Minnesota must curb anti-competitive tactics if it wants to be an innovation center | Opinion

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Minnesota was Silicon Valley before Silicon Valley. Fueled by government contracts for code-breaking machines during WWII, Minnesota companies were leaders in the computing revolution that transformed our world. 

Today, policymakers are seeking to recapture that past glory and build a tech ecosystem to rival the hub out West. Standing in the way of that vision is an industry that has become dominated by monopolistic firms. Fortunately, Minnesota legislators have the ability to help tip the balance of power back toward inventors and entrepreneurs.

At the conclusion of WWII, an elite group of Navy code-breakers founded Engineering Research Associations (ERA) in St. Paul and continued their work developing classified machines for the military. ERA, along with firms such as Sperry-Rand Univac, Control Data Corporation, Honeywell and IBM-Rochester created a homegrown computing industry that by the 1970s made Minnesota home to 17% of computer manufacturing jobs nationwide and 12% of all computer sales.

But Minnesota’s real strength was the numerous businesses created as spin-offs from those leading firms. Forty-five companies spun-off from CDC and another 29 from Sperry-Rand. This community was responsible for breakthrough technologies such as the first magnetic storage drum used in early computers and the world’s first successful commercial supercomputer.

Computing has evolved a great deal since Minnesota reigned supreme. The computing power that used to take up entire rooms at the University of Minnesota now fits in a pocket. But more importantly, the competitive ecosystem that helped Minnesota become a tech leader no longer exists. Today, a few giant firms like Google and Apple have employed anti-competitive tactics to build immense market power.

One area where Google and Apple have asserted their control is access to smartphone applications. Apple and Google have become dominant in app distribution, a duopoly controlling access to customers for any developer or business that needs to sell their product via a mobile phone. They then use that gatekeeper position to force developers and small businesses to agree to unfair and extortionary terms, charging up to 30% for the privilege of allowing businesses to transact with their own customers, compared to around 3% charged by other payment providers or credit card networks.

Essentially, if you’re a successful small business and want to keep growing, you have to pay Apple a massive toll to continue doing business with the customers you worked hard to obtain. And, remember, the app economy isn’t just about video games or music streaming: It’s the place where innovative ideas to help us communicate, monitor our health, or even save lives are created and proliferate.

But this is not just a spat between businesses — gatekeeping by Big Tech also affects consumers. Apple and Google don’t own all the phones consumers use, and yet they control what users can do with them and which businesses they do or do not patronize. The extortionary rates charged by Big Tech also leave consumers footing the bill for padding monopoly profits.

Fortunately, there is a remedy to this problem. State Sen. Mark Koran, R–North Branch, and state Rep. Zack Stephenson, DFL–Coon Rapids, recently introduced legislation that would curb Big Tech’s anti-competitive tactics in two ways. First, by banning the requirement that developers use a specific app store as the exclusive means of distributing their product. And second, by ending the practice of forcing developers to use specific systems owned by the monopolists to accept payment from customers. This bill would allow developers to avoid the predatory fees Apple and Google charge and create more choice for consumers.

By passing this bill into law, Minnesota could create a modern-day version of its past tech ecosystem without resorting to failed and tired tactics such as the Angel Investment Tax Credit that lawmakers recently reinstated at a cost of $10 million. Or tax exemptions for data centers that cost nearly $100 million annually. History has shown that breaking the power of monopolists unleashes waves of innovation without the costs of corporate bribes.

Big Tech will not let go of its power quietly, though. In North Dakota, tech monopolists teamed up with the Koch-funded Americans for Prosperity to defeat similar legislation offered by a Republican state senator, and are now working to turn Democrats against app store legislation in Arizona. Just days after Koran and Stephenson filed their respective bills, Apple added three lobbyists to its Minnesota team. Monopolists, by their very nature, seek to eliminate competition.

If Minnesota wants to regain its former status as a tech powerhouse, it will need to ignore high-powered lobbyists, break the concentrated power of Big Tech, and create the competitive marketplace that previously previously helped push innovation forward in Minnesota.

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Justin Stofferahn
Justin Stofferahn

Justin Stofferahn lives in White Bear Township and is a public affairs professional who has worked on a variety of tax and economic development issues and is a member of the Minnesota Main Street Alliance leadership team.

Pat Garofalo
Pat Garofalo

Pat Garofalo is the Director of State and Local Policy at the American Economic Liberties Project and the author of “The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs.” (He has no relation to Farmington Rep. Pat Garofalo.)