Innovation and Its Army of Opponents

More than 50 years ago, noted economist Joseph Schumpeter wrote, “The resistance which comes from interests threatened by an innovation in the productive process is not likely to die out as long as the capitalist order persists.” He might have been more prescient if he had said that such resistance would actually strengthen over time.

A growing array of neo-Luddites (they get their name from Englishman Ned Ludd, whose followers sabotaged textile factories at the beginning of the Industrial Revolution) views new technology as a threat, not as progress. A host of organizations—ranging from liberal groups such as the ACLU to conservative ones such as the Eagle Forum—is fighting innovations like mobile commerce, smart IDs, behavioral targeting on the Internet, and the use of IT in health care, decrying them as threats to privacy and civil liberties.

What is especially troubling is that in contrast to a generation ago, when neo-Luddites were largely consigned to the fringes of political debate, today they are accorded more widespread legitimacy. Twenty years ago, a person who wrote that the government plans to forcibly implant radio frequency identification (RFID) chips under the skin of Americans, akin to the mark of the beast as prophesied in the Book of Revelation, would have been dismissed as a crackpot. Yet today Katherine Albrecht, the person who makes this claim in her book Spychips, is widely quoted by the mainstream media, is invited to testify at government hearings, and even gets published in Scientific American, a journal that used to stand for objectivity.

RESISTING INNOVATIVE TECHNOLOGY

Passionate activists are not the only digital Luddites. Businesses threatened by technology-based competition have sought to enlist government protection. The list is long and troubling. Car dealers have succeeded in getting laws passed in all 50 states making it illegal for automobile manufacturers to sell vehicles directly to the consumer, including over the Internet. Realtors have colluded to try to shut out Internet-based brokers to protect their 6% sales commissions. Brick-and-mortar pharmacies have fought to make it illegal for pharmacy benefit manager programs to impose lower co-pays for drugs purchased from pharmacies but through mail order and Web orders. Optometrists have conspired with contact lens manufacturers to prevent e-commerce lens sellers from getting products.

Unions and their allies also get in the game fighting against new technologies, fearing job loss. One industry that has long been a battleground is food retailing, where grocery unions have opposed consumer-friendly innovations. For example, in the mid-1970s when grocery stores began to widely use bar codes on food products, unions convinced several states, including California, to pass mandatory price-marking legislation that required stores to place individual price labels on all products. In other words, stores had to waste money putting individual price labels on all products.

Now California is poised to act again. Legislation introduced on behalf of the United Food & Commercial Workers (UFCW) union and its allies would restrict self-service checkout in grocery stores, making it harder for companies to give consumers the choice to use technology to avoid long checkout lines.

CLAIMS OF PROTECTING CONSUMERS

Opponents of innovation seldom are so crass or politically naive as to say, “Stop this innovation, it is hurting us (costing jobs, reducing profits, etc).” Rather, they couch their Luddite claims in the veil of protecting the public interest. Car dealers only wanted to protect the consumer from unscrupulous manufacturers. Travel agents, in seeking to enlist the U.S. Justice Dept. against the airlines forming online travel site Orbitz (OWW), were doing it only because they “act as the public’s representatives and help keep prices low.” Optometrists were only trying to protect consumers from eye damage.

Opposition to grocery-store technology is no different. As University of Illinois sociologist John Walsh writes, “Unions would likely less successfully oppose scanning based on the increased front-end productivity—their loss is consumers' as well as companies' gain.” Instead, Walsh notes that in order to more effectively convince legislators to oppose these technologies, unions align with powerful consumer groups to claim that they are only acting in the interest of consumers.

The UFCW and its allies have latched onto a novel rationale in opposing self-checkout: They are trying to protect youth from underage drinking. To help make that argument, the labor-allied Los Angeles Alliance for a New Economy (an advocacy organization committed to "growing industries which cannot be exported, including those in the fast-growing service sector") and UCLA’s Community Economic Development Clinic (whose mission is to train "law students to represent community-based organizations in projects designed to create jobs, build affordable housing, and provide critical services in low-income neighborhoods") published a study, replete with the pictures of drunken teens, claiming that self-checkout is not reliable in stopping underage alcohol purchases.

TARGETING TESCO’s NEW GROCERY CHAIN

But both the facts and background belie these claims. Self-service checkout systems already provide significant controls to protect against illegal alcohol purchases. The systems can automatically alert the retail clerk when a customer scans alcohol, requiring the clerk to check the customer’s identification and verify that he or she is at least 21 years old before the sale can be completed. Moreover, analysis of the bill by the Senate Governmental Organization Committee reports that the staff of the California Alcoholic Beverage Control Dept. "notes that they have no evidence of any problems associated with minors purchasing alcoholic beverages through self-service checkouts in California."

The real purpose of the legislation is to thwart the newest entrant to the California grocery market—Tesco’s (TESO) Fresh & Easy chain. One anti-blog (yes, someone actually has written more than 600 blog posts attacking the company) referred to the bill as the “Tesco Fresh & Easy Law.” Why target Fresh & Easy? First, unlike Safeway (SWY) and Kroger (KR), it is a nonunion retailer. And just as troubling from the union’s perspective, it is hyperefficient, employing fewer checkout workers due to the ubiquitous use of self-checkout systems.

While it’s not reasonable to expect Luddites to become full-throated technology advocates, it is reasonable to expect policymakers not to fall for their claims of protecting the public interest, when what is really going on are efforts to protect the narrow interests of a select few in business or labor over the broader interests of American consumers. Policymakers need to side with Americans in general and resist the pressure from those who oppose innovation.

Originally posted on BusinessWeek.com.