The Comeback Read online

  In any event, in the middle of the VCR battle, I determined that I wanted to be on the side of innovation, of progress. I wanted to represent the technological pioneers of this great country as they went about their business of seeing further than anyone else—which is, I believe, the business of America.

  Upon joining the association full time, I shifted from strategizing lawyer to decision maker, peacekeeper, and the outside face for the cause of innovation in technology. Although Wayman chaired the HRRC, I was made vice chairman, and given his frequent travels, I ended up running the HRRC weekly meetings and being chief spokesmen for the cause.

  Those were heady days. I was leading an army of some of the top lawyers and lobbyists in Washington. More, we were up against the most powerful lobby in town, the Motion Picture Association of America (MPAA), headed by the legendary Jack Valenti. With his background as a top aide to President Johnson and his reputation for oration and influence, Valenti and the movie studios attacked us and the VCR as the death of American movies.

  But in the end, Valenti and Hollywood lost. In a hair-raising 5–4 decision, the Supreme Court ruled in Sony v. Universal Studios (1984) that VCRs did not violate the Copyright Act of 1976. Importantly, the Court found that a recording did not automatically infringe a copyright on a broadcast movie even if it was used to make a full copy of the movie. The Court’s ruling was more than my first legal victory for innovation; it represented a major leap forward in the quickly expanding industry of consumer electronics. Although the battle shifted then from the Court to Congress, in the end we won for three reasons:

  First, we were right. Although innovation can be a painful process, protecting the status quo industries would lead to even greater harm. Imagine if the horse-and-buggy industry had managed to block the automobile industry. Imagine if the locomotive industry had been able to block Orville and Wilbur Wright. Had one justice voted the other way, it would have signaled the death knell for an exciting new technology—one that presented challenges, yes, but one that also grew into one of the largest industries in the country.

  Second, we were smart and strategic. We knew we couldn’t match the huge political fundraising of Hollywood or the plush MPAA screening room across from the White House used to show first-run movies and to lobby politicians. We weren’t sexy, so we had to be smart. We had a talented team, and we invested a huge amount of time developing a strategy and the intellectual framework for our cause. While our Hollywood opponents appeared overly confident, insular, with a top-down approach and a simple message—protect this great American industry from the devil’s technology—we were the entrepreneurial underdog, fighting for survival.

  Third, we were underestimated. Our opponent was an established American industry, which in Washington always has the advantage. This forced us to create an intensely collaborative work environment, where all opinions could be aired. And what a group we had!

  In addition to those named earlier, the frighteningly funny Wayne Berman, now chairman of Ogilvy Government Relations, lightened up our meetings, along with thoughtful former FCC lawyers Jeff Cunard and Bob Bruce and colorful former Food and Drug Administration counsel Nancy Buc. Also adding to our intellectual and strategic heft were the highly respected Washington lawyers Bruce Turnbull, Gary Slaiman, Jonathan Potter, and Jeff Turner, and our association strategist Michael Petricone. Economist Nina Cornell, executive director Ruth Rodgers, PR maven Allan Schlosser, and grassroots entrepreneur Jack Bonner rounded out the team.

  Our weekly meetings averaged over twenty people, and although I was privileged to lead them, I also couldn’t resist calculating that each hour of each meeting costs clients thousands of dollars in lawyers’ time. But the expense of the team was justified because so much was at stake—more than I even reckoned at the time. I thought we were just fighting for the survival of the VCR; it turns out that if we had lost, there would be no iPod, camcorder, DVR, PVR, and arguably only a limited Internet. The VCR was a gateway technology, and making sure that the doorway remained opened has led to more economic expansion than anything we could have predicted then.

  It’s funny the way some moments in your life have the ability to change you, while others, seemingly more consequential, do not. Looking back thirty years later, I now realize that my experience in the VCR wars has shaped so much of the way I look at the world today, if only because the consequences of failure would have been so profound. But that’s the way of innovation: if we had lost we wouldn’t have known what we missed. We know now, and it’s the reason I’m writing this book.

  AN ARMY OF STEAMROLLERS

  But what do I mean by innovation? Clearly, as president and CEO of the Consumer Electronics Association, my experience with innovation has focused on the next great gadget—the VCR, computers, the iPod, HDTV, BluRay, smartphones, etc. A lot of people look at these things and dismiss them as high-tech toys—most ardently when the next “must-have” gadget first enters the market. They’re exciting but “not something I’ll waste money on.”

  What many of those same folks forget is that yesterday’s toys are often today’s tools; the novelty becomes necessary. When the first personal computers were introduced in the early 1970s, they were the things of hobbyists and techno-geeks (if they’ll excuse the term). Cool, interesting, but what do you do with it? Today, three out of four Americans own one. Twenty-five years ago, people dismissed cell phones. Clunky, poor reception, and why do I need one? Today, over 90 percent of U.S. households own one.

  So to the question: What is innovation? Innovation is progress. Innovation is growth. Innovation is the engine of the free market. Above all, innovation is necessary. Ninety percent of U.S. households own a cell phone, not because the owners enjoy talking on a cell phone, but because they need it.

  But there’s an ugly side to innovation, as well. Innovation destroys—in many cases, viciously. When was the last time you wrote on a typewriter or used a travel agent? Or used a phone booth?

  But those phone booths and typewriters didn’t appear out of thin air. Someone had to make them, and he or she was employed by a company, which was owned by a board, which had an obligation to stock holders, who used their profits to provide for their families. All of it is gone today, destroyed because someone else invented a phone that at first fit in your briefcase. Now it fits in your pocket.

  But that’s the way of innovation. It’s what the economist Joseph Schumpeter called “creative destruction.” Perhaps more so than in any other nation, it’s been an integral force in America since our very founding. When I think about story of America, I can’t help but remember James Earl Jones’ memorable speech in the movie Field of Dreams: “America has rolled by like an army of steamrollers. It’s been erased like a blackboard, rebuilt, and erased again.”

  The point Jones was making was about the permanence of baseball and the importance of a true American heritage. But I’ve always liked the other point Jones was making, if not deliberately: America is not an idle nation, and Americans aren’t idle people. We are restive. We are impatient. We want more, and we want it better. Our identity isn’t locked in an old cathedral built centuries ago. It isn’t preserved in scrolls dug from the ground or inscribed on ancient temples.

  Our identity is preserved in the people who came to this continent to build a better life, and what they left us was a better country. Their ideas and their talents transformed our nation and pushed us from a ragtag bunch of farmer revolutionaries to the largest economy on earth. Each wave that reached these shores, each “army of steamrollers,” remade America with its creative energy and desire to live the American Dream.

  As one army of steamrollers rolls by, erasing, destroying, it is also creating, rebuilding, progressing. And then the next army comes and starts the process all again. And it’s been going on for over two hundred years. Think of the breakthroughs: electricity, the telephone, the television, and the Internet. Each one by itself radically transformed life as people of that time knew it. These innov
ations changed our world.

  But what do these Innovations share, besides causing radical change?

  First, they were developed by American ingenuity. Americans are the world’s innovators. Our supremacy as innovators is at risk, and we must recognize why we are innovators and focus on preserving the conditions that foster innovation. This book is about what it takes to keep America the world’s leader in innovation.

  Second, innovation challenges the status quo. Old businesses and jobs don’t like being threatened. They fight back. If they are smart, they also innovate. The cable industry innovated when satellite came along. They succeeded and survived because they expanded cable to embrace another innovation—the Internet—and quickly became the broadband provider to most of America. By adopting a new innovation, cable ensured its survival in the satellite age—at least until wireless broadband becomes a viable alternative. And so the steamrollers roll on.

  Now compare cable’s response to the broadcasting industry. Rather than adapting, the broadcasters often meet new competitive threats by lobbying government for more protection. For example, broadcasters have been urging Congress to pass a law mandating that all cell phones come with radio tuners. This absurdity would penalize the innovation of the cell phone with the antiquity of the FM radio and antennae.

  Third, innovation creates jobs, even as it destroys others. Think of the news media, particularly the newspaper industry. The advent of the Internet has radically upended the newspaper business model. From the loss of subscriptions to classifieds, newspaper simply haven’t figured out how to make a buck from selling news anymore. Entire newspapers have had to shut down or end their “dead tree” service.

  Most major newspapers have experimented with different pricing models—only to see profits continue to fall. Some, like The Wall Street Journal, have prospered through sheer journalistic excellence. Sadly, the newspaper industry, as we knew it, is gone. But don’t confuse my sadness for any hesitation that innovation and its twin, change, are healthy for the overall economy. Few would contend that the destruction of the newspaper industry cancels out the wealth-creating and job-producing effects of the Internet. It’s not even close. The industry is merely a casualty of innovation, at least for now. Who knows what some pioneering, innovative mind will come up with to save newspapers and reverse their decade-long decline? Believe me, many are trying, and someone will succeed.

  These past thirty years, I have been at the center of some of the most fundamental changes in the technologies that consumers use and enjoy. I have participated in various ways in the development and launch of dozens of new technologies and products. Some, like the VCR, are museum relics. Others never even made it that far. But through it all, I have fought those seeking to maintain the status quo and protect their sliver of the market. On the other hand, I have also seen numerous examples of industries embracing change and adapting on their own.

  It has been a joy and privilege to be at the pinnacle of an industry that has dramatically increased the world’s pace of innovation. American innovators have opened billions of people to a richness of experience and knowledge that wasn’t imaginable to the world’s wealthiest a generation ago. Along the way, we created millions of jobs.

  Innovation is our most important and uniquely American asset. Innovation is America. We didn’t invent innovation—but it is our brand. It is what we do best.

  WILL THE NEXT BILL GATES SPEAK INDIAN OR CHINESE?

  But are we protecting our brand? In the next decade, will the United States remain an economic leader, or will it be forced to take a backseat to rising global powers from other corners of the world? It is the general thesis of this book that we are in serious danger of losing the very thing Americans do better than anyone else—and have for two hundred years.

  At least, that’s what I think.

  In 2010, the Consumer Electronics Association commissioned a poll from Zogby International of almost 4,000 American adults. Our chief concern was discovering just what Americans think about innovation. Is it on their minds? Do they care? Are they worried?

  What we found confirms that most Americans believe we are at a crossroads when it comes to innovation. While we have a strong innovation economy today, Americans are uncertain if we will be able to maintain our competitive edge—especially in the face of untested policy decisions and the rising national debt. Consider some key findings:

  Innovation is the key to future U.S. economic success. Ninety-six percent of Americans said that innovation was important to the U.S. being a world economic leader in the future. Young Americans, more than any other age group, felt the most strongly about the role innovation should play, with 87 percent of eighteen- to twenty-four-year-olds saying that it was “very important.”

  Innovation provides the key to U.S. competitiveness. A plurality, 44 percent, of Americans said that “remaining the most innovative country in the world” is the most important thing the United States can do to ensure its future success as a world leader. Twenty-two percent said it would be “remaining the largest economy in the world,” while 15 percent said military power was most important.

  Innovation will impact future careers. Sixty-eight percent of Americans believe that innovation is important to the future success of their place of employment, with 50 percent saying that innovation was important for their job remaining in the United States.

  Young Americans look to the tech sector for future jobs. When asked which sector of the economy has the most potential for future job creation, nearly 50 percent of those aged eighteen to twenty-four said technology would lead the way over other sectors.

  The next Bill Gates is most likely to come from India or China. When asked where the “next Bill Gates will come from,” 40 percent of Americans predicted either India or China.

  So we know where most Americans stand on innovation. But for the United States to lead the global economy, we need to pursue national policies that encourage innovation, creativity, and new ideas. For the United States to rise out of its current economic doldrums, we need to invest in technological innovation and create an environment where entrepreneurs can challenge, improve, and strengthen our society.

  This book presents a plan to do just that. Spurring economic growth and maintaining a competitive edge require more than just tax cuts or onetime incentives. It is also not just about jobs. It must become our goal as a nation to ensure that we have created the necessary conditions to maintain our innovative dominance in the world, which is the only realistic chance we have of keeping the United States the strongest economic power in the world.

  In short, we need to ensure that not just the next Bill Gates but the fifty who come after him or her will innovate in America. English doesn’t have to be their first language, but let’s hope the United States of America is on their passports.

  This chapter began with my experience in the VCR wars and how that experience has shaped my views on the importance of innovation to our continued economic success. But the VCR wars—and subsequent battles I’ve fought since then—have also helped me see the process of innovation; namely, how a product goes from being an idea to being in your home. It’s a long process, to be sure, full of obstacles and pitfalls and headaches and late, late nights.

  I don’t pretend to know the secrets of innovation itself. You’ll have to ask a Steve Jobs about that. But I do know what it takes to ensure that what a young innovator imagines becomes a reality— and how that reality creates wealth and jobs for millions of others.

  What must we do to maintain and expand our innovation environment? What should we do as individuals, parents, schools, and legislators to maintain America’s top position in the world? The rest of this book will provide answers.

  If we want to guarantee our children the chance to live the American Dream, then we have to protect what is best about our nation: We have to save American innovation. Enough with the generalities, on to the specifics.

  3

  Innovation: The Fue
l of Economic Growth

  “[I]f it should ever turn out that the basic logics of a machine designed for the numerical solution of differential equations coincide with the logics of a machine intended to make bills for a department store, I would regard this as the most amazing coincidence that I have ever encountered.”

  —COMPUTER PIONEER HOWARD AIKEN, in congressional testimony in 1956

  AS RECOUNTED BY Nathan Rosenburg, a professor of economics at Standford University, in a 2004 paper for the OECD, this is precisely what happened.12 Those “machines designed for the numerical solution of differential equations” (i.e., computers) coincided quite nicely with what a teller machine did at a department store—not to mention innumerable other machines.

  But it wasn’t a coincidence. Rosenburg’s point is not to ridicule Aiken, who was in fact a pioneer in computers, but to show that sometimes even innovators themselves don’t appreciate the real-world (i.e., economic) value of the very thing they innovated.

  Again, this isn’t the fault of the innovators, whose minds aren’t necessarily on getting rich. As Rosenburg writes, “The impact of a technological innovation will generally depend not only on its inventors, but also on the creativity of the eventual users of the new technology.”

  Sometimes the process is instantaneous, as with the Internet, whose economic appreciation occurred lightening-quick, relatively speaking. It took years for innovators and scientists to find an application for the laser.

  Even economists have only in the last fifty or so years appreciated the full importance innovation has on the economic growth of a nation. Rosenburg traces this understanding back to the 1950s, when his colleague Professor Moses Abramovitz decided to measure the growth of output in the U.S. economy between 1870 and 1950.

  He then made what were thought to be reasonable assumptions about how much a growth in a unit of labour and how much a growth in a unit of capital should add to the output of the economy. It turned out that the measured growth of inputs (i.e., in capital and labor) between 1870 and 1950 could only account for about 15 % of the actual growth in the output of the economy. In a statistical sense, then, there was an unexplained residual of no less than 85%.13