Big Tech, Big Government: Why Regulators Must Work with Emerging Businesses

In August, Internet-based ridesharing service Uber hired David Plouffe, President Obama’s former campaign manager, to represent the company on policy issues. A big-name political strategist working for a technology company would have been unthinkable only ten years ago, but the growth of political activity has now caught up with the growth of the tech industry as a whole. As new Internet-based companies receive increasingly large valuations (Uber’s latest round of funding brought it up to $18.2 billion), they now have the resources to engage in politics alongside other large industries. Additionally, the expansion of technology companies into traditional businesses, fueled by data from ubiquitous smartphones, has accelerated rapidly enough to capture the attention of regulators. Government at all levels must work with companies to create new regulatory framework for Internet-based business.Internet-based companies raise new legal questions by applying new methods to traditional businesses. For example, smartphone applications can now provide a ride across town, a place to stay in an apartment halfway around the world, or alcoholic beverages delivered straight to your door. Regulations governing brick-and-mortar versions of the taxi, hotel, and liquor industries developed over a number of years across many jurisdictions. By contrast, the technology world refuses to wait for policymakers to clarify the rules before building the Internet counterparts to these industries. These businesses typically own relatively few physical assets, providing hardly any targets for regulation and taxation. When the conventional versions of these businesses complain about unfair competition, Uber and other technology companies have expanded their political activities to gain legal acceptance. The political process may never move as fast as the technological world, but tech companies are now actively trying to shrink the gap.Given the slow speed at which legislation typically moves, technology companies once viewed government with a certain level of ambivalence. Entrepreneurs create companies to address a specific need, whereas government must answer any number of concerns from constituents. Singularity of focus allows an organization to make faster progress towards its objectives. Now that the government is catching up and the companies’ objectives require new sets of regulations, technology companies have rapidly increased their spending in Washington. Internet and computer companies spent $141 million on lobbying in 2013, nearly as much as oil and natural gas industry spent that same year. Among other concerns, these companies argue for reforming government surveillance of electronic communication.Addressing the technology industry’s concerns will make the United States more attractive to new companies. American lawmakers cannot take a successful technology sector for granted, especially since that sector has substantive policy interests. The same Internet-based technologies that businesses use to rapidly expand also allow them to easily relocate to a country with a more favorable regulatory environment. Any country that bans a business—as Germany has banned Uber—risks losing the economic benefit that business provides. Ensuring that the next technology companies choose to establish themselves in the United States will require lawmakers to better understand and accommodate the specific needs of the technology industry.While governments should create regulations to capture economic benefit, they also have a responsibility to protect citizens from the negative effects of business activities. Liability remains a grave concern for rideshare companies, as in the case of an Uber driver who struck and killed a girl in San Francisco last year. The girl’s family is suing the company, even though the driver did not have the Uber app turned on at the time and was not carrying a passenger. Similar liability questions must be resolved if Uber and other Internet businesses are to make any meaningful economic impact. If rideshare services are left in a legal grey area, companies face a great deal of legal and regulatory risk. Meanwhile, cities forfeit a lucrative source of taxes and a reduction in traffic. Consumers, cities, and businesses alike suffer from the status quo policy.Fortunately, some states are beginning to tackle the problem. In June, Colorado became the first state to authorize rideshare services for regulation by its Public Utilities Commission. The new law requires companies to insure drivers whenever their app is active and requires drivers to undergo background checks and regular vehicle inspections. Other cities and states should follow Colorado’s lead in establishing a legal framework for Internet-based companies. A state’s well-defined laws can reduce the risk of lawsuits and encourage companies to expand their operations. Rather than pursuing separate paths, government and technology companies should work in tandem to improve the lives of citizens. Now that technology companies have expanded their political interests, lawmakers must engage with them to determine what policy issues can be solved using their expertise.