Crunch Network

The tech industry’s regulatory crisis and how Silicon Valley lost touch with Washington

Next Story

Twitter decides to release earnings while most of us are sleeping because reasons

More than 80 million viewers around the world tuned in to watch the first of three presidential debates — a number that almost rivals the Super Bowl, and surpassed the Oscars, Emmys and NBA Finals combined. With all the buzz being generated in and around the upcoming elections, no industry is exempt from their impact — Silicon Valley and the tech industry included. Though it might seem novel, the Valley is not sheltered, nor is it immune to national politics — a fact that the Valley used to know.

From Oculus VR founder Palmer Luckey’s recent fall from grace regarding his association with the white supremacist, alt-right group “Nimble America” to Peter Thiel’s prime-time speech at the RNC, Silicon Valley players are increasingly entangled in the high stakes of politics. But make no mistake, this is no anomaly, but rather a trend that will only continue to accelerate over the next few years as “software eats the world” and stands in almost direct contrast to the industry’s level of participation over the last few years.

Silicon Valley in the legal headlines

Take the ride-sharing industry’s constant contentious tussle over everything from driver compliance to the classification of workers. Or Airbnb’s existential crisis in New York, where the existence of the entire industry is currently at the mercy of Governor Cuomo’s pen. Or how about Zenefits’ string of extensive lawsuits and fines over insurance regulatory violations, leading to a CEO change and a renewed focus on regulatory scrutiny. Theranos, of course, is no exception to this trend of high-profile government mishaps as its recent shutdown by the FDA can prove.

Digital currencies, drones, autonomous vehicles, peer-to-peer lending, renewables — the list goes on and on with stories of tech companies that have largely ignored regulatory guidelines and political participation on their way to attaining their fleeting unicorn status. Most of these companies, given their private valuations, are shielded from the volatility in stock price that would normally accompany public regulatory scrutiny, but it’s clear that these recent battles have inflicted real damage.

How did Silicon Valley, an industry bankrolled by ARPA, the Pentagon and Congressional tax dollars, lose touch with its roots so quickly?

The amazing thing about these recent battles and ethos of non-participation is how much of a shift they have been from the foundational history of Silicon Valley. From the financing of the first supercomputer by the Atomic Energy Commission to the creation of GPS, the graphical user interface and hypertext by the military, the relationship between the Valley and Washington soured dramatically after the Cold War ended.

It’s important to note that this recent phenomenon of technolibertarianism is a relatively new movement that took hold in the mid-1990s. How did Silicon Valley, an industry bankrolled by ARPA, the Pentagon and Congressional tax dollars, lose touch with its roots so quickly?

The Valley and the Beltway

This line of thinking — that regulations can easily be skirted or ignored entirely — became the dominant philosophy for CEOs, VCs and employees in this last generation of entrepreneurs who found their footing in the midst of massive platform shifts in computing power and the internet — both government-initiated projects.

Removed from directly collaborating with the government (thanks to privately financed companies that created the PC and browsers) and amidst a culture of distrust for government intervention (see: cypherpunks and Reagan tax cuts), they were free to believe that startups — and by proxy innovation and wealth — were untouchable against the pesky likes of government.

Jeff Bezos went so far as to dictate to his employees which states they could and could not travel to during the height of Amazon’s battle with online sales taxes, leading Amazon’s legal teams to create extensive maps and approval processes to enforce them. Microsoft, of course, is no exception to the rule, as its history with antitrust officials can prove. When asked about Bill Gates’ largest mistakes as the head of Microsoft, Brad Silverberg, long-time Microsoft exec, replied:

“Bill [Gates] did not engage — either himself or the company — in the political process early enough… Bill’s attitude was the government should just go away and leave Microsoft alone… Well, this approach of not constructively engaging the government and concerned politicians, of not alleviating concerns that were not going to go away, was a disaster. The US federal government, many states, and the EU all essentially declared war on Microsoft, and Microsoft paid a devastating price.”

Which brings us to today. The technolibertarian beliefs of the 1990s, and the increasingly distributed nature of “software eating the world” in every industry possible, made it almost inevitable that Silicon Valley would find itself in the middle of a regulatory crisis. Now, as innovators move further into established industries, they have the unpleasant task of convincing policymakers to review legacy regulatory frameworks established to protect these industries from disruption.

Industries have a voice in policy

Unlike the Valley, traditional industries like healthcare and insurance had established teams in Washington and state capitals to fight the public policy battles that, quite frankly, should be fought in a democratic society.

Just because we can 3D-print pharmaceuticals and guns in a garage, should we allow it?

Just because we have new mobile devices that enable payments, should we allow non-FDIC-insured companies to establish banking processes for millions of Americans?

How should leaders like Tim Cook and Marc Benioff place their companies in fights for things like LGBT rights?

And what of the needs for privacy versus our national security in a post-9/11 world à la Apple’s recent fight against the FBI?

We are living in an era that is much more globalized, much more complex — and where the regulatory stakes are higher. Participation and awareness in politics can be the difference between large financial and reputational penalties and winning and creating a market; something that should’ve been intricately on the minds of everyone as they watched the debates. This is an open secret that just about every other industry knows. It’s certainly one that the tech industry in particular used to know, but has forgotten.

With a growing number of Obama veterans leaving to join the tech industry and a renewed interest in presidential politics, it seems that Silicon Valley is finally returning to its roots; the pendulum of Silicon Valley is swinging back toward its historical roots. It is the reason VCs like a16z and NEA have set up folks like Ted Ullyot and Scott Frederick to assist in leading internal government operations — and the reason some of the first hires in startups disrupting traditional industries today are increasingly becoming a government and compliance-focused team member. And it seems like the industry has taken an unprecedented interest in driving participation from investors to CEOs as we get closer to Election Day.

With higher stakes and increasingly broader responsibilities, the expectations around relations with governments around the world have changed. Hopefully you kept this in mind as you watched the debates. The future of our industry will most certainly be shaped by the outcome of this election.

Featured Image: Brian A Jackson/Shutterstock