We're off to DC! Silicon Valley startups start up law lobbying machine

Save America's economy: Do as we say – and GIVE US MORE MONEY

Analysis Fresh from pressuring politicians in Indiana, Arkansas and Arizona to backtrack on social policy, Silicon Valley is heading to Washington DC to push the startup mindset into public policy discussions.

A group of VCs, including Napster founder Sean Parker and big name investor Ron Conway, have set up the Economic Innovation Group (EIG) which will be staffed by former Obama senior economic advisor Steve Glickman and former Republican Senate aide John Lettieri.

The group will act as "an ideas laboratory and advocacy organization dedicated to forging a more dynamic, entrepreneurial, and innovative U.S. economy for the 21st century," according to its own website.

EIG promises to be bipartisan, and starts off in that vein by including quotes from the leading lights of both parties in its first paper [PDF], titled Beneath the Recovery: Obstacles to Growth and Opportunity in the New Economy.

That paper tiptoes through the usual political minefields, to present its central thesis: today's economic recovery is slower than previous recoveries, and that is due to a less entrepreneurial atmosphere.

"Many communities remain trapped in an equilibrium of economic decline and crumbling infrastructure, while lawmakers and regulators struggle to keep up with sweeping changes brought about through globalization and technology," the document argues.

Low paid jobs not the way to go

According to its figures, startups are at their smallest number as a percentage of total US firms since records started (in 1988). The result, it says, is that more of the economy is based in old companies; workers are moving around less (both between companies and across the country); and growth is coming disproportionately in the form of low-wage jobs. Low pay leads to smaller disposable incomes, hence a slower recovery.

The solution proposed by the EIG is, basically, greater investment in infrastructure and more skills training, as well as the more vague buzzword notions of: creative approaches to modern workforce development; innovative funding models for infrastructure modernization; an ecosystem for new businesses to form and thrive; and sustainable private investment in economically distressed regions.

Behind this is the broader argument that government and "traditional institutions" are not able to keep pace with the way that the internet and related technologies are changing the economy.

It's a convincing argument if you happen to have made millions from investments in Silicon Valley companies, like every one of the lobby group's founders have. But other economists have been arguing that it's not so much about startup culture as it is about the rich being richer than ever.

French economist Thomas Piketty has been getting a lot of attention since his 2013 book Capital in the Twenty-First Century suggested there is a concentration of wealth in the top tier of society, causing broader social and economic problems. This, he says, stems from the fact that the return on capital is greater than the rate of economic growth i.e. the rich get richer, and the poor get poorer.

His solution is a global system of taxes that fall on the rich more heavily – something that has been captured by investor Warren Buffett when he complained in 2012 that he was paying a lower tax rate than his secretary (he paid 17.4 per cent; she paid 35.8 per cent). Buffett argues for more balanced taxes on all, now referred to as The Buffett Rule, something that President Obama has enthusiastically pushed, but which the millionaires and billionaires that provide most of Congress with their election funds are less keen on. Venture capitalists and tech CEOs are also notably quiet on the issue.

It's all about the houses

Another economic argument that has picked up a lot of attention comes from a young economist at the Brookings Institute, Matthew Rognlie, who argues that the problem lies in land ownership.

While Piketty identifies the issue of returns to capital being larger than economic growth, Rognlie says that most of the returns are coming from housing sector. Some investments – such as buying up software intellectual property – can be extremely valuable but only in the short term as there is always movement and updates and new products.

Long-term wealth and high returns come almost solely in the ownership of land and property – something that San Franciscans can certainly testify to with the city now the most expensive place to live in the United States, and with high rents forcing out long-term residents.

Of course, Washington DC is unlikely to want hear either Piketty's or Rognlie's arguments since they would result in the wealthy paying more in taxes or seeing their comparative wealth fall.

However, arguments over America's small businesses, cutting red tape for innovative companies and growing the economy by getting more money into the middle class – well, those are all likely to get Congress' ear.

With Google influencing the White House, FTC and FCC in dramatic ways, Apple turning the tide on social legislation, and Silicon Valley having successfully sunk laws such as SOPA, CISPA and PIPA, it looks as though we are entering the tech-led public policy era.

Presumably the Economic Innovation Group wants to be the app for that. ®




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