The political stakes are high for technology companies


Innovation talk:For many years, the techies in Silicon Valley largely ignored Washington DC, and Washington DC ignored the west coast technical community. That began to change as first Microsoft, and more recently Google, faced anti-trust probes.

Technology companies are learning to play in Washington by Washington’s rules – which may be a cultural shock for those used to disruptive innovation. Some of them are joining trade lobbying groups. Amazon, eBay, Google and Facebook launched “The Internet Association” in September 2012 as an official lobbying group and to be “the voice of the internet” in Washington DC, and in particular to promote and protect internet freedom.

Google leads the way in technology representation in Washington DC, spending some $16.5 million in 2012 just on lobbyists, up 70 per cent from 2011.

In 2012, the technology industry achieved what many consider a victory. Technology lobbyists effectively killed off proposed online piracy legislation – both the Stop Online Piracy Act (SOPA) and the Protect Intellectual Property Act (PIPA).

It remains to be seen whether the tech industry lobbyists can garner both public and political support to now push through a major proposal of their own, rather than more simply killing off somebody else’s.

The tech industry has much to do to improve its image amongst the voting public and political policymakers. It has a reputation for building its success in the last decade by off-shoring jobs. Companies became much more sensitive to the creation of US jobs on US territory during last year’s presidential campaign.

But suspicions amongst the political classes remain about the degree of commitment to the restitution of American jobs. Apple’s Steve Jobs reputedly told President Obama at a Silicon Valley dinner two years ago that “those jobs aren’t coming back”. Many in the Valley believe that “Made in the USA” is not good enough anymore, and that manufacturing quality, flexibility and responsiveness – and not just cost – are more attractive overseas.

Meanwhile, the technology giants have been accused of not paying their fair share of corporate taxes. The average amount of US tax paid by the top 30 tech firms of the Fortune 500 fell from 23.6 per cent in 2009 to 19.9 per cent in 2010, and down to 16 per cent in 2011. The top rate of corporate tax in the US is actually 35 per cent. Apple’s tax rate in 2011 was just 9.8 per cent – less than the rate paid by many individual American citizens.

Many politicians believe that were tech corporations to pay a fairer contribution to the national taxation income, then domestic employment and the domestic economy could both be accelerated.

Some in the tech industry – led by the Information Industry Technology Council – have responded that if the US changed its “archaic” taxation code to serve the needs of a globalised economy, and if the penalties against repatriation of profits from overseas were reduced, then jobs could be created at home.

To add fuel to the fire, the Wall Street Journal published an article on January 22nd noting that much of the estimated $1.7 trillion of “offshore” profits held “indefinitely overseas” by the technology giants in fact reside in US bank accounts on American soil.

The US tax code notes that if funds are held by an overseas subsidiary (eg in Ireland) and not directly by the parent company (in the US), even if those funds in practice reside in a US bank account, then this money is nevertheless deemed “overseas” for tax purposes.

Against this backdrop, the technology giants now want to promote a major policy proposal of their own through Congress, the Senate and the President. There is an industry-wide push from Silicon Valley for immigration law reform, in favour of science, technology, engineering, and maths (Stem) foreign graduates from American universities, so as to address labour shortages across the industry.

Some believe that 50,000 foreign Stem graduates from the US universities deserve prioritisation over 55,000 “diversity visas” allocated to randomly-selected school students from across the rest of the planet.

There are now about a million skilled foreign staff stuck somewhere in the process of waiting for “green cards”, some now for as long as 10 years. During this process, employees may lose their place in the queue if they change jobs or job function, and so their careers are stalled.

A further proposed bill to create 50,000 “entrepreneur visas” has languished half a year and attempts are now being made to try and rekindle interest.

President Obama has noted that while he is sympathetic to visa catalysis for Stem graduates and entrepreneurs, nevertheless a holistic policy is needed to the entire reform of immigration and recognition of illegal immigrants.

It is clear that the technology industry faces an immense challenge if it focuses on a specific narrow proposal and misses the broader political perspective. It has still a lot to learn about the way Washington DC works.

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