The Comeback Read online

  Given the last few years, there’s no reason to think they will.

  Across the ideological spectrum, our political leadership has become more political and less leader. With a different crisis dominating the headlines every week—from bankruptcies to bailouts, from bonuses to stimulus packages, from global warming to health care, from unemployment to madmen terrorists, from education to oil spills—our political leaders run about like chickens without heads. There is no coherent focus in Washington; there’s just politics. Consider the last two years of major policy changes, which have come too swiftly to comprehend:

  The 2008 TARP bill. Total cost: $700 billion. Total debate time: TARP passes Congress in two weeks.

  The 2009 stimulus package. Total cost: $787 billion. Total debate time: The House voted ten hours after the bill was printed.

  The 2010 “Obamacare.” Total cost: Unknown. Total debate time: House voted three days after bill was introduced.

  To be fair, Congress did debate “Obamacare” at great length, several months in fact from end-to-end. But the problem was that the debate was never really about what was in the bill. Why? Because no one knew what was in the bill. As then–House Speaker Nancy Pelosi said—all too truthfully, as it would turn out—“We have to pass the bill so that you can find out what is in it.”

  Indeed, within two months of the vote, the CBO “reissued” its scoring by adding over $115 billion in costs.8 No one (other than the White House on its Web site) even pretends any more that “Obamacare” will be “revenue neutral,” which is how the Democratic leadership persuaded wavering members to sign on. To this day, we still can’t say with any confidence how this bill will radically transform the American health-care system. Democrats think they know; Republicans think otherwise. This is what passes for serious and honest debate in Washington these days.

  At the heart of our political impasses are the governing habits (I hesitate to call them philosophies) of the two parties. Democrats, we all know, are fond of being for the “little guy.” They believe in a taxation and spending model that, in their view, achieves a more equitable distribution of wealth. As such, they spend like drunken sailors, with little regard for the consequences of giving everyone everything (except of course “the rich”).

  Meanwhile, Republicans are great believers in the free market and limited government. But the largest explosion of government prior to the passage of “Obamacare” occurred under the Bush Administration and a Republican-controlled Congress. Although they passed tax cuts and tore down trade and regulatory barriers to business, they didn’t have the political courage to enact serious spending cuts.

  Our political problem is that Democrats can’t add, and Republicans can’t subtract. Democrats spend a lot and, when they can, raise taxes. Republicans won’t raise taxes, but they won’t cut spending. If you won’t raise taxes and won’t cut anything, then the cancerous deficit grows.

  Think about it: The 2008 presidential contest was fought between a Republican who promised no new taxes and didn’t advocate cutting any major government programs and a Democrat who promised the largest expansion of government since LBJ’s Great Society and no new taxes for anyone making less than $250,000. We are looting from our children and grandchildren, and we had to choose between two candidates who were unwilling to even raise the tough issues.

  Neither party has a real strategy focused on the long-term health of the nation. Rather, each has a philosophy and a set of programs designed for today. But what would you expect from a government full of Baby Boomers?

  DO AS WE SAY, NOT AS WE DO

  And what about that next generation, the one I’m so concerned my generation is, for want of a better phrase, stealing from?

  On the one hand, this next generation is putting us all to shame. Since September 11, over 1.5 million Americans, a vast majority of them under twenty-five years old, have served in Iraq and Afghanistan.9 Many were in grade school when the Twin Towers fell, and yet they still took our nation’s wars upon themselves. It is awe-inspiring, and it is a sign of the greatness of this country that we still produce so many brave young people willing to serve.

  On the other hand, because the rest of the rising generation is taking its sweet time to start acting and working like adults, many in my generation think they’re all a bunch of spoiled slackers. Indeed, 40 percent of twenty-somethings move back home, and nearly 30 percent fail to pay their bills on time. Twenty percent of the rising generation is carrying credit card debt exceeding $10,000.10

  Meanwhile, in the 1970s, the median marrying age was twenty-one for women, twenty-three for men. Today, the median age is twenty-six for women, and twenty-eight for men. A new term has been coined in academic circles to describe this period of one’s life: “emerging adult.”

  It conjures a particularly disturbing image:

  Dad: “Hey, son. You’re a twenty-five-year-old college graduate. Why are you sleeping on our couch?”

  Son: “Get with the times, Dad. I’ll get my own place, but right now I’m ‘emerging.’”

  It would be easy to put the blame on the son in this scenario, if the economic prospects for the rising generation weren’t so bleak. Throughout 2010, the unemployment rate for workers under twenty-five was consistently double the national rate, usually in the 20 percent area. Moreover, this generation is graduating college with an average of $23,000 in student debt. Throughout the current economic downturn, about 37 percent of eighteen- to twenty-nine-year-olds have been underemployed, which is the highest share in three decades, according to a Pew Research Poll.

  Whose fault is all this? It certainly isn’t theirs. They weren’t the ones creating bad policy. They weren’t the ones defaulting on a home mortgage they never should have signed. They weren’t the ones spending more than they had, in the false belief that the good times were here to stay. That’s all our fault. And it gets worse:

  Thirty-one Organization for Economic Cooperation and Development (OECD) countries scored higher, on average, than the U.S. in mathematics literacy.

  U.S. students scored lower on science literacy than their peers in sixteen of the other twenty-nine OECD countries.11

  Only 31 percent of U.S. bachelor’s degrees are awarded in science or engineering. (Japan’s rate is more than double ours.)

  We fail to educate our children to compete in a global world. Too few younger Americans have critical science and math training. Even fewer speak Arabic, Chinese, or Farsi—the languages of the future global economy. Our colleges prepare too few children for twenty-first-century jobs.

  And then we leave them with a mountain of debt. How can we expect the next generation to have it better than we had it if we’re teaching them all the wrong lessons? It’s simple: We can’t, and they won’t.

  THE AMERICAN DREAM, REVISITED

  This is why I have taken the time to survey for the reader the state of America at the end of the first decade of the twenty-first century, because we are in danger of forfeiting that which has made us uniquely great: the American Dream. The United States is not great because our armies have conquered the world. We are not great because our boundaries extend farther than any other country’s boundaries.

  We are great because we offer anyone who comes here a simple deal: Work hard in our free society, and your children will have the opportunity for a better life than you had. That’s the American Dream, at least as millions upon millions of immigrants have understood it. And that’s what we are in danger of losing: Our children will not have it better than we did.

  We have been shortsighted and reckless. We must acknowledge that, with our annual deficits and cumulative debt, America is in decline. From the Greeks and Romans to the French and English, history has followed the same pattern. Strong growth, optimism, and confidence transform into arrogance, entitlement, and complacency. The people, enamored of their standard of living, demand for free what their parents worked for. In turn, eager, prudent, and clever nations rise and replace the old ones.


  If we want to preserve the American Dream, we need a framework for America’s future. We need an action plan that builds on our strengths and minimizes our weaknesses. It must be executed over the long term—I’m talking decades. And yes, it requires sacrifice for a better future.

  Fortunately, the way forward isn’t a total secret. It’s the same path Americans from every age have followed. We are a nation of pioneers and innovators. We aim higher and go further than any other people on the globe. We look at barriers and see opportunity; we look at our lives and want to make them better.

  What separates America from any other nation on the planet? Just this: We give our citizens the freedom to succeed, or at least we used to, and we reward those who see further or more creatively than anyone else. It’s what I call innovation, and it’s the key to our current troubles. It’s what built once-great cities like Detroit, and its decline is what has ruined them. Innovation is the engine of human progress, and for the last one hundred years, America has led that progress. It’s time to lead once again.

  Our parents did their job. Let us do ours. This is our time.

  2

  Why Innovation?

  “Video won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.”

  —DARRYL F. ZANUCK, 20th Century Fox, commenting on television in 1946

  THE VCR WARS

  Of all the failed predictions —uttered throughout history, Zanuck’s dismissal of the television in its earliest years isn’t the most laughable, but it’s pretty darn close. We could look at the numbers and the statistics to embarrass Zanuck even further, but why bother? You know the score: that “plywood box” changed history.

  Instead, let me tell the story of a less well known dismissal of a transformational innovation, in which I played a role, albeit minor. My career representing technology innovators effectively began in the late 1970s when a group of Hollywood movie studios sued Sony for making and selling a device called the video cassette recorder (VCR).

  I was a hungry Georgetown law student struggling to make ends meet when Ed Day, a senior partner at the firm Squire, Sanders and Dempsey, took me under his wing. Day was an innovator himself, having introduced the zip code while postmaster general under President Kennedy, back when the postmaster general was a cabinet position.

  Day called me into his big corner office overlooking Pennsylvania Avenue in D.C., and told me about the lawsuit brought by Hollywood against Sony and various retailers who were making and selling the VCR. He asked me to follow the lawsuit and any related activity.

  As detailed in the book Fast Forward by Jim Lardner, the predecessor to the VCR was a bulky tape machine invented by Ampex, a California company. Primarily used by broadcasters, the Ampex device was modestly successful but had not been sold in a smaller, consumer product version.

  After Sony first started selling a consumer version—the Betamax— in 1976, Hollywood sued and sought an injunction on VCR sales. The studios claimed that copyright laws gave them the exclusive right to make copies of their product and that the VCR, by allowing consumers to record over-the-air broadcast television for free, violated their copyright and made Sony a “contributory infringer” through its innovation.

  The VCR allowed “time shifting,” and for the first time consumers had control of what they could watch and when they could watch it. This freedom to control content was what so concerned Hollywood executives. Their successful history had relied on total control of distribution and showing of their movies and TV programs. If consumers could record the annual TV broadcast of The Wizard of Oz and watch it whenever they wanted, then why would advertisers pay broadcasters the following year? Hollywood’s fear was real and understandable.

  But it was still wrong.

  In 1979, a federal court in California rejected Hollywood’s claims. We breathed a sigh of relief. But then Hollywood appealed to the Ninth Circuit Court of Appeals, which overturned the lower court’s ruling and held that the VCR was an illegal product. The fight then went to the Supreme Court.

  Those of us defending the VCR immediately went into action and created the Home Recording Rights Coalition (HRRC). This group of manufacturers (including 3M, GE, and RCA), retailers (Sears and others), and consumer groups began meeting weekly to figure out how to reverse this legal action, which we all knew was fatal to a compelling new innovation.

  The HRRC retained former Federal Communications Commission chairman Charlie Ferris and former senator Marlow Cook. Several companies hired their own lawyers. One group of companies hired a troika of then relatively unknown lawyers who since have each significantly changed America: Ron Brown, then a partner at Patton Boggs, later headed the Democratic Party and tragically died in a 1996 plane crash while serving as secretary of commerce; David Rubenstein, then in private practice but formerly the clever but self-effacing aide to President Carter, went on to create the Carlyle Group, the world’s largest private equity firm; and Former Justice Department lawyer Bob Schwartz, a brilliant legal writer and aspiring saxophonist, went on to found an independent record label and has been protecting innovation for three decades.

  In 1981, this group of lawyers and strategists began meeting at least once a week to plot our legislative and legal strategy. The meetings were amazing debates on philosophy and strategy. Who could be our allies? Which legislators might be sympathetic? Who would talk to them? What approach would work depending on their party, known views, and constituents? With Democrats, the default was protecting consumers. With Republicans, it was protecting the free market, fledgling businesses, and innovation. We created charts of the 535 legislators and assigned responsibility for contacting them. We sought the aid of consumer groups, think tanks, retailers, and even a sympathetic priest willing to put his name on letters. I became part of this inner circle almost immediately. Considering my notable lack of qualifications, other than my ignorant youthful confidence, in retrospect, it is amazing they accepted me.

  Immediately following the Ninth Circuit’s decision, Congress sprang to action. Senator Dennis DeConcini, an Arizona Democrat, introduced a simple bill reversing the decision. But Senator Charles Mathias, a Maryland Republican, responded with a seventeen-page bill allowing VCRs to be sold if the manufacturers paid a royalty tax to the content providers. At the bottom of the Mathias bill was a paragraph stating that the “first sale doctrine” for video products would be repealed. That paragraph turned out to be a game changer.

  The “first sale” doctrine means that the copyright owner can only control the “first sale” of a copyrighted work—from a bookstore to a consumer, for example. After that, the consumer can do what he chooses with that specific book—give it away, sell it, or trade it for another book.

  After a little research, I discovered that this seemingly innocuous paragraph actually signified a radical change in the American concept of personal property. Unlike all other copyright holders, movie studios would now be permitted to control their product after the first sale. Simply, this provision, if made into law, would have barred video rentals.

  Video stores were just appearing, and in several cities groups of owners had formed regional associations to protect their interests. I decided to travel the country to meet with the store owners and, well, stir them up a bit over Hollywood’s attempt to put them out of business. The result was the creation of the Video Software Dealers Association, which gave us the critical ability to create a real grassroots movement that could serve as a counterweight to Hollywood in the lobbying halls of Congress.

  Amazingly, while developing and executing this strategy, I faced off against one respected lawyer who represented a major VCR manufacturer. She disagreed with my assessment that we had a very clear interest in video rentals and that it was an integral part of the case. I countered that we needed the grassroots support because the manufacturers and retailers of VCRs comprised a fledgling, exciting new retail industry, and t
hat killing it with the oppressive hand of government went against everything we were fighting for. When she failed to convince me, she sought out my association client and asked that I be removed from representing the association. The feisty Jack Wayman, a WWII vet and Purple Heart recipient who headed the HRRC through his position at what was then the predecessor to the Consumer Electronics Association, not only stood by me, but he also asked me to join the association full time as its first in-house lawyer lobbyist.

  This was a personal turning point. My mentor Ed Day cautioned me that associations were “where you go to retire,” implying a drop in status and possibly damaging my career in its infancy. But, in truth, the decision was easy. I had already attended my first Consumer Electronics Show and never felt such energy or seen so much innovation. I hungered to be part of the fledgling consumer electronics industry.

  Moreover, I was captivated by the inner workings of innovation. What do I mean? Just this: Even when you have the most exciting new innovation on the market, that’s no guarantee it—or you— will be successful. Innovation by its very definition undermines the status quo. It can destroy jobs, markets, and entire industries. For every consumer who drooled at the VCR concept, there was a well-connected power broker determined to block it.

  We like to think that the invisible hand of the free market works without our conscious intervention, but this is a fallacy. In truth, all sorts of artificial obstacles stand in the way of technological progress—foremost among them the coercive hand of government. We might regret this, but we also should remember that one’s right to build the next great mousetrap is just as important as someone else’s right to vocally oppose it and lobby the government on his behalf.