How Corruption Is Strangling U.S. Innovation

If there’s been one topic that has entirely dominated the post-election landscape, it’s the fiscal cliff. Will taxes be raised? Which programs will be cut? Who will blink first in negotiations? For all the talk of the fiscal cliff, however, I believe the US is facing a much more serious problem, one that has simply not been talked about at all: corruption.

 

 

 

But this isn’t the overt, “bartering of government favors in return for private kickbacks” corruption. Instead, this type of corruption has actually been legalized. And it is strangling both US competitiveness, and the ability for US firms to innovate. The corruption to which I am referring is the phenomenon of money in politics.

 

Lawrence Lessig’s Republic, Lost, details many of the distortions that occur as a result of all the money sloshing around in the political system: how elected representatives are being forced to spend an ever-increasing amount of their time chasing donors for funds, for example, as opposed to chasing citizens for votes. Former congressman and CIA director Leon Panetta described it as “legalized bribery”; something which has just “become part of the culture of how this place operates.”

 

But of all the negative impacts this phenomenon has had, it’s the devastating impact it has on US competitiveness that should be most concerning.

 

One of the prime drivers of economic growth inside America over the past century has been disruptive innovation; yet the phenomenon that Lessig describes is increasingly being used by large incumbent firms as a mechanism to stave off the process. Given how hard it can be to survive a disruptive challenge, and how effective lobbying has proven in stopping it, it’s no wonder that incumbent firms take this route so often.

 

The process by which firms do this is rarely overt, and usually couched in the language of regulation. When it involves nascent disruptors running headlong in to regulation that protects the incumbents, then the innovators are painted as “cutting corners.” Conversely, when new regulation makes sense in order to foster innovation and disruption, but it doesn’t suit the interests of the incumbents, then that regulation will often be characterized by incumbents as “stifling red tape.” It seems to be happening more and more frequently, across sectors.

 

Read more of James Allworth’s article in the Harvard Business Review.