Money and Politics

A Connected Industry

The computer industry did not have to wait until December 25 for Christmas. For high-tech companies, the holiday came in October. In the final days of the year's congressional session, the industry pushed through almost every item on its legislative agenda.

Hard-won victories included uniform standards for securities class action law suits, expansion of a highly skilled worker visa program (H1-B), extension of the research and development tax credit, a three-year moratorium on Internet taxation, ratification of two World Intellectual Property Organization treaties and protection from lawsuits when companies share information about Year 2000 problems.

How did an industry come from virtual political obscurity to prominence as one of the new darlings of Capitol Hill? The creators of information superhighways built new political superhighways between Washington D.C. and Silicon Valley.

Perhaps the force most responsible for these budding relationships is the Technology Network (Technet), a bipartisan political organization with more than 140 members created in the summer of 1997. The group has its roots in Proposition 211, a 1996 California ballot initiative that would have made high-tech companies more vulnerable to shareholder lawsuits. Silicon Valley executives banded together and raised $40 million to defeat the trial lawyer-backed initiative.

The experience taught the industry two things, says Mike Engelhardt, Technet's vice-president of public policy and communications. "We learned that we could get organized and that indeed we need to play on the political side."

And they arc playing hard. Since its formation, Technet has. hosted more than 120 events with politicians, about one-third of which were fundraisers held in Silicon Valley.

While some groups write out PAC checks at fundraisers, Technet facilitates one-on-one meetings between lawmakers and CEOs and helps forge personal ties. For a lot of these heads of high-tech companies, it is their first exposure to the dynamics of Washington politics.

Executives write their own checks to politicians, but Technet takes credit for collecting and delivering the contributions. It has served in the role of conduit for at least $330,000 in donations. Top recipients of these funds include Senator Spencer Abraham, R-Michigan, sponsor of the H1-B bill, and Senator Orrin Hatch, R-Utah, a key player on the Year 2000 legislation.

Industry executives, however, scoff at the idea that increased donations are the main reason for their Capitol Hill successes. "Starting Technet when we did was like if you open up a mutual fund in a bull market. Congress had woken up to the economic importance of the industry," says Technet's Engelhardt.

But technology lobbyists do acknowledge that giving money to lawmakers' campaigns has become a matter of political necessity. "Absent campaign [finance] reform, the information technology industry needs to give money to maintain its accessibility, serve as educators, sell its case," states Marc Pearl, senior vice president of government relations at the Virginia-based Information Technology Association of America.

A review of campaign finance and lobbying records shows that the high-tech computer industry has recognized this political reality. In the first 18 months of the 1997-98 election cycle, computer companies distributed $5 million in PAC, soft money and individual contributions to federal candidates and the national parties - a 78 percent increase from the last midterm election cycle. Spending on lobbying expenses is also up from $13.3 million in the first six months of 1997 to $17.2 million in the first six months of 1998.

Major players in the pending Microsoft antitrust suit have all beefed up their lobbying operations. Sun Microsystems and Netscape each paid the firm of Verner, Liipfert $20,000 in 1998 to lobby on ensuring fair competition within the industry. Sun's lobbying expenditures have also more than tripled this year since the same period in both 1997 and 1996. Compaq Computer spent $40,000 in the first six months of 1996 and 1997 but boasts spending $759,000 between January and June of 1998. Newcomers to the lobbying scene include Cisco Systems and Yahoo!, which opened its own Washington offices in 1998, and Technet, which hired the firm of Mayer, Brown & Platt.

Microsoft, the focus of the antitrust trial, has made some dramatic political moves in the 1997-98 election cycle. Its campaign giving has more than quadrupled to almost $1 million this election cycle, from $235,000 in the 1996 elections. And the money is now going to a different party: 54 percent of Microsoft's donations in 1995-96 went to Democrats and 63 percent in 1997-98 went to Republicans. The software giant also has hired GOP-connected lobbyists such as former Republican National Chairman Haley Barbour, Barbour, Griffith & Rodgers earned $280,000 from Microsoft in the first half of 1998, second only to Preston, Gates et. al. Microsoft employs nine lobbying firms, more than any other computer company.

While Microsoft is a relative newcomer to Capitol Hill's influence industry, IBM has long had a Washington presence and was the top computer company lobbying spender in both 1996 and 1997. But the company does not have a political action committee nor does it contribute soft money. It spends its energy on grassroots activities, mobilizing employees in congressional districts.

Next on the legislative agenda for the industry: dealing with the Year 2000 problem, privacy issues including encryption, online service provider liability and making permanent the research and development tax credit. As more and more people in the United States use their Internet connections to research, communicate and shop, the computer industry is poised to use its growing political connections to make sure the government does not stand in its way.

- Jennifer Shecter