Commentary

Parasite Economy Latches onto New Host

This article appeared in the Salt Lake Tribune on May 10, 2006.

One of the biggest success stories of the American economy in the past decade is the Internet search firm Google. After a humble start in a Stanford University dorm room, the company went public in 2004 and now has a stock price of about $370 per share.

Founders Larry Page and Sergey Brin and many other wealthy officers of the company got rich the only way you can in a free market: by producing something other people want. A lot of brilliant people worked long hours producing computer software that hundreds of millions of people chose to use, in the midst of a highly competitive market that offered lots of other options.

But in our modern politicized economy - which National Journal columnist Jonathan Rauch called the “parasite economy” - no good deed goes unpunished for long. Some people want to declare Google a public utility that must be regulated in the public interest, perhaps by a federal Office of Search Engines. The Bush administration wants Google to turn over a million random Web addresses and records of all Google searches from a one-week period. Congress is investigating how the company deals with the Chinese government’s demands for censorship of search results by Chinese users.

So, like Microsoft and other companies before it, Google has decided it will have to start playing the Washington game. It has opened a Washington office and hired well-connected lobbyists. One of the country’s top executive search firms is looking for a political director for the company.

What should concern us here is how the government lured Google into the political sector of the economy. For most of a decade the company went about its business, developing software, creating a search engine better than any of us could have dreamed, and innocently making money. Then, as its size and wealth drew the attention of competitors, anti-business activists, and politicians, it was forced to start spending some of its money and brainpower fending off political attacks. It’s the same process Microsoft went through a few years earlier, when it faced the same sorts of attacks. Now Microsoft is part of the Washington establishment, with more than $9 million in lobbying expenditures last year.

By Washington standards, Google is still a bit player, with lobbying costs of less than $1 million per year.

Seasoned Washington players have been patronizing about Google’s political innocence. Technology lobbyist Rhett Dawson says that the company “is quickly going through a maturation phase. … It pays to pay attention to Washington.” Lauren Maddox, a former Newt Gingrich aide recently hired by Google, says that the company’s lobbyists are explaining to them that the “policy process is an extension of the market battlefield.”

Microsoft went through the same hazing, though with more of an edge. A congressional aide said, “They don’t want to play the D.C. game, that’s clear, and they’ve gotten away with it so far. The problem is, in the long run they won’t be able to.”

Sorta like, “Hey, Bill, nice little company ya got there. Shame if anything happened to it.”

And companies get the message: If you want to produce something in America, you’d better play the game. Contribute to politicians’ campaigns, hire their friends, go hat in hand to a congressional hearing and apologize for your success.

The tragedy is that the most important factor in America’s economic future - in raising everyone’s standard of living - is not land, or money, or computers; it’s human talent. And some part of the human talent at another of America’s most dynamic companies is now being diverted from productive activity to protecting the company from political predation. The parasite economy has sucked in another productive enterprise.

The slowdown of the American economy over the past few decades can be blamed in large measure on just this process - the expansion of the parasite economy into the productive economy. The number of corporations with Washington offices has shot up, along with the number of CEOs who visit Washington regularly. And if you thought the growth of the parasite economy would slow down under Republican government, you’d be wrong. The number of companies with registered lobbyists is up 58 percent in six years, and official spending on lobbying has risen from $1.5 billion to $2.1 billion in that time.

In 1998, Bill Gates wrote, “It’s been a year since the last time I was in D.C. I think I’m going to be making the trip a lot more frequently from now on.”

And that’s what the parasite economy is costing America. The founders of Microsoft and Google and other innovative companies are going to waste their brains on protecting their companies rather than thinking up new products and new ways to deliver them.

Google’s new presence in Washington is entirely understandable, but it is a tragic symbol of the diversion of America’s productive resources into the unproductive world of political predation and the struggle to resist it.

David Boaz is executive vice president of the Cato Institute and author of Libertarianism: A Primer.