High-Tech Boosts Profile As Lobbying Intensifies

Gary Holland returned home to his company in Minnetonka, Minn., after a visit to Washington four years ago vowing never to go back to the nation’s capital again.

He was mad about the hours he spent cooling his heels in congressional waiting rooms while other visitors were ushered on past. He thought his federal representatives knew next to nothing about the importance of electronics to Minnesota and cared somewhat less. “One legislator even told us he knew what was good for us--that we didn’t,” said Holland, president of Data Card, a company that makes sophisticated equipment for electronically encoding credit cards and checks.

But this past February when Holland went back to Washington to participate--for the fourth consecutive year--in the American Electronics Assn.’s Capitol Caucus, he was greeted with familiar welcomes. “The first time I went, I was definitely angry. But then, I thought about it and realized I had a job to do, to educate Congress,” he said. So he stuck with it and believes that the ensuing meetings and discussions between the area’s electronics business owners and their representatives produced good rapport and benefit to both sides.

Holland is part of the growing high-technology lobby that is learning its own lessons about national politics. Although young and small in comparison with other lobbies--and to the segment of the economy it represents--the high-technology voice already is being perceived as an influential one.

Many observers say that in coming years it will be a major factor in shaping laws and policies that govern the way not only high-tech companies conduct business, but most other industries as well. For instance, the current negotiations between U.S. and Japanese semiconductor makers are seen as an important barometer for the Washington-Tokyo trade summits later this month and next.

So far, the high-tech trade associations claim legislative victories on taxes, antitrust laws and tariffs, among others. Electronics manufacturers, computer makers, computer chip equipment makers, even software companies have trade associations with staffs or lawyers in the capital--many with formidable agendas for the remainder of the current congressional session.

At home, the companies have a staff member or department whose duties include monitoring legislative issues. Several firms have opened government affairs offices in Washington, and some are forming political action committees to raise contributions for political campaigns.

That the high-tech industry is even a part of Washington politics is a turnaround. In its early days, it figured that any interest from Washington was interference. The entrepreneurs and engineers “just wanted to be left alone to build their computers,” said one insider.

Shifting their focus to the world around them, and at the same time lifting that veil of mystery from their industry, has only lately become a mission of the high-tech entrepreneurs.

Gotten More Intensive

A Washington veteran who recently joined the burgeoning cadre of high-tech lobbyists said: “The high-tech lobby has gotten more intensive. It has traditionally been under-represented in Washington, but that’s been changing over the last four or five years. Before, Silicon Valley just wanted to be left alone. But things have gotten tough now, and that has stimulated the industry to do more lobbying.”

Still, the industry’s clout lags its potential. The AEA trade group calculates that it accounts for more than $300 billion in annual sales and employs more than 2.5 million people--making it the biggest manufacturing segment. “To the extent they are the largest, fastest-growing segment of the economy, they probably don’t reflect that in their influence here.” said Rep. Norman Y. Mineta (D-San Jose), whose Northern California district includes part of Silicon Valley.

Although figures aren’t available on money spent in Washington by high-tech companies, most observers believe that it is much less than funding by older, if smaller, industries such as textile and steel. For instance, it is estimated that the Semiconductor Industry Assn., which represents the country’s most powerful computer chip makers, spends only $1 million to $1.5 million, or about 10% of its total annual budget, on its Washington efforts.

And the industry worries that its Japanese competitors are spending more. “The Japanese spending in Washington dwarfs our spending,” said Michael Maibach, government affairs manager for Intel, a Santa Clara, Calif., chip maker.

May Become Protectionist

As its sophistication and influence grows, however, the high-tech lobby also runs the risk of becoming more like the very lobbies it disparages as protectionist. Already comparisons are being made with the auto and steel industries--comparisons that are adamantly rejected by high-tech officials. The ongoing battle with Asian competitors, particularly the Japanese, has been the catalyst for such comparisons. Although the U.S. electronics industry maintains a positive balance of trade with most parts of the world, in 1985 the trade deficit with Japan stretched to $17.6 billion.

The first victims of the Japanese technological incursion have been in the semiconductor industry--which leads most high-tech trends. U.S. chip makers still are struggling back up from a slump that began in 1984 and cost the five largest companies $343 million in losses in 1985. During the trough, the companies laid off thousands of workers, moved some production operations overseas, closed domestic plants and ceded entire markets for high-volume, low-cost chips to the Japanese.

The scenario--which makers of computers and computer peripherals fear could be replayed in their markets--is reminiscent of ones that earlier engulfed the auto, steel, apparel and dozens of other U.S. industries. When those industries sought Washington’s help, generally they asked for measures, such as quotas, tariffs and dumping duties, to work as buffers between their markets and lower-cost foreign goods.

The semiconductor makers have turned to Washington too, with legislative proposals, anti-dumping suits, patent infringement cases and an unfair trade practices complaint. But they insist, as do other segments of the high-tech industry, that they are not seeking to protect the U.S. market, but rather to ensure that foreign competitors abide by U.S. trade laws and grant equal access to their home markets. In many instances, it is too late to erect barriers; the U.S. chip makers and their customers use hundreds of thousands of foreign-made chips each year.

Seek Affirmative Action

In current negotiations on the unfair trade practices complaint, U.S. semiconductor makers have suggested an “affirmative action” program that would give U.S. companies 30% of the Japan market by 1989. “Our No. 1 priority is opening of the Japanese market for our products,” said Maibach of Intel. “Our trade laws have not been substantially improved in 50 years. We’re giving out parking tickets when we should be towing cars. . . . The laws do nothing but put duties on products they (Japanese companies) already control.”

The SIA also is drafting legislation that would place harsher penalties on companies found to be guilty of dumping products--selling at below the home market price or production cost--on the U.S. market. One version of the bill would exclude companies from doing business in the United States for five years if they have been found guilty in three dumping cases. Such proposals have stirred much debate. To many, the market-share guidelines have the look of reverse quotas. But the chip makers stress that such numbers are guidelines only.

“It is a simple-minded man that draws an analogy to autos and steel. We’re not looking for protection,” said William Finan, an economist whose firm, Quick, Finan & Associates in Washington, often serves as consultant to the semiconductor industry.

However, Michael Borrus, deputy director of the Berkeley Roundtable on the International Economy at UC Berkeley, said that in coping with the fierce Japanese competition in the United States and the relatively closed Japan market, “some of the intermediate steps look protectionist.”

“But the real test,” said Borrus, “is not whether the protectionist-looking devices are used, but whether they endure--like we’ve been protecting the steel industry since 1969, with the exception of one or two years.”

Changes Are Vital

Roger Majak, the Washington representative for Tektronix, an Oregon firm that makes video monitors, said: “We’re not there yet, but we could be in such bad shape that we could be seeking protection.” Majak believes that changes in trade laws are vital to the industry’s survival. “If we continue to go downhill,” he said, “we’ll have no other choice but to seek protection. Then we’ll look very much like the steel and other industries.”

Calling themselves “free-traders” is just “posturing” by the high-tech businesses, said Steve Beckman, an international economist in Washington for the United Auto Workers. “They do try to distance themselves to the extent they can label other proposals protectionist, and their own not, to receive more favorable attention from the government,” he said. “But calling people protectionist is only name calling. What we discuss and what they claim to be discussing is implementing trade policies that help.”

The high-tech industry claims, however, that most of its lobbying efforts have benefited industry as a whole, not just its own segment.

Its first major lobbying attempt, lowering of the capital gains tax, was successful. Paring back the tax to 28% from 49% made it more rewarding for venture capitalists to fund start-ups in all fields. High-tech start-ups, though, were the hottest at the time.

Leading that effort in 1978 was a young entrepreneur from Silicon Valley named Ed Zschau. Zschau, then president of a small firm in Sunnyvale, Systems Industries, was serving as chairman of the American Electronics Assn. Zschau, who many credit with creating the lobbying style for the entire industry, successfully ran for Congress in 1982 as one of Silicon Valley’s representatives. Zschau, who describes his first candidacy as a “rallying point for the industry,” is now seeking the Republican nomination to the U.S. Senate. The legislative success also encouraged further lobbying by the industry and its trade groups. The AEA, which until the late 1970s had been a strictly Western regional group, began to blossom as a national organization. It first opened a Washington office in 1979 with three people. It now has 10 staffers there, and its new president, J. Richard Iverson, intends to add more.

The industry cites several other successes in its lobbying efforts. They include a provision extending the tax credit for research and development (which is back on the agenda since it expired last December); an amendment to the antitrust laws that legitimized existing cooperative R&D; ventures; an “intellectual property protection” law for semiconductor design; restoration of tax provisions allowing stock option incentives; elimination in 1984 of the tariffs on semiconductors, and a minor revision in the export controls.

The tax bill and trade issues head most current lobbying agendas among high-tech companies.

The AEA, which counts mostly small firms among its 29,000 member companies, is concentrating much of its energies on restoring the tax breaks it has lost or stands to have diluted. The current House tax bill would reinstate the R&D; tax credits at 20% for three years, and the AEA wants them made permanent, and at a 25% rate. Also, the AEA is working to reduce the capital gains taxes that the current bill would levy: a 22% level for individuals, 36% for businesses. The AEA wants those numbers pared back to 20% and 28%, respectively.

Other issues such as equipment depreciation schedules and export controls are more important to larger companies, like the 35 computer firms represented by CBEMA, the Computer and Business Equipment Manufacturers Assn.

Ted Heydinger, head of CBEMA’s government relations, is one of the new breed of professional high-tech lobbyists. Before joining CBEMA a year ago, he spent more than six years with the U.S. Chamber of Commerce and five years on Capitol Hill.

All Work Together

Heydinger said that each of the trade groups has a slightly different focus, “but we all work together on issues as well.” Disagreements are about emphasis, not the issue, he said. “I have not seen a time when someone wanted to go left and we wanted to go right.”

Still, there are signs that the high-tech lobby is not always a cohesive group. The San Jose-based Semiconductor Industry Assn. was formed because chip makers believed that the AEA was too broad-based a group to represent their specific interests. And since then, the SIA and its Silicon Valley neighbors have often parted company. For instance, several computer companies have expressed grave concerns about the chip makers’ apparent willingness to negotiate a settlement of the dumping cases in exchange for promises of better access to Japan’s market, arguing that such actions undermine the case for strict enforcement of the nation’s trade laws.

International trade, however, is an important issue for all the trade groups. “Since our industry was born, it’s always been us and Japan . . . and trade problems,” said Maibach of Intel. “The trade problems were the central issue that’s gotten us into politics.”

Tektronix’s Majak agrees that much work is needed on the trade laws, especially in the area of reducing controls on exports of high-tech goods. “I wouldn’t consider anything done on export controls in the last 10 years a victory,” he said, contending that Reagan Administration actions have undone hard-won reductions in the number of high-tech items controlled by the export laws. Majak said high-technology products still account for about 80% of the items controlled under the export laws.

It is still too early to tell for sure whether the high-technology lobby truly is different from the older, larger lobbies with which it competes for congressional attention. However, there are two obvious distinctions: High-technology has no strong organized labor component, and it is still a relatively small contributor to political campaigns.

Less than 2% of high-technology employees are members of labor unions. And though there are ongoing efforts to organize them by the communications and electrical workers unions, among others, that percentage isn’t likely to change significantly, most experts believe.

But because strong labor unions often oppose management lobbies, many high-tech companies and trade groups privately admit that they are relieved at not having a strong labor voice in the industry.

As for political campaign contributions, the March 1 edition of Business and Public Affairs, a Washington newsletter, cited the food and computer industries as “remaining the major hold-outs among the 100 largest industrials” in the formation of political action committees.

Common Cause lists 51 PACs among computer and related companies, although many of those are in companies, like Motorola, whose political involvement stems from multiple business interests. And the two largest computer makers, IBM and Digital Equipment, do not have PACs, although Washington insiders have speculated that IBM is about to form one.

The computer PACs contributed $1.3 million to congressional candidates in the 1983-84 election season, according to Common Cause. By comparison, the auto industry (which AEA says is one-third the size of the electronics industry) contributed $2.2 million through PACs and auto industry labor PACs spent $1.4 million during those years. The AEA’s Electro PAC is hoping to raise $50,000 this year. Intel said its PAC aims for about $15,000 a year or $30,000 per congressional election. In contrast, the National Assn. of Realtors--the largest single business PAC--accounted for $2 million of the $7.6 million in real estate industry PACs in the last election cycle.

Hewlett-Packard, the Palo Alto computer maker, just started its PAC last year. Other companies are expected to follow suit.

“We have begun to realize that when an elected official takes some heat on our behalf and then needs some support in turn, we have a responsibility to be there,” said Ken Haggerty, the AEA’s vice president for governmental affairs.

Still, not spending gobs of money to support candidates hasn’t seemed to hold the high-tech lobby back. “I don’t think there’s any doubt those companies are quite well aware of what Washington can do for them and how to get it done,” said the UAW’s Beckman. “And I wouldn’t underestimate their access one bit.”