Who Says U.S. Tech Industry Is Innovative?

One of the favorite chestnuts repeated by every industry flunky arguing against regulation is that the American tech industry is “the most innovative in the world” because it’s been left to its own devices. Let’s not throw a monkey-wrench into the works, they seem to be saying. (The markets will sort things out, yeah, we’ve heard that one too.)

It’s not very difficult to find executives railing about any sort of interference — the switch to digital TV, government bailouts — as if any industry has ever succeeded without some form of government intervention.

So exactly how innovative is the U.S. tech industry that we shouldn’t, say, enact network neutrality legislation or enforce anti-competitive statutes against companies that abuse their dominant positions?

Everyone looks to Apple and says, what a wonderful, innovative company with excellent products. The iPod is the greatest thing since sliced bread (and yes, I own one). It’s great. Funny thing is, there are a lot better choices out there, but we in the United States wouldn’t know it, because Apple has used its dominant position to squeeze them out of the market.

As Jason Calacanis noted in a seminal posting, Korean, Japanese and Chinese consumers (China: not a free market economy) have many more choices:

… not dozens, but hundreds, of MP3 players. They are cheap, feature-rich and open in nature. They have TV tuners, high-end audio recorders, radio tuners, dual-headphone jacks built-in and any number of innovations that the iPod does not. You simply will not see those here because of Apple’s inexcusable lack of openness.

How does Apple manage this market freeze-out?

Not only does Apple not build in a simple API to attach devices to iTunes, they actually fight technically and legally block people from building tools to make iTunes more compatible.

And tech vendors are no less hesitant to distort the labor market as they are the consumer market, as the government (them again!) have uncovered the unholy agreement between some vendors, including Apple and Google, to not poach each others employees. Vendors hate the idea of stifling innovation — unless they’re the ones doing the stifling.

The truth is that companies distort markets just as much as government distorts them, and that there has never been such a thing as a completely free market. The U.S. market has indeed been a springboard for innovation — thanks in part to government intervention and thanks in part to a market that rewards entrepreneurs and capital very handsomely for bringing great ideas to market.

Research by consultants Scott Anthony , Erik Roth and Clayton Christensen concludes:

By increasing the availability of resources, taking down barriers and releasing true points of modularity, government can generically turn on the innovation spigot; taking the opposite of any of these actions tends to constrict the innovation spigot. Government policy can be more effective at encouraging innovation and creating … an environment for innovation to flourish.

The two forces have coexisted in this country since the days that Alexander Hamilton transformed the Department of the Treasury into a tool for supporting industry. Keep that in mind as we watch various industry lobbies cry wolf over network neutrality, broadband competition, wireless standards and monopolistic practices when Congress goes back into session.