Of Apps and Apple

What good state policy competition could look like.

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A few weeks back, I explained some ways in which state lawmakers are attempting to take on the problems caused by big tech corporations. This week, I want to focus on one of those efforts, because it’s an important example of the sort of positive competition between states that can foster innovation and job creation, rather than ruinous corporate subsidy competition that leaves us all losers.

Bills in seven states (with a couple more coming, I’ve heard) would set new rules for app stores, which are where anyone with a cell phone downloads new stuff with which to play and work. Apple and Google own pretty much 100 percent of the market when it comes to app distribution, and use that control to take hefty fees — up to 30 percent — from dollars you spend on app downloads and in-app purchases through Apple’s App Store and Google’s Google Play. (For comparison’s sake, credit card corporations take a 2-3 percent cut of transactions.)

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Apple and Google can command that fee because they require everybody in their app stores to use in-house payment systems: Essentially, they control the road between consumers and developers — which is your phone, its operating software, and the app store — and built a toll booth on it. When companies attempt to circumvent that toll booth, they get cut off from the transportation system entirely, and therefore are severed from their own customers.

The bills in question would allow app developers to use different payment systems, such as PayPal or something they build themselves, to accept money, thereby creating some competition in fee collection; if folks had choices, perhaps Apple and Google would be forced to lower fees. (Some versions of the legislation would also require that users be allowed to download entire alternative app stores, which Apple currently prohibits.)

As I explained in this New York Times piece with my colleague Matt Stoller, laws like this could be a factor for new or existing tech companies that want to get out from under the boot of Apple and Google when they choose to locate in a particular state:

The idea that these measures could entice companies to relocate isn’t theoretical. David Heinemeier Hansson, a co-founder of Basecamp, a software company in Chicago that has fought with Apple over its payment system, has said the company would like to move its operations to a state with such a law on the books.

This is an opportunity for states to spend no money in order to accomplish something they’ve been trying to do for decades using precious public resources: create new high-tech jobs and support small, innovative businesses by helping them escape the onerous terms imposed on them by Apple and Google. It turns out the secret sauce to economic growth is what state leaders have done for hundreds of years, which is to put fairness, not monopolies, at the center of lawmaking.

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In addition to the Basecamp example above, other software developers have said passing a law to open up app stores could be a big deal for where companies choose to set up shop. It’s a significant move to let businesses escape the cut of everyone’s revenue to which giant tech firms suddenly feel they’re entitled!

This is what I mean when I say there are all sorts of factors that go into business location decisions, most of which have absolutely nothing to do with taxes or tax incentives. For free, states can help develop a tech industry, fostering real innovation and the creation of exciting new jobs, instead of using subsidies to bring in yet another Google data center or Amazon warehouse that probably would have come even in the absence of incentives.

There’s a history of competition measures like this working before; in fact, one helped make Silicon Valley what it is today. As historian Margaret O’Mara has shown, California law banned non-compete clauses in employee contracts, making it easier for employees to switch jobs, which allowed new tech firms to thrive because workers could hop around. As the Times put it covering O’Mara’s work, “The turnover was staggering at Valley start-ups compared with established corporations such as I.B.M. on the other side of the country. But the creativity unleashed in the process left other regions far behind.”

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Having states compete on the best policies to promote worker rights and small business creation is obviously far preferable to racing to the bottom on who can throw the most money at a major corporation. Were corporate incentives banned tomorrow, this is the sort of stuff state lawmakers would have to turn to — for the better. And there are, of course, loads of other policy areas in which this same dynamic applies, whether its infrastructure, transit, housing costs, child care, and on and on. State and local governments have lots of levers they can throw to change their business and work environments that aren’t incentive programs.

Just the introduction of these measures, in fact, is already changing business behavior, as Google recently altered some of the fees it charges in its store. I can’t prove that there is a direct line between the bills and the changes, of course, but it makes sense that Google would try to preempt scrutiny in this way.

The Arizona Senate Commerce Committee will be voting on its version of the app store bill today, which has already passed the state House. (Update: The bill was pulled without a vote, and without much explanation. Hopefully we’ll know more soon.) Illinois, New York, Massachusetts, and Hawaii also have active bills, while North Dakota’s was defeated in the state Senate, but could come back in another form or in another year.

If you live in those states, write or call your state lawmakers and let them know this would be an excellent way to do for free what they always try to do with everyone’s tax dollars.

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SHAMELESS SELF-PROMOTION: My awesome colleague Morgan Harper and I gave a virtual talk at the Bexley, Ohio, public library a couple of weeks ago on corporate consolidation and democracy. If you couldn’t catch it live, the video is here.


UPDATE: There’s some good news on the Opportunity Zones boondoggle front: The New York bill I mentioned that would decouple the state from the OZ disaster made it into the state Senate’s budget proposal.


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Finally, if you’d like to pick up a copy of my book, The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, go here.

Thanks again!

— Pat Garofalo