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Obama's Unwise War on Technology

Wednesday, 16 Jun 2010 | 12:30 PM ET
Silicone Chip
AP
Silicone Chip

Imagine the idiotic: Anti-capitalist regulators in Paris mount an assault on the world’s tech titans. They target Intel for granting big discounts to PC makers, Apple for dissing Adobe, Facebook for privacy practices, AT&T and Verizon for Internet pricing, and Google for just about everything.

That kind of government onslaught would spark a trade war with the United States, home to most of the tech giants that really matter. But this sweeping assault on American innovation isn’t being waged by the French—it is the work of the U.S. government.

The Obama Administration is waging a silent, unwise war on high-tech, hell-bent on taming a few targets to bolster a get-tough image. The feds’ enmity toward what we’re best at—technology and making money on it—threatens our long-term economic recovery.

It will curb job growth in an industry the employs well over two million people in the U.S. It will penalize investors. And it could hurt even consumers, who, far as I can tell, aren’t injured by the practices now under review.

These government forces are more interested in meddling in markets to shield weaker companies—the laggards—from the strong ones: the lethal. The feds now try to intervene before anything bad happens, rather than respond after a problem pops up. The effect is to penalize success and criminalize bigness.

I have covered high-tech since the 1980s, and I never have seen the feds involve themselves so fiercely and frequently as they have since President Obama took office. I talked about it on Friday on "Closing Bell" with Maria Bartiromo. (Watch video of the segment below.)

Look at this lamentable litany of government-gone-wild:

  • This week the FTC said it will look into Apple’s dealings with iPhone software developers, presumably searching for any exclusionary tactics such as blocking Google-sold ads that use Adobe’s Flash software.
  • Elsewhere, the FTC aims to impose utterly unenforceable—and blatantly unconstitutional—rules that seek to require millions of bloggers to disclose freebies from any firm they mention. It is akin to trying to force table manners on a bunch of wild chimpanzees. Does this agency not have enough to do?
  • The SEC is in talks with Michael Dell and Dell Computer to settle an SEC investigation into discounts granted by Intel.
  • The Justice Department is looking at pricing and rebate practices at Intel, in what looks eerily similar to a European Union investigation that ended up fining the chip giant a record-high $1.45 billion.
  • Justice has launched another inquiry into whether Google, Apple and Yahoo are colluding by agreeing not to raid one another's staffs.
  • The FCC, not to be outdone, is targeting tech, too: It wants to have a say in the pricing charged by AT&T, Comcast and other Internet providers, something government never has done before.
  • And the FCC just issued a report arguing the cell-phone market isn't competitive enough. That could be a prelude a move to ban AT&T and Verizon from the next federal auction of wireless spectrum, handing the airspace to also-rans T-Mobile and Sprint Nextel.

It all seems so intrusive, so unnecessary. Apple should be free to shun any technology it chooses, regardless of how much Adobe whines about its own Flash software. And regardless of how much Google complains that its Flash-based ads won’t work on the iPad. Adobe and Google can turn elsewhere.

Gunning for Tech
Lately some observers ask whether the Feds gave launched a hidden war on tech, with CNBC's Dennis Kneale.

Likewise, any Intel discounts to thwart AMD resulted in lowering costs to consumers, so where’s the harm? And AMD itself agreed to settle a related dispute with Intel, dropping its objections for a bribe: a $1.25 billion payment from its tormentor. If AMD is cool with Intel, why are the feds bothering with this?

Obama’s Justice Department anti-trust chief, Christine Varney, set the tone of this broad assault in a speech to a liberal think tank in May 2009. She hailed a “shift in philosophy” and declared, “We cannot sit on the sidelines any longer,” no doubt delivering that line with a dollop of relish.

She threw out the Bush Adminstration policy that had Justice intervene only when consumers are getting hurt. It was, she said, “the clearest way to let everyone know that the Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers.”

But, again, where’s the consumer harm, guys?

It reeks of Too Big to Fail: the Sequel, a smug presumption that government’s place is smack in the middle of the fray, rather than watching from the sidelines and stepping in only when absolutely necessary. And it smacks of paternalism: Government must protect us from ourselves, because we consumers aren’t smart enough to smack down ill-behaving vendors on our own accord.

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One understands the obligations to enforce the law, but this overzealous campaign goes farther than that—this looks begrudged, retaliatory, possessed of an unabashed, unalloyed anti-business bias. Some see it as part of a bigger, pernicious picture.

“I generally share your sense of the assault on the techies, but have also found that every other industry is under regulatory assault,” says Thomas Curran, a former securities-fraud prosecutor in the Manhattan District Attorney’s office.

So many industries now rely on public dollars that “regulators have greater sway over private industry generally,” says Curran, a partner at Peckar & Abramson in New York. He laments an attitude among regulators “that business is ‘bad’ and must somehow be cheating, especially if they make money. I encounter this every day.”

What really galls me is that these government intrusions often result from complaints filed by tech companies themselves. Rather than compete in the open market and let the best firm win, they run and tattletale to Mommy: the U.S. government.

AMD inspired the crackdown on Intel, Adobe helped prompt the investigation of Apple’s iPod policies. Just as Sun Microsystems and other jealous rivals prodded the Clinton Administration into trying to break up Microsoft a decade ago.

Tech’s trailing rivals should stop their complaints to government and compete harder in the market. The Obama Administration should back off and let ’em whack each other.

It’s all so depressing. This onslaught targets the most hyper-competitive in the world, where tech costs fall 10 percent to 40 percent per year and a panoply of free apps and services has benefited millions of consumers. Who is getting protected here?

Losers, that’s who.

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  • Matt Hunter is the senior technology editor at CNBC.com.

  • Cadie Thompson is a tech reporter for the Enterprise Team for CNBC.com.

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.

  • Jon Fortt is an on-air editor. He covers the companies, start-ups, and trends that are driving innovation in the industry.

  • Lipton is CNBC's technology correspondent, working from CNBC's Silicon Valley bureau.

  • Mark is CNBC's Silicon Valley/San Francisco Bureau Chief covering technology and digital media.