Election 2020 and Tech
The upcoming U.S. Presidential Election is dominating the news cycle and sparking discussions around policies that will inevitably impact American businesses. In response, Brex has carefully examined the election through the lens of the technology industry with a specific focus on startups.
Startups are unique in the political landscape in that they are not only technology companies but also small businesses (albeit with the ultimate goal of becoming larger). Some immediately start participating in the vast online marketplace that transcends borders, while others solve hyperlocal problems before they scale. Regardless, all startups are unified by their desire to have an outsized impact on the economy relative to their current size, and all rely on a well-functioning technology ecosystem to realize their potential.
Election 2020 - Key Startup Issues
1. Net Neutrality - Net neutrality is the tenet that the internet is a public utility and all forms of internet communications should be treated equally by internet service providers (ISPs). Consequently, net neutrality mandates that ISPs--such as cable companies like Comcast, AT&T and Charter--cannot intentionally prioritize, block, slow down, or charge for specific content online.
- Technology companies benefit from an open internet, especially with the increasing bandwidth requirements due to the proliferation of richer content like video.
- This, however, is at the expense of ISPs as it reduces their ability to profit from the extensive internet distribution infrastructure they have built.
- Why Startups Care: Technology companies rely on a free and open internet that is not gated or restricted to ensure that customers have access to their products and services.
- The Obama Administration was very favorable to proponents of net neutrality. During the Obama era, the Federal Communications Commission (FCC) passed the Open Internet Order which prevented ISPs from blocking, throttling or slowing any internet traffic.
- The Trump Administration has pared back some of these rules under the leadership of FCC Chairman, Ajit Pai, who previously worked at Verizon.
- Election 2020: Net neutrality is a partisan issue, with Democrats primarily favoring the Open Internet Order and Republicans largely supporting efforts to repeal it. However, net neutrality has not emerged as a topic of focus for any candidate.
- Brex Startup Candidate Scorecard: High scores are given to candidates who have clearly articulated policies and plans to support an open internet.
- “…Biden has a history of being a net neutrality skeptic. Concerns of net neutrality advocates likely will not be quelled by the fact that Biden's first major fundraising event as a declared presidential candidate was hosted by a top lobbyist for internet service provider Comcast.” He earns a score of only 0.
- Klobuchar has been a strong supporter of net neutrality but continues to bundle that support with a push for stricter privacy rules. The two issues coupled together makes her support weaker and would be problematic for many startups. Her bundling costs her 50 points and earns her a score of 50.
- “(Sanders) is far from alone among the Democratic presidential candidates in supporting (net neutrality), but appears to be the first to make it part of his election campaign.” First place has to earn him a 100.
2. Competition - Competition in the context of the tech industry is largely centered around the business practices of The Big Five (Apple, Microsoft, Google, Amazon and Facebook) and whether or not they have unfair, monopolistic power, which was outlawed by the Sherman Antitrust Act of 1890. This legislation was passed during the Gilded Age to combat the power of famous monopolies at the time, including Standard Oil and U.S. Steel.
- The Big Five earn a combined revenue of $800B annually, making their influence larger than that of entire economies such as Saudi Arabia’s and Switzerland’s.
- As they have grown in influence and breadth of services, politicians on both the Right and Left have increasingly criticized their hegemony and accused them of maintaining monopolistic power.
- Why Startups Care: While Big Tech serves as an aspirational reference point for success in the technology sector, the technology giants are tough competitors; in many instances, even larger startups have found themselves at the mercy of their power. (High profile examples include Yelp and Mozilla vs. Google; Snapchat vs. Facebook; and Gilt and Fab vs. Amazon.) Many who follow the tech industry cite the government’s antitrust proceedings against Microsoft as the impetus for competition that spawned the creation of the modern internet era.
- Political criticism of the nation’s largest tech companies is a marked change from the Obama era when Big Tech enjoyed significant White House support. It was during this period that the Federal Trade Commission approved multibillion-dollar mergers like Facebook’s acquisition of Instagram and WhatsApp, Google’s acquisition of Motorola Mobility, and Microsoft’s acquisition of Skype and Nokia.
- Since Donald Trump became President, the White House has been a vocal critic of Big Tech companies, specifically criticizing Amazon’s impact on the U.S. Postal Service and questioning its tax practices. It has also reproached the influence of Google and Facebook in suppressing conservative voices in the media. Across the political spectrum, Congress has repeatedly called executives of the largest tech companies to testify on issues such as data privacy and security.
- Election 2020: Unlike net neutrality, this issue has been receiving a lot of attention and the landscape is not necessarily divided along party lines. Democratic presidential candidate Elizabeth Warren has gone aggressively after Facebook and repeatedly called for a breakup of the company, while President Trump has been equally vocal and critical of Big Tech’s power.
- Brex Startup Candidate Scorecard: High scores are given to candidates who have outlined a vision of a more competitive and innovative tech sector that is not restricted by the power of Big Tech.
- Biden, who was vice president in the Silicon Valley-friendly Obama administration, has taken a more moderate stance than his progressive rivals on the issue of big tech company break-ups. He earns a score of 50.
- Klobuchar has been very vocal in her unequivocal support of breaking up big tech. On the day she announced her campaign, she said the country needs new laws that make it more difficult for big tech companies to acquire smaller companies, a position that has very strong potential to impact startups negatively. She earns a zero.
- Sanders’ position on big tech does not differ from Warren. He has also said billionaires should not exist, a position Facebook founder Mark Zuckerberg agreed with. For this he earns a zero.
3. Immigration - While immigration is a very broad topic, this analysis considers the issue in the context of employment visas, the primary business-related concern of most startups. The rules and processes by which foreign workers are granted temporary and permanent rights to work and live in the United States have become an increasingly politicized topic.
- Immigration has been one of the most controversial and emotional political debates throughout American history. The Right has generally favored tighter borders and more stringent requirements for all immigrants, whether employer-sponsored or seeking asylum. The Left has generally supported more open borders and liberal immigration policies.
- Why Startups Care: Inc. Magazine’s Entrepreneurship Index shows that over 20% of American entrepreneurs are immigrants; in markets like Silicon Valley, that number is as high as 41%. Furthermore, startups argue that in such a competitive hiring market, particularly for technical talent, the U.S. simply does not have enough skilled workers to meet growing employment needs. As the demand for talent continues to grow, so will the need for ample employer-sponsored visas.
- During the Obama Administration, it became easier to gain employer-sponsored green cards, spousal work visas and intercompany visa transfers.
- In April 2017, President Trump signed the Buy American and Hire American Executive Order which added restrictions to employer-sponsored visas, in particular the popular H-1B visa program for skilled workers. Post implementation, the denial rate for H-1B visa petitions doubled. Trump, however, has generally supported immigration approvals being more employment-based rather than based on family connections.
- Election 2020: Border security and the status of recent arrivals to the United States have dominated the early debates. A number of leading Democratic candidates have specifically called for increased immigration quotas.
- Brex Startup Candidate Scorecard: High scores are given to candidates who demonstrate support for employer-sponsored visas.
- Biden has no dedicated immigration plan, only this paragraph with general language about fixing the broken immigration system. However, Biden has clearly stated in the past his support for H-1B and skilled worker immigration. He earns a 75 because his support is not as vocal as competitors.
- Klobuchar has made the most aggressive and tech friendly proposal on reforming the skilled immigrant worker program. She would increase the cap from 65,000 to 115,000 immediately. She also wants to put in place a sliding scale that would allow the cap to increase up to 300,000, depending on need. She has two powerful Republican co-sponsors on her bill. For this, she gets a 100.
- Sanders immigration plan is the only one that offers meaningful specificity. Most importantly, Sanders would make temporary work visas portable, so that workers could switch jobs rather than be tied to one employer, a policy that would make it easier for workers to move from job to job in a way that would help startups maintain strong labor pools. For this, he gets a 100.
4. Intellectual Property
- Historically, the political environment around intellectual property has been controversial with clear alignment that small inventors must be protected, but major disagreement about how to enforce such protections. Large corporations, lobbyists, and business advocates alike have sparred over best practices.
- Patent trolls, which are shell companies that do no other business than simply sue other businesses over their patents, have created expensive litigation headaches for many businesses.
- Why Startups Care: Intellectual property (IP) is at the heart of the business model of many startups who bring innovation to cutting-edge fields like artificial intelligence, the Internet of Things, self-driving cars, personalized medical diagnostic tools, etc. Having the assurance that there is clear IP regulation and enforcement is critical for startups to remain confident in their investments. Moreover, startups, who often focus on product, marketing and other business priorities before developing a deep legal infrastructure, are becoming increasingly vulnerable to patent trolls.
- In 2011, Congress passed the America Invents Act, the most significant overhaul of the American patent system in decades. By switching from a “first to invent” to a “first to file” framework, it brought clarity to the patent system and placed the U.S. in line with global standards.
- In June 2013, President Obama issued five executive orders that helped to reduce the influence and impact of patent trolls.
- Election 2020: Among the 2020 Democratic candidates, most of the attention has been in the medical space, specifically with regards to drug prices. This does, however, offer a glimpse into their views on IP more broadly. For instance, Senators Warren, Harris and Sanders, as well as Mayor Buttigieg, have all cited the “march-in rights” specified in the Bayh-Dole Act to suggest breaking patents on prescription drugs if the government deems them as priced too high. We will be watching closely in the coming months as candidates further develop their platforms.
- Brex Startup Candidate Scorecard: High scores are given to candidates with clear policies on how they will protect intellectual property and reduce the patent litigation burden for startups
- Biden has long been an advocate for protecting IP, but his efforts have been seen as primarily a means of making friends and supporters in Hollywood and Entertainment. He frequently says, “ideas” can be IP. He earns a score of 50 in this category.
- Senators Sanders suggested breaking patents on prescription drugs if the prices are deemed so high that a patent must be voided to allow generic drug competition, a practice known as march-in. Candidates willing to put the marketplace and consumers ahead of IP can be trusted to protect startups from IP threats from larger competitors. His supporting march-in all earned him score of 100 in this category.
- Klobuchar has said very little about intellectual property outside of China or have not supported march-in. We decided to give her a zero on IP.
5. Trade and Foreign Investment - Governments use a combination of trade regulations and tariffs to help control the flow of goods in and out of countries. These regulations change frequently as different administrations come to power around the world, and are often used to help foster and protect certain industries over others.
- In tech specifically, tariffs and duties have a more muted effect than they do on sectors like manufacturing, commodities production and agriculture. However, outside of tariffs, the overall policy stance on foreign trade can affect things like merger approvals and the flow of capital--including venture capital--in and out of countries.
- Why Startups Care: In general, the technology industry benefits from open trade. Businesses like software and consumer internet applications gain natural leverage by servicing the largest addressable markets possible. Prior to the recent trade restrictions, venture capital investment flowed freely across borders, with China and the U.S. emerging as the two global hubs for startups and innovation. With the cooling of Sino-U.S. relations and the descending of the so-called “Silicon Curtain”, the two startup ecosystems are racing to remain at the forefront of technological development, especially with respect to artificial intelligence. Moreover, the Committee on Foreign Investment in the United States (CFIUS) has blocked some high-profile foreign M&A in the technology space, including Alibaba’s Ant Financial affiliate’s acquisition of Western Union.
- Prior to Brexit in June 2016, the world was becoming increasingly globalized, with a large number of trade deals and treaties between countries serving to reduce friction in global trade. Specifically, organizations like the World Trade Organization (WTO), and global trade pacts like the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP), effectively opened up trade among international economies.
- Post-Brexit and the election of Donald Trump, the world has become increasingly protectionist, marked by a steady growth of new barriers to global trade and cross-border investment. Recently, China and the U.S. have had an especially challenging relationship, marred by a combination of harsh political rhetoric and the implementation of new tariffs. In 2018, Foreign Direct Investment from China to the U.S. saw an 80% decline to $5B from $29B in 2017 and $46B in 2016.
- Election 2020: Historically, the Right has been more supportive of free trade and open economies, while the Left has sought to protect domestic industries. Populism has become a feature of both parties, with President Trump continuing to threaten foreign countries--notably China, but also Mexico, Canada and the European Union. While more moderate Democratic candidates like Biden, Harris and Buttigieg have broadly criticized Trump’s use of tariffs, the more populist candidates like Sanders and Warren are supportive of trade duties as a political tool, although they criticize Trump’s approach.
- Brex Startup Candidate Scorecard: High scores are given to candidates who support free trade and open economies that tend to benefit the technology industry.
- According to trade think tank Petersen Institute, Biden is the only candidate identified as Pro Free Trade and he receives our only score of 100 in this category.
- Candidates identified as Anti trade are Klobuchar and Sanders they receive a score of 0 in this category.
6. Government Research and Development - The United States Government invests more than $125B annually in research and development across a wide range of industries. While the life sciences space, NASA and the energy sector receive the bulk of that funding, the tech sector still benefits from billions of those dollars.
- Federal investment in R&D has been on a steady decline since the 1960s, dropping from around 2.5% to around 0.6% today (as a share of U.S. GDP). This threatens innovation and American hegemony as the leader in global technology. While the decline has spanned across both Democratic and Republican administrations, Democratic administrations--who tend to support more public spending--have historically allocated more federal dollars to research.
- Moreover, government administrations often use the federal R&D budget to set specific priorities by funding areas of research that align with their policy agendas. This means that the issue is even more politicized beyond the amount of dollars allocated to research; it has actual implications on research priorities.
- Why Startups Care: While most startups are privately funded by venture capital and private angel investment, many startups in the biotechnology and life sciences space are directly impacted by research and grant funding. For example, the National Science Foundation awards almost $190M annually to startups and small businesses. Government support of research and technology also indirectly contributes to the startup economy through intellectual property development, human capital training and university-incubated businesses.
- While the Obama Administration advocated publicly for the importance of research in science and technology, this did not necessarily translate into increased funding, as the budgets of most federal research programs fell under its administration.
- During the Trump Administration, the Office of Science and Technology Policy (OSTP) has cited artificial intelligence, quantum information science, wireless 5G communications, and advanced manufacturing as the administration’s priorities.
- Research in science and technology has not dominated the discourse thus far in the election debates. However, a July 2019 Iowa survey shows 74% of voters want presidential candidates to talk about science and research. Democratic candidate Andrew Yang, in particular, has outlined a plan to fund research that would help combat climate change.
- Brex Startup Candidate Scorecard: High scores are given to candidates who have advocated for an expansion in science and technology research and who have outlined clear policies to increase R&D funding.
- Biden has a long history of supporting research and technology. He proposed the “Cancer Moonshot Initiative” and has said he wants to spend the rest of his life supporting cancer research. He earns a score of 90.
- Klobuchar sits on the Senate Committee on Commerce, Science, and Technology, but her interest in research and technology has been an advocate in promoting educational opportunities for students interested in technology and science. Other than privacy, her campaign has not said much about her interest in research and technology initiatives. She earns a score of 10.
- In the area of science and technology, Sanders has not contributed much. In fact, he has stated that while he supports science and exploration issues at NASA, he would always put issues of hunger and health care first. He earns a score of 25.