Imagine you know nothing about the industrial make-up of the United States. The only information you have is government rules and regulations. You are then tasked with answering this question: What sort of businesses are likely to succeed?

One thing you’d notice in the tax code is that it discourages investment in physical capital relative to human capital. It does that by allowing businesses to write off their payroll expenses in full each year but requiring them to deduct, in chunks over several years, investments in physical capital. For factories, the depreciation schedule drags the deduction out over 39 years.

Tax policy on investing in physical capital also changes, leaving businesses unsure what tax treatment will look like on longer-term projects. Politicians tweak expensing and depreciation rules to juice the economy, usually on a temporary basis. Sometimes the temporary changes are extended, and sometimes they are not. From a tax perspective, it’s more of a sure thing to invest in human capital.

The bias against physical capital also shows in the regulatory apparatus. At the local, state, and federal levels, there are environmental regulations that make it difficult to build stuff. Major projects require environmental-impact statements that can take years to complete. Any project can be subject to costly lawsuits from activist groups that seek to block it.

The number of veto points for a project multiplies when one also includes land-use and zoning regulations. Businesses may have to request exemptions from these regulations to build, an often costly political process. The strength of political connections can become more important than the soundness of the investment idea in deciding whether to go forward with the project.

U.S. labor unions are productivity-killers, in part because U.S. labor-relations law sets them up in perpetual opposition to employers. It also prevents most forms of competition between unions by granting a monopoly on representation privileges to a particular union in the workplace.

In trying to pick successful businesses, you’d notice that most airports and seaports in the U.S. are government-owned, something unusual in other countries. The prevalence of public-sector unions and of public corruption in the local-government bodies that often oversee airports and seaports makes them difficult to modernize or run cost-effectively.

Consecutive presidential administrations, one from each party, have stepped back from America’s post–World War II history as a supporter of free trade, imposing tariffs on inputs such as steel and aluminum. Relying on imports for key inputs, especially inputs supplied by domestic industries with influential lobbyists, seems to many like a bad idea.

The U.S. has so many federal regulatory agencies with overlapping jurisdictions that it is difficult to give an exact count of them, but there are over 100. They combine to impose trillions of dollars in costs on the economy each year.

This brief sketch is far from comprehensive. But it illustrates the type of business likely to succeed under U.S. rules and regulations: a business that is more reliant on human capital than on physical capital, sells services rather than goods, doesn’t brush up against environmentalists, doesn’t have to interact with labor unions, doesn’t have to ship stuff through seaports and airports, doesn’t rely on importing key inputs from overseas, and doesn’t have a team of regulatory agencies hounding it.

That description fits tech companies pretty well. And, sure enough, tech companies are succeeding in the U.S. economy. They’re doing extraordinarily well, in fact. Information-technology stocks account for about 30 percent of the value of the S&P 500, the largest share of any sector. Tech has outperformed the S&P 500 in four of the past five years.

The S&P 500 increased by about 25 percent in 2023, a great performance. But it was in large part carried by tech companies. Information-technology stocks were up 56 percent, and communication-services stocks were up 54 percent. Industrials were up only 16 percent. Real-estate stocks were up 8 percent. Health-care stocks were stagnant. Consumer staples and energy stocks both saw declines.

Some people see the success of tech companies, especially the biggest ones, and want to vilify them. They’re making out well while the rest of the economy is lagging, so they must be cheating or benefiting from unfair privileges, the thought process goes.

But their outperformance has more to do with the fact that tech companies, by the nature of what they do, are in large part exempted from the “permission question,” as described by Adam Thierer in his book Permissionless Innovation: “Must the creators of new technologies seek the blessing of public officials before they develop and deploy their innovations?” To make a new website or app, they don’t have to clear anything with the FDA, file a report with the EPA, comply with rules from OSHA, get the local zoning authority to approve it, work out a collective-bargaining agreement about it, or go to court against some environmentalist group. They can just do it.

The U.S. has so far largely refrained from pouring regulatory cement on tech as it did on other sectors. The European Union laid it on thick and, unsurprisingly, doesn’t have a tech sector to speak of.

The U.S. did not create this tax and regulatory environment with the purpose of fostering a tech sector. It is the accumulation of decades of discrete laws and rules, passed for different and, in many cases, conflicting purposes. The labor laws are from the 1930s, the environmental laws are from the 1970s, and the tariffs are from the past several years. It just so happens that tech companies are very well positioned to succeed in these conditions, either by inadvertently benefiting from, or being unaffected by, the rules that government has imposed.

Congress could not have chosen to structure regulations in, say, 1950 to foster the creation of Amazon or Netflix in the 1990s. And Amazon and Netflix in the 1990s were completely different companies from Amazon and Netflix today (try explaining ordering DVDs in the mail to a ten-year-old). The process of innovation and competition creates ideas and products that no regulator could have foreseen.

Rather than learn from the success of the tech industry and undo the regulations and tax incentives that hold many non-tech industries back, the Biden administration has doubled down on regulation. According to the regulatory tracker from Dan Goldbeck of the American Action Forum, from Inauguration Day 2021 through May 31 of this year, the Biden administration has imposed final rules costing $1.6 trillion. At the same point in the Obama administration, there had been only $300 billion of costs from newly imposed final rules.

At the same point in the Trump administration, newly imposed final rules accounted for a total cost reduction of $160 billion. The contrast between Democrats and Republicans on regulation could not be clearer, and as the magnitudes of the costs imposed by the respective administrations show, there’s still plenty of work for Republicans to do, or rather undo.

Yet some conservatives let their dislike of tech companies blind them to the reasons for their success. As part of a populist hostility to business overall, these conservatives propose stricter regulation of the tech industry, essentially promising to pull the sector down to the rest of the economy instead of building up the rest of the economy to thrive like the tech sector.

In part to counter the big-government advocates, the Club for Growth Foundation published a policy handbook that included contributions from many top conservative policy wonks in May 2024. It proposes standard pro-growth policies such as full expensing of physical-capital investment, removal of regulations that hinder the acquisition of cheap and reliable energy, and expansion of right-to-work protections to empower workers against union bosses. It also includes more-novel ideas such as the establishment of a Congressional Regulations Office, to help Congress analyze and rein in the regulatory state, and the replacement of the corporate-income tax with a flat distributed-profits tax.

It mentions legislative proposals that already exist and, if enacted, would help achieve these goals. The A-PLUS Act would give states more control over education spending. The Lower Energy Costs Act would reform permitting for energy projects and make it easier to build new infrastructure. Of course, repeal of old laws is needed more than passage of new ones. That’s true for long-standing ills such as the Davis-Bacon Act and “buy American” laws, but also for more recent ones, with the so-called Inflation Reduction Act and the American Rescue Plan Act coming immediately to mind.

The outsized success of major tech companies has made them powerful. But they are powerful compared only with the more regulated rest of the economy. Removing those regulations would reduce tech companies’ power by allowing non-tech companies to thrive.

The tech sector is winning not because of government policy but rather in the absence of it. The government helped in the creation of some antecedents to the internet, but it didn’t make it marketable or profitable, i.e., useful to billions of people every day. To do that, it took a bunch of private citizens trying stuff, failing a lot, and then succeeding. They created the world’s most valuable companies, nearly all of which are from the U.S. That should be a source of national pride.

If government could plan industry well, the U.S. would already have a booming green-energy sector, the domestic water-transportation industry would be formidable, and American steel mills would be the best in the world. Instead of punishing the tech companies too, stop punishing everybody else. It might even be populist to demonstrate some faith in the American people for a change and get government out of the way.