By Doug Kelly
Technology innovation is critical to America’s economy and our national security. In fact, Heidi Shyu, Undersecretary for Research & Engineering, said that harnessing American technology innovation is a priority pillar in the Defense Department’s strategy, explaining: “Furthering science, technology and innovation across the department could not be more important than it is today. Many potential adversaries will have greater access to commercial state-of-the-art technologies than ever before, and that could greatly disrupt our nation. We cannot afford a leveling of technology advantage.”
But some in Washington are threatening our country’s edge from within. This includes: the Administration, which recently released a misguided report from the Department of Defense concerning competition in the industry; Congress, which is pursuing anti-competition legislation against America’s technology sector; and the Federal Trade Commission (FTC), which is imposing punitive regulatory actions against our nation’s most innovative companies.
The decisions by bureaucrats will have consequences with the first being handcuffing our domestic technology and innovation companies to the benefit of our adversaries generally and China specifically in the competition to lead the world in the 21st Century. Here are three examples from the past two months:
1) Congress’s proposed restrictions on acquisitions would hurt startups, help China: Congress is considering a 10-year ban on acquisitions and investments in startups by a handful of large U.S. tech companies. But this comes at a time when the U.S. initial public offering (IPO) market is “in hibernation,” according to Axios Pro Rata. Just five U.S. IPOs in 2022 have raised at least $100 million, of which only one scored $1 billion.
Congress’s restrictions would hurt all parts of our economy, especially the startup sector. Startups depend on IPOs, or the possibility of being acquired by a larger company, to raise the necessary capital for launch or to scale products and services. If Congress bans such acquisitions, then a startup might not secure necessary financing, and even if does, its value will likely be depressed by taking certain potential acquirers out of the market.
By hamstringing startups and acquisitions, Congress isn’t just punishing those in Silicon Valley. Restrictions could also damage dozens and dozens of local and regional technology hubs throughout the nation because innovation is no longer concentrated on the coasts. Making matters worse: in general, the acquisition restrictions would apply only to U.S. companies, giving most foreign companies a free hand to buy up cutting-edge and sensitive technologies, undermining U.S. national security.
2) FTC opposition slows possible U.S. advances in hypersonic weaponry: The U.S. is in a race to develop hypersonic missile capabilities after China and Russia recently demonstrated their offensive weapon capabilities. Lockheed Martin is a key U.S. player in this effort. But just this week, citing opposition by the FTC, Lockheed abandoned its proposed takeover of propulsion manufacturer Aerojet Rocketdyne, a $4.4 billion deal that would have greatly increased Lockheed’s hypersonic weapons’ capabilities. These types of “vertical” mergers, between companies that do not compete in the same markets, typically raise no genuine competitive concerns. Just 10 days earlier, Russia and China announced a new partnership against the U.S., seeking to nudge America aside as the world’s sole superpower.
3) FTC opposition thwarts chip industry’s largest deal: Citing the FTC and other regulatory opposition, U.S.-based Nvidia Corp. abandoned its purchase of the U.K.’s Arm Ltd. from SoftBank Group Corp, a Japanese conglomerate. The FTC sued to block the sale in December, arguing that Nvidia would gain too much control over chip designs used by the world’s biggest technology companies. Ironically, the FTC’s opposition to the purchase has coincided with a push by the Biden administration to expand domestic chip manufacturing capabilities and a willingness to use withholding of U.S.-made microchips as a sanction threat against Russia’s encroachment of Ukraine.
Rather than handcuff America’s most innovative companies, Congress and the FTC should foster greater innovation.