We Regulate What We Don’t Understand

In the first few decades after the founding of our great Republic the role of the federal government was essentially to deliver the mail and protect us from threats like the still brisling British Empire and the bipolar French. Over time, through spasms of progressive idealism, the role and power of the federal government has expanded. Scholars, gadflies, politicians, and philosophers have spent lifetimes arguing about the benefits and dangers of government expansion but whether you’re for or against it the reality is that the shapeless all encompassing whatever it is that we refer to as ‘the government’ continues to grow.

So I am confused (a feeling I deal with most of the time so it’s kinda like my safe place) as to why we’re now hearing that corporate domination of Washington is the cause for everything from the financial meltdown to the oil spill in the gulf. I think it’s safe to assume (of course it’s not but I’m playing economist here) that most of the voting public understands that businesses contribute billions of dollars to political campaigns and political action committees (PACs). We can also assume with little risk that the same organizations hire thousands of lobbyists and fund associations to represent their interest. Finally, this game has been going on for a long time and it’s not just big business that plays. Groups as diverse as the NRA, MoveOn.org, and the Teamsters all fork over tons of cash to influence government action. Sure they’re probably outspent 10 – 1 but many of the non-business special interests can compete with the oil companies and banks through the use of voters as currency.

The conundrum, I believe, is that there is something akin to a physical law of the universe at play here. As government expands the opportunities to influence government also expand. Build it and they will come, wearing nice suits with long donor lists in the pockets and attractive ‘analysts’ who would like to meet with you after work for a few drinks to discuss this or that or who need you as a keynote speaker at a conference in Fiji, all expenses paid of course.

So if government expands on the premise of helping to provide services not adequately provided by the private sector or to regulate services to protect citizens from the foibles and shenanigans of those private sector hooligans, one would think that said services and regulations would be developed and operated to serve and to regulate as intended. Sure, if one was huffing a can of keyboard duster every three minutes. Truth be told (more precisely the shade tree economist’s version) the expansion of government as presently conducted, especially in terms of regulation, favors those being regulated more than the stakeholders supposedly being protected.

How’s that? When a real juicy piece of legislation is introduced, say healthcare reform or financial reform (the next time I get mad at my kids I will implement TV reform or video game reform) that’s too big for a rep’s staff to handle they enlist the Office of Legislative Counsel, a small band of intrepid public servants who impartially draft legislation. But 40 lawyers can only do so much and that’s where lobbyists come in. I won’t get into details (because that would require a lot of effort) but it’s not as simple as someone showing up with briefcase full of unmarked bills and getting a little somthin’ somthin’ for the effort. As John Dickerson marvelously points out in a 2006 article in Slate, the way to a Congressman’s vote is through his clueless and overburdened staff. A deft lobbyist will insert himself into the legislative process as an expert or a connection point to experts who by wonderful chance say just what the lobbyist told you at the Super Bowl but with reams of data and footnoted research.

So as government expands its not the corporate takeover of government we should be concerned about, it’s the government takeover of corporations. Yes, those greedy bastards from Goldman-Sachs and BP blew up the financial system and a mother of an oil well but they were allowed to. Instead of offering simple and clear laws with stringent penalties and no loopholes, we get thousand page laws with more escape clauses than a Florida building inspection. The offices of government charged with enforcing these laws are mostly overseen by Congress. Need I say more. And yes, you’re right if you’re thinking what a wonderful score a lobbyist has when they are present at creation, through implementation, all the way to enforcement.

When government takes upon itself the responsibility of managing something it doesn’t understand it becomes a cat’s paw for those that do. There is a tipping point at which regulation turns from useful and thoughtful to promiscuous and negligent. My guess is we passed that point around the Grant administration.

Later

Apples and Oranges

Last Wednesday Apple became the most valuable technology company, as measured by its stock market capitalization (AAPL), on the planet. Investors value the i everything maker more than IBM, Microsoft, or Hewlett-Packard. It’s easy to see why; when was the last time you got really excited about a new laptop or server? And do you even care about the operating system running them? No, probably no, and Apple knows it.

Comparing Apple to other global technology companies is, to use a gem of a cliché, like comparing apples to oranges.

Apples see the world as a place full of individual consumers who require simple yet powerful products to serve their needs. It may be communication, entertainment, or business but Apple’s products (iPhones, iPads, iPods, iMacs) share a similar look and feel as well as many applications. Just like there are different shampoos that can do a decent job of washing your hair or different sneakers that can protect your feet but fill those needs in slightly different ways, the apples look at their products as consumer based.

The term “Consumer Products” is used to categorize companies offering a vast portfolio of products under a common name (Proctor & Gamble, 3M, Johnson & Johnson). It’s a bit of a contradiction but when you think about your product based on the needs of the individual consumer you more than likely will produce something many people will like.

Oranges, on the other hand, look to serve specific needs of general customers. They offer ‘scalable solutions’ for ‘increased performance’ and ‘greater capacity’. All good things I’m sure but they often fail to identify how they’ll fix a specific problem or help take advantage of an opportunity that users can identify with. For example trying to run a report on last month’s expenses (by the way there’s an App for that).

Oranges continually back themselves into competitive corners by trying to isolate and dominate specific customer markets or niches using products that can quickly be commoditized. It’s cool that a printer can do double sided color high resolution printing very fast but if I wait a month or two there will be a knock off at half the price. Who’s come up with a computer easier to use than a Mac? Please let me know where I can get a music player that’s cheaper, easier to use, and with more legally available content than an iPod and I’ll buy it.

Apple’s new dominance signals more than just Wall Street affirmation. It signals a move away from the needs of businesses pushing the edge of technology to the needs of consumers. This shift means trouble for companies like Microsoft and Dell who rely on high volumes from businesses to compensate for low margins. Google may have a dog in the fight but so far they haven’t produced a significant ‘total solution’ – one piece of technology as a product. You need to buy a phone from another company to get the Android operating system or by a computer to make use of Google’s applications.

Again, Apple beats the competition. I may have to find a service provider for the iPhone but the product comes from one company. If I buy a Mac, one company supports my hardware and my operating system.

Apple won’t remain the dominant technology company for long, no single organization can. What Apple’s resurgence means to us is that the click of the keyboard and the drag of the mouse have their days numbered. Simplification, miniaturization, and customization are quickly replacing the complex, bulky, and commoditized. Good.

Later.