Over-Regulated Tech Entrepreneurs Seek Their Own Country

The embed above is provided by YouTube where the video clip is posted under the title “Balaji Srinivasan at Startup School 2013.”

(p. B4) At a startup conference in the San Francisco Bay area last month, a brash and brilliant young entrepreneur named Balaji Srinivasan took the stage to lay out a case for Silicon Valley’s independence.

According to Mr. Srinivasan, who co-founded a successful genetics startup and is now a popular lecturer at Stanford University, the tech industry is under siege from Wall Street, Washington and Hollywood, which he says he believes are harboring resentment toward Silicon Valley’s efforts to usurp their cultural and economic power.
On its surface, Mr. Srinivasan’s talk,—called “Silicon Valley’s Ultimate Exit,”—sounded like a battle cry of the libertarian, anti-regulatory sensibility long espoused by some of the tech industry’s leading thinkers. After arguing that the rest of the country wants to put a stop to the Valley’s rise, Mr. Srinivasan floated a plan for techies to build an “opt-in society, outside the U.S., run by technology.”
His idea seemed a more expansive version of Google Chief Executive Larry Page’s call for setting aside “a piece of the world” to try out controversial new technologies, and investor Peter Thiel’s “Seastead” movement, which aims to launch tech-utopian island nations.

For the full commentary, see:
FARHAD MANJOO. “HIGH DEFINITION; The Valley’s Ugly Complex.” The Wall Street Journal (Mon., Nov. 4, 2013): B4.
(Note: the online version of the commentary has the date Nov. 3, 2013, and has the title “HIGH DEFINITION; Silicon Valley Has an Arrogance Problem.”)

Regulators Harass Saucy and Irreverent Buckyball Entrepreneur

ZuckerCraigBuckyballs2013-12-07.jpg

“Craig Zucker, former head of Maxfield & Oberton, which made Buckyballs, sells Liberty Balls to raise a legal-defense fund against an unusual action by federal regulators.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) Over the last three weeks, more than 2,200 people have placed orders for $10-to-$40 sets of magnetic stacking balls, rising to the call of a saucy and irreverent social media campaign against a government regulatory agency.
. . .
It involves an effort by the federal Consumer Product Safety Commission to recall Buckyballs, sets of tiny, powerfully magnetic stacking balls that the magazines Rolling Stone and People once ranked on their hot products lists.
Last year, the commission declared the balls a swallowing hazard to young children and filed an administrative action against the company that made the product, demanding it recall all Buckyballs, and a related product called Buckycubes, and refund consumers their money. The company, Maxfield & Oberton Holdings, challenged the action, saying labels on the packaging clearly warned that the product was unsafe for children.
But the fuss now has less to do with safety. After Maxfield & Oberton went out of business last December, citing the financial toll of the recall battle, lawyers for the product safety agency took the highly unusual step of adding the chief executive of the dissolved firm, Craig Zucker, as a respondent in the recall action, arguing that he con-
(p. B6)trolled the company’s activities. Mr. Zucker and his lawyers say the move could ultimately make him personally responsible for the estimated recall costs of $57 million.
While the “responsible corporate officer” doctrine (also known as the Park doctrine) has been used frequently in criminal cases, allowing for prosecutions of individual company officers in cases asserting corporate wrongdoing, experts say its use is virtually unheard-of in an administrative action where no violations of law or regulations are claimed.
. . .
Three well-known business organizations — the National Association of Manufacturers, the National Retail Federation and the Retail Industry Leaders Association — banded together this summer to file a brief urging the administrative law judge reviewing the recall case to drop Mr. Zucker as a respondent.
The groups argue that holding an individual responsible for a widespread, expensive recall sets a disturbing example and runs counter to the business desire for limited liability. They contend that such risk would have a detrimental effect on entrepreneurism and openness in dealing with regulatory bodies.
. . .
Conservative legal groups like Cause of Action, a nonprofit that targets what it considers governmental overreach, have been watching the proceedings with interest and weighing taking some action.
“This really punishes entrepreneurship and establishes a bad precedent for businesses working to create products for consumers,” said Daniel Z. Epstein, the group’s executive director. “It undermines the business community’s ability to rely upon the corporate form.”

For the full story, see:
HILARY STOUT. “In Regulators’ Sights; Magnetic-Toy Recall Gives Rise to Wider Legal Campaign.” The New York Times (Fri., November 1, 2013): B1 & B6.
(Note: ellipses added.)
(Note: the online version of the article has the date October 31, 2013, and has the title “Buckyball Recall Stirs a Wider Legal Campaign.”)

Portland Government Stops Girl from Selling Mistletoe to Pay for Braces

In Portland, the government is stopping an 11 year old girl from selling mistletoe to raise money for her braces. Here is a link to the KATU local Portland ABC news station video report: http://www.katu.com/news/local/11-year-old-told-not-to-sell-mistletoe-but-begging-is-fine-234014261.html?tab=video&c=y It also has been posted to YouTube at: http://www.youtube.com/watch?v=Vj4caXi0wdw

Fed Regulations Are “a Wild Card” Since “Regulators Have a Lot of Leeway”

(p. 1D) The president of First National of Nebraska, the nation’s largest privately held banking firm, said new federal regulatory and com­pliance efforts stand to cost the company as much as $30 million this year.
“It is a big uncertainty in the banking world,” said Dan O’Neill, speaking Wednesday at the com­pany’s annual meeting in Omaha. “They are not operating off of concrete rules. A lot of it is their interpretation.”
The federal Consumer Fi­nancial Protection Bureau was formed as a result of the federal Dodd-Frank laws passed in 2010 after widespread bank failures and bailouts using taxpayer money.
. . .
The bureau, he said, worries banks because there is not a “clear body of rules” from which the regulator is operating in eval­uating the fairness of a bank’s business practices. He said the agency’s regulators have a lot of leeway in deciding what to do af­-(p. 2D)ter examining a bank; penalties for running afoul include fines.
“So it is a bit of a wild card,” he said.

For the full story, see:
RUSSELL HUBBARD. “ANNUAL MEETING; First National Chief Says Regulatory Costs Mounting.” Omaha World-Herald (Thurs., June 20, 2013): 1D-2D.
(Note: ellipsis added.)

If Feds Stalled Skype Deal, Google Would Have Been “Stuck with a Piece of Shit”

Even just the plausible possibility of a government veto of an acquisition, can stop the acquisition from happening. The feds thereby kill efficiency and innovation enhancing reconfigurations of assets and business units.

(p. 234) . . . , an opportunity arose that Google’s leaders felt compelled to consider: Skype was available. It was a onetime chance to grab hundreds of millions of Internet voice customers, merging them with Google Voice to create an instant powerhouse. Wesley Chan believed that this was a bad move. Skype relied on a technology called peer to peer, which moved information cheaply and quickly through a decentralized network that emerged through the connections of users. But Google didn’t need that system because it had its own efficient infrastruc-(p. 235)ture. In addition, there was a question whether eBay, the owner of Skype, had claim to all the patents to the underlying technology, so it was unclear what rights Google would have as it tried to embellish and improve the peer-to-peer protocols. Finally, before Google could take possession, the U.S. government might stall the deal for months, maybe even two years, before approving it. “We would have paid all this money, but the value would go away and then we’d be stuck with a piece of shit,” says Chan.

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.
(Note: ellipsis added.)

Entrepreneurial Spirit Values “Voyaging into the Unknown”

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“Edmund Phelps, winner of the 2006 Nobel Prize for economics.” Source of caption and photo: online version of the WSJ review quoted and cited below.

(p. C7) Edmund Phelps’s “Mass Flourishing” could easily be retitled “Contra-Corporatism,” for at its heart this fine book is an attack on that increasingly common “third way” between capitalism and socialism. Mr. Phelps cogently argues that America’s current economic woes reflect a reduction in the innovative dynamism that generates economic success and personal satisfaction. He places little hope in the Democratic Party, which “voices a new corporatism well beyond Franklin Roosevelt’s New Deal or Lyndon Johnson’s Great Society,” or in Republicans in the thrall of “traditional values,” who see “the good economy as mercantile capitalism plus social protection and social insurance.” He instead yearns for legislative solons who “could usefully ask of every bill and regulatory directive: How would it impact the dynamism of our economy?”
. . .
The book eloquently discusses the culture of innovation, which can refer to both an entrepreneurial mind-set and the cultural achievements during an age of change. He sees modern capitalism as profoundly humanist, imbued with “a spirit that views the prospect of unanticipated consequences that may come with voyaging into the unknown as a valued part of experience and not a drawback.”
. . .
In . . . [the] new corporatism, the state protects both organized labor and politically connected companies. and the state has acquired a “panoply of new roles,” from regulations “aimed at shielding companies or workforces from competition” to lawsuits that “add to the diversion of income from earners to those receiving compensation or indemnification.” It is as if “every person in a society is a signatory to an implicit contract” in which “no person may be harmed by others without receiving compensation.” But protection against all conceivable harm also means protection against almost all change–and this is the death knell of dynamism and innovation.
. . .
But what is to be done? The author wants governments that are “aware of the importance of the role played by dynamism in a modern-capitalist economy,” and he disparages both current political camps. He has a number of thoughtful ideas about financial-sector reform. He is no libertarian and even proposes a “national bank specializing in extending credit or equity capital to start-up firms”–not my favorite idea.

For the full review, see:
EDWARD GLAESER. “How to Unleash the Economy.” The Wall Street Journal (Sat., Oct. 19, 2013): C7.
(Note: ellipses, and bracketed word, added.)
(Note: the online version of the review has the date Oct. 18, 2013, and has the title “BOOKSHELF; Book Review: ‘Mass Flourishing’ by Edmund Phelps; Innovative dynamism is the key to economic success and personal satisfaction, a Nobel-winner argues.”)

The book under review is:
Phelps, Edmund S. Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change. Princeton, New Jersey: Princeton University Press, 2013.

Mass-FlourishingBK2013-10-24.jpg

Source of book image: http://blogs.reuters.com/great-debate/files/2013/08/Mass-Flourishing-cover.jpg

“SEC Rules Demanded Complexity”

(p. 152) Google had considerable experience with pleasing users, but in the case of the auction, it could not create a simple interface. SEC rules demanded complexity. So the Google auction was a lot more complicated than buying Pokémon cards on eBay. People had to qualify financially as bidders. Bids had to be placed by a brokerage. If you made an error in reg-(p. 153)istering, you could not correct it but had to reregister. All those problems led to a few postponements of the start of the bidding period.
But the deeper problem was the uncertainty of Google’s prospects. As the press accounts accumulated–with reporters informed by Wall Streeters eager to sabotage the process– the perception grew that Google was a company with an unfamiliar business model run by weird people. A typical Wall Street insider analysis was reflected by Forbes.com columnist Scott Reeves, who concluded that Google’s target price, at the time pegged to the range between $ 108 and $ 135 a share, was excessive. “Only those who were dropped on their head at birth [will] plunk down that kind of cash for an IPO,” Reeves wrote.

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.