Technology industry still has a lot to learn about how Washington DC works..

This piece appeared in the Irish Times on february 25th last.

The Irish Times have recently installed a new CRM and unfortunately many of my own articles are no longer tagged therein,  and so difficult to find – maybe there’s a subtle message there 🙂

How are the Silicon Valley giants viewed in Washington DC ?

For many years, the techies in Silicon Valley largely ignored Washington DC, and Washington DC ignored the west coast technical community. That begun to change as first Microsoft, and more recently Google, faced anti-trust probes. Technology companies are learning to play in Washington by Washington’s rules – which may be a cultural shock for those used to disruptive innovation. Some technology companies are joining trade lobbying groups. Amazon, eBay, Google and Facebook launched ‘The Internet Association’ in September 2012 as an official lobbying group and to be “the voice of the internet” in Washington DC, and in particular to promote and protect internet freedom. Google leads the way in technology representation in Washington DC, spending some 16.5M$ in 2012 just on lobbyists, up 70% from 2011.

In 2012, the technology industry achieved what many consider a victory. Technology lobbyists effectively killed off proposed online privacy legislation – both the Stop Online Piracy Act (SOPA) and the Protect Intellectual Property Act (PIPA). It remains to be seen whether the technology industry lobbyists can garner both public and political support to now push through a major proposal of their own, rather than more simply killing off somebody else’s proposals.

The technology industry has much to do to improve its image amongst the voting public and political policy makers. The industry has a reputation for building its success in the last decade by off-shoring jobs away from America. Companies became much more sensitive to the creation of US jobs on US territory during the 2012 Presidential Campaign. But suspicions amongst the political classes remain about the degree of commitment to the restitution of American jobs. Apple’s Steve Jobs (RIP) reputedly told President Obama at a well publicized Silicon Valley dinner two years ago that “those jobs aren’t coming back” (to the USA). Many in the Valley believe that “Made in the USA” is not good enough anymore, and that manufacturing quality, flexibility and responsiveness – and not just cost – are more attractive overseas.

Meanwhile, the technology giants have been accused of not paying their fair share of corporate taxes. The average amount of US tax paid by the top thirty technology firms of the Fortune 500 has fallen from 23.6 percent in 2009 to 19.9 percent in 2010, and then down to 16 percent in 2011. The top rate of corporate tax in the USA is actually 35 percent. Apple’s tax rate in 2011 was just 9.8 percent – less than the rate paid by many individual American citizens. Democratic Senator Levin (Michigan) and Republican Senator Coburn (Oklahoma) have called for an end of “egregious tax abuses”. Many politicians believe that were technology corporations to pay a fairer contribution to the national taxation income, then domestic employment and the domestic economy could both be accelerated.

Some in the technology industry – led by the Information Industry Technology Council – have responded that if the US changed its “archaic” taxation code to serve the needs of a globalized economy, and if the penalties against repatriation of profits from overseas were reduced, then jobs could be created at home.

To add fuel to the fire, the Wall Street Journal published an article on 22nd January last in which it noted that much of the estimated 1.7TrUS$ of “offshore” profits held “indefinitely overseas” by the technology giants in fact reside in US bank accounts on American soil! Because the US tax code notes that if funds are held by an overseas subsidiary (eg in Ireland) and not directly by the parent company (in the USA), even if those funds in practice reside in a US bank account, then this money is nevertheless deemed “overseas” for tax purposes. Of course, a US multinational has a preference that its funds be held in the US dollars so as to avoid exchange risk, and that it be held in American investments or US Government treasuries, which are believed less risky than foreign investments. But this “technicality” demolishes the argument for better repatriation tax treatment: that cash is languishing overseas when it could be invested for the benefit of the US economy.

With this backdrop, the technology giants now want to promote a major policy proposal of their own through Congress, the Senate and the President. There is an industry wide push from Silicon Valley for immigration law reform, in favor of science, technology, engineering, and mathematics (STEM) foreign graduates from American universities, so as to address labour shortages across the industry. Some (such as Vivek Wadhwa of the Singularity University) believe that 50,000 foreign STEM graduates from the US universities deserve prioritization over 55,000 “diversity visas” allocated to randomly-selected school students from across the rest of the planet. There are now approximately a million skilled foreign staff stuck somewhere in the process of waiting for “green cards”, some now for as long as ten years. During this process, employees may lose their place in the queue if they change jobs or job function, and so their careers are stalled. Further, during the process, their spouses cannot be employed; in some states they cannot open a bank account nor even get a driver’s license. A further proposed bill to create 50,000 “entrepreneur visas” has languished half a year and attempts are now being made to try and rekindle interest.

President Obama has noted that while he is sympathetic to visa catalysis for STEM graduates and entrepreneurs, nevertheless a holistic policy is needed to the entire reform of immigration and recognition of illegal immigrants. A piecemeal approach may arguably do more damage than good. At a time when the President and the Democrats have clearly been able to benefit from the changes to the demographics of the US population, it is clear that the technology industry faces an immense challenge if it focuses on a specific narrow proposal and misses the broader political perspective. The technology industry has still a lot to learn about the way Washington DC works.


About chrisjhorn
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