Innovation Corruption - Why Our Government Isn't Working

For those of you who follow my writing, you know of my admiration for Professor Lawrence Lessig. He is one of the most relevant thinkers of our time. His recent speech “Innovation Corruption” was delivered May 20th at the Yahoo! campus in Santa Clara, CA (video below). The message was clear: government and business are corrupted by money. This corruption blocks innovation because regulation is designed not for everyone's good but to maximize money paid to Congress. The system Lessig referrs to is the “economy of influence.” Our government is completely corrupted, that it is why it doesn't work and people better wake up and pay attention.

From the Obama presidency, to the food business, to the broadband deployment problem in the U.S. and EU, Lessig cites examples of money's influence from a number of sources. His plea to the audience was to do something: the public is very much a part of the problem when clearly there are corruptive patterns that no one does anything about.

Did you know almost half of all senator and house members become lobbyist when they retire or lose their office ? This is just the beginning. Watch to learn more about just how corrupt the system is.

Update on 2010-05-29 16:37 by Bryan K. O'Rourke

When you think of what Lessig is saying about institutional corruption the British Petroleum disaster comes to mind. Read this excerpt from  Bob Hebert's  May 28, 2010 Op-ed in the NYT's "An Unnatural Disaster" :

The oil companies and other giant corporations have a stranglehold on American policies and behavior, and are choking off the prospects of a viable social and economic future for working people and their families.

President Obama spoke critically a couple of weeks ago about the “cozy relationship” between the oil companies and the federal government. It’s not just a cozy relationship. It’s an unholy alliance. And that alliance includes not just the oil companies but the entire spectrum of giant corporations that have used vast wealth to turn democratically elected officials into handmaidens, thus undermining not just the day-to-day interests of the people but the very essence of democracy itself.

Bob is right, but as Lessig points out, its up to us to do something about it.

How Laws Are Stiffling Creativity & Innovation

This morning I reaquainted myself with some of Lessig's past talks in reaction to a post I was reviewing Steve Lohr had tweeted on transparency. Recently I had an important business meeting with a group of executives to discuss a potential business acquisition, which required their input. The transaction involved a great number of copyright and other issues requiring (or not requiring to the point of this post) voluminous contracts. One of the 5 or so significant reasons the proposed transaction I was attempting was not achieved was, according to this group, my being too "legalistic".

I only use this example to make a point about where our laws have gone and the practical implication this has on commerce; particularly when it applies to innovation and progress. Attempts at progress are being impeded reguarly as the result of laws which have become disconnected from their original intent. Ironically, when I was told I was being too "legalistic" you should know, I am not a lawyer and the opposing group has multitudes of them employed, including one in the room at the time. I simply ask a lot of questions about lengthy agreements, the terms of which are prepared by others and the implications of which are often ignored until something goes awry. If you don't understand where I am coming from, watch this video of Lessig as he shows a good  example regarding a young woman's video on Youtube. So is it me being too legalistic or the world we live in ? Let me know. Perhaps upon viewing this you'll appreciate what I am refering to and next time reconsider where and when you play music and take pictures, these among many actions our law has deemed "illegal".

Hulu's Business Model Dilema

Hulu, yet another example of an industry trying its best to maintain its business model with minmal innovation in the face of a rapidly changing world. "Remember that Woody Allen movie "Take the Money and Run" where Woody's character keeps getting his glasses broken by bullies and finally in one scene when he is confronted again he takes them off himself and smashes them? Well, that's the kind of logic the industry used on Hulu." This according to Joe Flint of the LA Times yesterday morning and Joe's right...But there's more.

As the LA Times reported, Hulu, the popular online site for watching television shows, is preparing to execute the toughest maneuver in digital media: moving from free to pay. The service will begin testing a subscription offering as soon as May 24, according to people with knowledge of the plans.

Under the proposal, Hulu would continue to provide for free the five most recent episodes of shows such as Fox's " Glee," ABC's "Modern Family" and NBC's "Saturday Night Live." But viewers who want to see additional episodes would pay $9.95 a month to access a more comprehensive selection, called Hulu Plus, these people said.

Its important to remember something when you consider Hulu , its owned by a consortium of content creators, News Corp., NBC Universal and Walt Disney Co., who want to preserve the cable and satellite fees that pay for the high cost of TV production. In other words these guys want to make certain they continue to be paid vast sums of money for what they make. They don't want their business model to change; its too profitable. Therein lies a bit of Joe's analogy and therein lies the pickle Hulu is in. They have to control the distribution channel to realize their goals.

According to the LA Times story on the topic "Television executives don't want to suffer the same fate as music industry or newspapers, which saw revenues plummet after users flocked to free access to songs, stories and classified ads online. Already, Hulu fans are decrying the proposal and threatening to turn to Internet pirate sites to watch their favorite shows."

With all of the alternate means of distribution emerging, the days of owning both content creation and its distribution will become harder, without of course sacrificing FAT margins. The existing scheme of content creators owning distribution channels should be discouraged to increase competition and improve quality and diversity. In the end the consumer will decide, no matter the media industry's continued manipulation of the government to protect its interests (watch Lessig). To this point read  the "Economics of Free" and "Kindle vs. Publishers, the Wrong Debate".

The essence is competition and value. Competition for content and the value extracted by organizations who are mainly middle men; intermediaries between creation and the utlimate consumer is coming under attack in all industries. As I wrote in Kindle vs. Publishers, the Wrong Debate, "Its all about economics. In a business where barriers to entry used to be up front costs in promotion, development, distribution and production, new business models have emerged to render the past value of publishers increasingly mute." There is a reason Apple is one of the largest distributors of content in the world now - economics.

Many people believe that "The challenge will be whether Hulu Plus has enough ‘added value' so that consumers perceive that it's worth the price," said Michael McGuire, media analyst with research firm Gartner. While true that is really a near term problem. The challenge for the owners of Hulu is wether they can keep extracting their margins for what they do given the rise of so may distribution and content alternatives ala Netflix and others.

You've Got to Love Lawrence Lessig

I love the accomplished Stanford Professor Lawrence Lessig's grasp of the new media vs. the old and in particular this excerpt from his column in Wired Magazine, "A Costly Addiction" dated November of 2006. When this site sets forth the notion that protectors of the past, particularly as it relates to copyright protection, are battling the creators of the future there are few more capable of portraying the realities of this battle than this legal mind who wrote:

"Of all the things that have not gone according to the framers' plan, perhaps this is the most significant. Practically everyone in Washington, DC, is now dependent in precisely the way our founders feared. All but a few members of Congress devote the majority of their time to raising money for reelection. Doing the job we've hired them to do – governing – takes a distant second place. A good politician comes to understand precisely how much his campaign will gain or lose with each decision he makes. Like rats in a scientific experiment learning which lever delivers food, politicians learn the complex dance that keeps them in office.

So it should be no surprise that this dependency (or corruption, as it ought to be called) has begun to permeate the institutions that support policymaking, including academia. In the recent congressional hearings on telecom and network neutrality, for example, 77 percent of the nongovernmental testimony was from commercial or trade organizations directly dependent on the result – meaning less than 23 percent came from sources that were even arguably neutral. That figure will continue to fall until the only people heard in DC will be those who have a direct financial stake in the outcome they plead. Independent policymaking will be as common as powdered wigs.

The answer is obvious to anyone watching the history of policymaking as it affects the Internet. The winners have been the industries most skilled in playing politics (read: the content industry); the losers have been the ones focused more on innovation than on sucking up to Congress (read: much of the technology industry). Those losers, though, are the future; the winners, the past. And it takes an extraordinarily perverse view of progress to think that protecting the past is the best path to the future."

View his site http://lessig.org/content/columns/ and read his book.