – and just look at the terror that Twitter seems to be creating at Google and Facebook these days.
Once you understand this dynamic, a lot of the paradoxical recent business behavior in high tech suddenly becomes explicable. For example, why did the big tech companies embrace such regulations as Sarbanes and stock options expensing – even though they would cost them billions of dollars with no obvious gain? And why would they support a Presidential candidate who seemed to have little understanding of, or sympathy for, market capitalism and business?
Because it was the best strategy to crush the start-ups.
And for the most part, that strategy has worked. High tech has only seen a handful of new companies go public in the last five years – compared to hundreds per year before that. Less noticed is that this means most hot new start-up companies, instead of enjoying an IPO and becoming rich enough to compete full-on against the big boys, now can only grow to a certain size then offer themselves up to be bought by the giants. What had once been hugely valuable competition has now been reduced to a farm system for acquisitive mature companies. [And a side benefit has been the near-destruction of the venture capital industry, which big business always described as ‘vulture’ capital because it drew away their most talented employees.]
Now you see why the tech world joined the Obama team early on in the campaign. Not only did Senator Obama seem like their kind of guy, but each camp saw in him the President they wanted. The entrepreneurs thought they were getting a fellow entrepreneur, and big business thought they get a confederate in taking out the competition.
The entrepreneurs were suckers, but this is going to hurt the big guys, too.
ITAR is another example of this phenomenon. It really hurts the small companies disproportionately, because the big companies, like Boeing and Lockmart have a small army of compliance people in place who know how to work the system, and the costs of whom can simply get charged against their government contracts. This is in fact a big advantage of established aerospace contractors in general — that they have ongoing cost-plus contracts against which they can charge for the bureaucracy made necessary by government regulations, whether ITAR, or simply enforcing the FAR, plus they get an IR&D budget funded by the taxpayers. This makes being a startup all the harder, and this administration looks unlikely to do anything to make it any easier.