Technology companies have much at stake in 2008. Here's where the candidates stand on the issues of crucial importance to Silicon Valley
Editor's note: This is the second of two stories (BusinessWeek, 9/17/07) examining how top Presidential candidates are grappling with the major science and technology topics of the day.
Presidential candidates, their eyes on early primaries, have understandably been spending much of their time lately courting voters in Iowa and New Hampshire. But Silicon Valley has merited some important side trips.
Democratic front-runner Hillary Clinton unveiled her technology agenda May 31 to an audience of executives from Microsoft (MSFT), Hewlett-Packard (HPQ), Intel (INTC), and Google (GOOG) in Santa Clara, Calif. Clinton, fellow Democrats Barack Obama and John Edwards, as well as Republican John McCain have appeared at question-and-answer sessions with Google employees at the company's headquarters in Mountain View, Calif. And McCain bolstered his tech bona fides with July appearances at Stanford University and the Churchill Club.
Candidates are making time for Silicon Valley in part thanks to the area's ascendance as a source of fund-raising. "There has never been this degree of attention paid by Presidential candidates to the Valley," says Gary Fazzino, vice-president of government affairs at Hewlett-Packard and a two-time former mayor of Palo Alto, Calif. The computer industry contributed $2.2 million to candidates in the first half of 2007, up from $1.2 million in the first six months of the 2004 and 2000 primary campaigns, according to figures cited by The New York Times.
Courting California in an election this wide open is especially important given the early California primary, to be held on Feb. 5, 2008, and the role played by the state's industries in some of the most pressing matters of the day, including technological competitiveness with Asia and Europe and the need for sources of alternative energy.
So even while the general election is likely to be dominated by the war in Iraq, the continued threat of terrorism, and economic issues, candidates have staked out early positions on topics dear to the tech industry, including increasing federal spending on research and development, allowing more highly educated foreign workers into the country, widening the availability of high-speed Internet service to create new markets for hardware and online services, and improving the state of U.S. math and science education.
Also on the tech agenda: tougher sanctions against violations of American companies' intellectual property in China and greater leeway for courts to limit damages in patent-infringement lawsuits. "We want to make sure the next President is a 'tech President'—that they understand how innovation happens and have some concrete ideas about how to keep the tech economy growing," says Adam Kovacevich, a spokesman for Google.
Lobbying by information technology companies has taken on added urgency in light of tightened rules on appropriating funds for federal programs. "The IT sector needs to spend more of its political capital in the appropriations process," says HP's Fazzino. Meanwhile, the venture capital industry has been vocal about exempting corporate earnings from the higher capital-gains tax rate that some lawmakers want to apply to the booming private equity industry. "We might get tarred with the same brush," says Paul Maeder, a managing general partner at Highland Capital Partners.
The Candidates' Plans
Some candidates, including Clinton, McCain and Obama, have outlined ambitious tech agendas, while others, such as former Massachusetts Governor Mitt Romney and former New York Mayor Rudolph Giuliani, have yet to take strong, nuanced stances. Senator Clinton has proposed creating a $50 billion national alternative-energy investment fund and increasing basic research budgets at key federal agencies by 50% over the next decade. Senator Obama has posited wider broadband penetration as a way to create job opportunities for the urban poor and says he'll overhaul fees the government charges phone companies to pay for it. McCain favors peeling back layers of Federal Communications Commission regulations to promote competition in Internet services.
Below is a closer look at how the major candidates for president stack up on issues important to the tech industry, including research and development spending, patent law reform, the foreign-worker visa shortage, math and science education, and telecommunications regulation.
Federal R&D Funding
Allocating more government money to basic scientific research is a big priority for Microsoft, HP, Intel, and other tech companies that benefit when breakthroughs create new markets for products. "There's a growing awareness that we can't take [U.S.] economic preeminence as a given," says James Jarrett, vice-president for legal and corporate affairs at Intel. But federal funding for the National Science Foundation, the National Institute of Standards & Technology, and other agencies has been stagnant for several years.
To address the concern, President George W. Bush in August signed the America Competes Act, which allocates $22 billion to the NSF, $17 billion to the Energy Dept.'s Office of Science, and $2.7 billion to NIST from 2008 to 2010, with a goal of eventually doubling the agencies' budgets. Congress still needs to appropriate the money, which means tech companies are reacting cautiously. "It's an important step," says Jack Krumholtz, managing director of federal government affairs at Microsoft. "More funding for basic research primes the pump for a virtuous cycle of innovation."
Boosting federal research spending is at the heart of Clinton's technology agenda. In addition to the alternative-energy fund and support for increases in R&D budgets at the departments of Defense and Energy and the NSF, she has called for federal agencies to set aside at least 8% of their research budgets for high-risk exploratory work, citing Defense Dept. research that led to the creation of the Internet and the global positioning system. Clinton says she would also promote collaborative research among the computer, biotech, and nanotechnology industries.
Obama has joined Clinton in calling for the government to make permanent a corporate tax credit for new R&D spending that is usually renewed annually by Congress. Edwards has proposed an alternative-energy fund to promote wind and solar power, and biofuel to make cars and trucks more efficient. Romney has said the country needs to invest heavily in new technology for power generation, nanotechnology, and creating new industrial materials.
The tech sector wants Congress to pass a law that would curb what it considers frivolous, innovation-stifling litigation by patent holders. It's HP's No. 1 lobbying priority and also a key plank in Microsoft's Washington agenda. The House of Representatives passed a patent-reform bill Sept. 7 that could limit damage awards in infringement cases and improve the quality of awarded patents. A similar version is pending in the Senate. Pharmaceutical and biotech companies such as Johnson & Johnson (JNJ) and Amgen (AMGN) and cell-phone chipmaker Qualcomm (QCOM) oppose the House bill because they say it weakens protection for patents in their portfolios.
Obama, Edwards, and McCain have been most explicit on patent reform. Obama's campaign says such a law would promote more scientific research and discourage excessive litigation. On the other side of the issue is Edwards, whose campaign says: "Patent litigation reforms that may encourage innovation in some industries may hinder innovation in others," including alternative energy. "American competitiveness is too important for us to let our intellectual-property rules be skewed by lobbyists arguing for their own industries' narrow interests." McCain's campaign says the U.S. patent system should change to improve patent quality and reduce litigation.
The foreign-worker problem faced by tech companies is played out in the struggle over so-called H-1B visas, which are awarded to foreign nationals who attend American universities and want to work for U.S. companies. This year the government allocated 65,000 of the visas. Tech companies, eager to land well-educated and highly skilled employees from abroad, say that's too few. "Historically, America has succeeded because the best and the brightest come here," says Maeder of Highland Capital Partners.
A sweeping 2007 immigration bill proposed raising the cap on the visas to 115,000 in 2008, but it was defeated in the Senate in June. Microsoft is taking matters into its own hands. In September the company opened a development office in Vancouver, Canada, largely to employ foreign workers who were prohibited from employment in the U.S. "We haven't given up hope," Krumholtz says.
McCain was a strong supporter of President Bush's attempt at immigration reform, which also included a path to citizenship for illegal immigrants and measures to strengthen border security. According to McCain policy director Douglas Holtz-Eakin, standalone H-1B legislation could also be a possibility. In a policy paper written for BusinessWeek.com, the McCain campaign says the Arizona senator supports expansion of the H-1B cap but that the measure alone won't make the U.S. more competitive. "Opening new and integrated world markets won't automatically translate into higher quality of life for every American," the paper says, echoing a position taken by opponents of H-1Bs. The government should do more to help U.S. workers get education and training, McCain's campaign says.
Edwards' position may be seen as less tech-friendly. He would require employers to show they couldn't have given an H-1B job to an American, and he would increase fees for companies that employ H-1B workers, his campaign says.
Math and Science Education
Not surprisingly, Democrats have staked out the most comprehensive proposals for improving the state of math, science, engineering, and computer-science education at the K-to-12 level. The America Competes Act authorizes more funding for university research and K-to-12 education, but Clinton, Obama, and Edwards want to go further.
Clinton has said she'll triple the number of NSF fellowships and increase the size of each award by a third. She also plans to provide incentives for women and minorities to enter math-, science-, and engineering-related fields by making diversity a requirement for federal education and research grants. Clinton also proposes federal spending on university programs that encourage women and minorities to pursue those fields. Edwards' campaign says he would create a national plan whereby the government pays for a year of public college for more than 2 million students who take college-prep courses in high school, work part-time during college, and stay out of trouble.
Two front-burner issues in telecommunications are expanding the availability of high-speed Internet access to more Americans in rural and inner-city areas, and the debate over whether phone and cable companies should be allowed to charge extra fees to high-traffic sites whose data is transmitted over their networks.
Most of the major candidates support higher broadband penetration, though they differ on how to get there. Obama has taken perhaps the most nuanced position, arguing that increasing broadband access not only creates markets but constitutes vital social policy as well. "That makes him doubly attractive to lots of people," says Frederick Baron, a partner at law firm Cooley Godward Kronish. A technology adviser to Obama says the Illinois senator sees broadband as an engine for job creation and tackling urban poverty.
Then there's the sticky issue of Net neutrality, or the idea that telecommunications and cable companies shouldn't be able to discriminate among companies that deliver content via networks—say, by giving precedence to certain companies in exchange for higher tolls. Network operators such as AT&T (T), Verizon Communications (VZ), and Comcast (CMCSA) rail against federally mandated constraints on their ability to charge fees and navigate network traffic. Intel, Google, and Yahoo (YHOO) are among the tech companies that favor Net-neutrality legislation.
Here, the candidates split by party lines. Giuliani's campaign says in a statement that the federal government "must fight the urge to unnecessarily tax and overregulate the Internet" and that government intervention should be limited largely to protecting consumers and businesses against hackers and others who commit cybercrimes. McCain favors reshaping the FCC so that it takes a less regulatory approach and intervenes in markets only when there has been an infraction or unfair competition. Among Democrats, Obama supports Net neutrality and has positioned the issue as one of equal speech on the Internet. Clinton in January announced that she supports a reintroduced version of a Net-neutrality bill that has failed to make headway in Congress.
For more on the 2008 Presidential candidates and their positions on technology issues, visit BusinessWeek's slide show.