Corruption Laundering: The Art Of Manipulating Regulations To Block Innovation

from the plausible-deniability dept

A bunch of folks, including James Allworth himself, sent over James Allworth's excellent post at HBR entitled How Corruption Is Strangling U.S. Innovation. If you're a frequent Techdirt reader, there is little new here, though much you'll likely agree with. It details how many legacy companies use questionable regulations to hinder disruptive upstarts who are challenging their businesses via unique and innovative means. It covers a bunch of different fields or situations where this is seen: autodealers going after Tesla for daring to sell cars direct, perpetual copyright term extension that appears to be much more a function of the age of Mickey Mouse than promoting the progress, how companies like Uber and Airbnb have had to deal with a bundle of local regulations on taxis and hotels, and how Comcast doesn't count its own video content towards your download cap, but Netflix's traffic does count.

It's a great article, but the thing that struck me about it is how it would be possible for people to explain away the corruption in each case as having a legitimate basis. That's what's really pernicious here. Allworth calls out Larry Lessig's book, Republic, Lost which often tries to drive this point home by calling it "soft corruption." That is, we're generally not talking about overt corruption, the kind where someone is handing briefcases full of cash over to politicians. It's much more subtle. What you get are legacy companies who fear disruption -- and they are able to make the case that the "disruption" should be illegal because it's scary to the incumbent. That is, "we must shut down this new innovation x, because it will destroy industry y, and industry y is important to America because of all the jobs it creates!" Or, it's "we need to carefully regulate industry z, because if we don't they'll take advantage of customers!"

And, thus, there are legitimate-sounding reasons for these kinds of regulations, and supporters of them always hit back on the corruption charges, claiming that "of course, it's not corruption -- politicians are just protecting jobs / children / etc."

There's a myth out there that businesses hate regulations. That's only partially true, and it's only true in limited cases. In many industries -- especially highly regulated ones -- the incumbents often love regulations because (a) they have enough power to control the regulations, (b) they know their way around those regulations better than anyone else, (c) those regulations quite frequently limit competition and (d) those regulations quite frequently effectively block out any form of disruptive innovation by stopping it entirely.

Perhaps what this is all about isn't properly conveyed by just calling it "corruption," or even "soft corruption." I think it's better described as corruption laundering. It is corruption, but it's done through this regulatory framework to make it look, sound and (in some cases) feel perfectly legit to many people, making it much easier to keep those regulations in place. The corruption is "cleaned" of its dirty connotations because it can be wrapped in a cloth (though bogus) of "protecting jobs" or "protecting your safety." It is corruption, but the truly nefarious part is that the corruption is done in such a way that there is plausible deniability over whether or not it is truly corrupt. And that's what makes it so difficult to root out this form of corruption. It's all been white-washed in a way to have a plausible explanation, even as the pace of important innovation suffers drastically.

Filed Under: competition, corruption, innovation, politics, regulations