People in Silicon Valley yawned at the shutdown. They shouldn’t have.

October 17, 2013

The Capitol is seen as a partial government shutdown enters its third week, in Washington, Monday, Oct. 14, 2013. (AP Photo/J. Scott Applewhite)

"If companies shut down, the stock market would collapse," venture capitalist Chamath Palihapitiya said in a recent podcast with Jason Calacanis. "If the government shuts down, nothing happens and we all move on, because it just doesn't matter. Stasis in the government is actually good for all of us."

This view is surprisingly common, especially in Silicon Valley. But it's wrong: Washington's growing dysfunction is a big problem for everyone, even high-flying technology companies.

It's true, of course, that Washington, D.C. isn't a major source of new innovations the way the San Francisco Bay Area is. It never has been and probably never will be. But what governments provide are stable, predictable platforms on which innovative companies can build.

Take roads, for example. America's transportation system hasn't changed significantly in decades, and no one looks to the Department of Transportation for major breakthroughs. But that doesn't mean the government role in transportation is unimportant. If the government stopped fixing potholes and maintaining bridges, eventually the nation's transportation system would collapse, taking much of the economy with it.

The same point applies to many other government functions. The federal government manages the air-traffic control system, oversees the allocation of wireless spectrum, and polices fraud and hacking online. The courts adjudicate contract disputes and determine the scope of copyright and patent protections. None of these functions directly create wealth. But when the feds stop performing them well, it has big effects for the rest of the economy, including in Silicon Valley.

Perhaps the most important example is the financial system. The federal government controls the money supply and regulates the nation's banks. When the government performs those roles poorly, the result can be economic chaos that's bad for every company in America.

Up to a point, gridlock in Congress can be beneficial. As Mark Zuckerberg put the point last month, "the system is set up to avoid making catastrophic mistakes." If gridlock forces policymakers to move deliberately and seek input from many stakeholders before making major changes, that can be helpful.

But we've now gone way beyond that point. Gridlock isn't just preventing the government from making disruptive changes, it's actually becoming a source of disruption in its own right. Shutdowns, poorly-targeted spending cuts, and filibusters are preventing the government from performing basic services that they've performed without difficulty for decades.

For example, a recent analysis by the Brennan Center finds that Congress has not only failed to fill judicial vacancies in a timely fashion, it's also failed to create new judgeships to keep up with population growth. As a result, federal judges are facing "unprecedented workloads." The resulting delays drive up the cost of litigation for technology companies along with everyone else.

Another example: there's a broad consensus on the need to re-allocate spectrum from television broadcasting to next-generation wireless devices. The FCC has a tentative plan to do that, but the plan can't be put into motion until the Senate confirms Tom Wheeler to be the new chairman of the FCC. The Senate Commerce Committee approved Wheeler's nomination back in July, but the full Senate has been so consumed by drama over the shutdown that it hasn't taken up his nomination.

Now, maybe you'd like the government to have a smaller role in these issues to start with. In many cases, I would too. But Congress's dysfunction hasn't reduced the government's power, it's just caused that power to be exercised in erratic and arbitrary ways. The shutdown has meant gadget makers can't get their wireless devices approved, and software companies can't get permission to export cryptographic software overseas.

For the next three months, Congress will likely be engulfed in controversy over what to do when the government next runs out of funds in January. That's another three months when Congress won't be focusing on fixing the immigration system, reforming patent law, or modernizing electronic privacy law. In the short run, that's not a catastrophe. But the longer these manufactured crises go on, the worse our government will get at performing basic functions we all depend on. That's bad for everyone, even companies in Silicon Vally.

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