The August 5th issue of The Economist had a compelling cover story entitled "Leviathan, Inc." in which the author notes "[p]oliticians are reviving the notion that intervening in individual industries and companies can drive growth and create jobs." But direct, long-term government management of companies, corporations or, worst yet, entire industries has proven time and again not to be successful.
Simply put, the head of a company makes decisions to maximize the outcome for that company and its owners or shareholders. Any government employee—even one in a role as acting head of a private company—is legally required to make decisions under a far stricter set of guidelines. Guidelines which force the decisions to be made for what is best not for the business they are charged with operating, but for the country as a whole. This is the case even if the decision made by the bureaucrat will result in a 'net negative' to the company and its owners/shareholders.
The article's anonymous author suggests that instead of "pick[ing] winners and coddl[ing] losers," government should improve the environment for all business by reducing regulations, investing in infrastructure, and "encourage winners to emerge by themselves, for example through the sort of incentive prizes that are growing increasingly popular."
Two articles of interest in today's Wall Street Journal with indirect impact on the debate over the future of Internet policy. First, there's a front-page story ("Facing Budget Gaps, Cities Sell Parking, Airports, Zoo") documenting how many cities are privatizing various services -- including some considered "public utilities" -- in order to help balance budgets. The article worries about "fire-sale" prices and the loss of long-term revenue because of the privatizations. But the author correctly notes that the more important rationale for privatization is that, "In many cases, the private takeover of government-controlled industry or services can result in more efficient and profitable operations." Moreover, any concern about "fire-sale" prices and long-term revenue losses have to be stacked again the massive inefficiencies / costs associated with ongoing government management of resources /networks.
Of course, what's so ironic about this latest privatization wave is that it comes at a time when some regulatory activists are clamoring for more regulation of the Internet and calling for broadband to be converted into a plain-vanilla public utility. For example, Free Press founder Robert McChesney has argued that "What we want to have in the U.S. and in every society is an Internet that is not private property, but a public utility." That certainly doesn't seem wise in light of the track record of past experiments with government-owned or regulated utilities. And the fact that we are talking about something as complex and fast-moving as the Internet and digital networks makes the task even more daunting.
Government mismanagement of complex technology projects was on display in a second article in today's Journal ("U.S. Reviews Tech Spending.") Amy Schatz notes that "Obama administration officials are considering overhauling 26 troubled federal technology projects valued at as much as $30 billion as part of a broader effort by White House budget officials to cut spending. Projects on the list are either over budget, haven't worked as expected or both, say Office of Management and Budget officials." I'm pleased to hear that the Administration is taking steps to rectify such waste and mismanagement, but let's not lose sight of the fact that this is the same government that the Free Press folks want to run the Internet. Not smart.
I've noted here before that Gordon Crovitz is my favorite technology policy columnist and that everything he pens for his "Information Age" column for The Wall Street Journal is well worth reading. His latest might be his best ever. It touches upon the great debate between Internet optimists and pessimists regarding the impact of digital technology on our culture and economy. His title is just perfect: "Is Technology Good or Bad? Yes." His point is that you can find evidence that technological change has both beneficial and detrimental impacts, and plenty of people on both sides of the debate to cite it for you.
This is a subject I've spent a lot of time noodling over here through the years and, most recently, I compiled all my random thoughts into a mega-post asking, "Are You an Internet Optimist or Pessimist?" That post tracks all the leading texts on both sides of this debate. I was tickled, therefore, when Gordon contacted me and asked for comment for his story after seeing my piece. [See, people really do still read blogs!]
Back in March, the Motion Picture Association of America re-launched its film-rating website, filmratings.com. While this may be old news to some, I just learned about it from a post on BoingBoing which makes fun of the rationales given for the ratings, which are available on the new website. Example: The movie "3 Ninjas Knuckle Up" was "rated PG-13 for non-stop ninja action."
I continue to be mystified by the contention of some Net neutrality advocates that it is not a form of economic regulation. The reality, of course, is that Net neutrality would ban business models and necessitate price controls. If that ain't regulation, I don't know what is. As Robert Litan and Hal Singer note in their new Harvard Business Review essay, "Why Business Should Oppose Net Neutrality," "Non-discrimination under the FCC's net neutrality proposal means that ISPs cannot offer enhanced services beyond the plain-vanilla access service to content providers at any price." Thus, any type of service prioritization or price discrimination would be prohibited under the FCC's Net neutrality regulatory regime.
As I explained in this earlier essay and in the video below, this would be a disaster for investment, innovation, and consumer welfare. Differentiated and prioritized services and pricing are part of almost every industrial sector in a capitalistic economy, and there's no reason things should it be any different for broadband. As Litan and Singer note, "The concept of premium services and upgrades should be second-nature to businesses. From next-day delivery of packages to airport lounges, businesses value the option of upgrading when necessary. That one customer chooses to purchase the upgrade while the next opts out would never be considered 'discriminatory.'"
And let's not forget, something has to pay for Internet access and investment in new facilities. Differentiated services can help by allowing carriers to price more intensive or specialized users and uses to ensure that carriers don't have to hit everyone - including average household users - with the same bill for service. Why would we want to make that illegal through Net neutrality regulation and the misguided price control schemes of a bygone regulatory era?
Wall Street Journal columnist Holman Jenkins has a terrific, wide-ranging interview with Google CEO Eric Schmidt in today's paper that is well worth reading. One thing worth highlighting is Schmidt's comments on the "economic disaster that is the American newspaper." He argues that, "The only way the problem [of insufficient revenue for news gathering] is going to be solved is by increasing monetization, and the only way I know of to increase monetization is through targeted ads."
The reason for the indispensability of advertising is simple: Information (including news and other forms of "content") has "public good" characteristics that make it is very difficult (and occasionally impossible) for information-publishers to recoup their investments. Simply put, they quite literally lack pricing power: Whatever they charge, someone else will charge less for a close substitute, inevitably leading to "free" distribution of the content, even though the content is anything but free to produce. Advertising is the one business model that has traditionally saved the day by rewarding publishers for attracting the attention of an audience.
Thus an attack on advertising is an attack on media / news itself. And yet Washington is currently engaged in an all-out assault on advertising, marketing, and data collection efforts / business models.
Incidentally, Google recentlysubmitted comments with the Federal Trade Commission in reaction to its Staff Discussion Draft about the future of journalism and laid out their views on many of these issues. More importantly, as summarized on pg. 30 (of the pdf) of this Newspaper Association of America filing to the FTC, Google has proposed an interesting monetization model that utilizes Google Search, Google Checkout and DoubleClick ad server, "to build a premium content system for newspapers." Worth checking out. Kudos to Google for taking these steps and to Schmidt for again stressing the importance of targeted advertising for the future of media.
Gartner, a leading IT research firm, predicts that "by 2012, 80 percent of Fortune 1000 enterprises will pay for some cloud computing service, while 30 percent of them will pay for cloud computing infrastructure." But there's been far less progress in the public sector, according to recent report released by Vivek Kundra, Obama's Federal Chief Information Officer.
The folks at the Pew Research Center's Internet & American Life Project came out with another installment of their "Home Broadband" survey yesterday. This one, Home Broadband 2010, finds that "adoption of broadband Internet access slowed dramatically over the last year." "Most demographic groups experienced flat-to-modest broadband adoption growth over the last year," it reports, although there was 22% growth in broadband adoption by African-Americans. But the takeaway from the survey that is getting the most attention is the finding that:
By a 53%-41% margin, Americans say they do not believe that the spread of affordable broadband should be a major government priority. Contrary to what some might suspect, non-internet users are less likely than current users to say the government should place a high priority on the spread of high-speed connections.
This has a number of Washington tech policy pundits scratching their heads since it seems to cut against the conventional wisdom. Cecilia Kang of The Washington Post penned a story about this today ("Support for Broadband Loses Speed as Nationwide Growth Slows") and was kind enough to call me for comment about what might be going on here.
I suggested that there might be a number of reasons that respondents downplayed the importance of government actions to spur broadband diffusion, including that: (1) many folks are quite content with the Internet service they get today; (2) others might get their online fix at work or other places and not feel the need for it at home; and (3) some may not care two bits (excuse the pun) about broadband at all. More generally, I noted that, with all the other issues out there to consider, broadband policy just isn't that important to most folks in the larger scheme of things. As I told Kang, "Let's face it, when the average family of four is sitting around the dinner table, to the extent they talk about U.S. politics, broadband is not on the list of topics."
History demonstrates the dangers of regulatory capture, and the costs to consumers of regulation from lost investment and innovation.
These dangers and costs far outweigh the purported benefits of regulation (in addressing a non-existent harm).
Broadband markets are competitiveÂ enough to prevent the kinds of abuses advocates of net neutrality regulation fret about.
Government could foster more broadband competition by deregulating spectrum and local wireline franchising.
I've been having a lively debate with the commenters on the piece, so feel free to join in! Unfortunately, we don't seem to be getting much substantive engagement with our argument--just the usual mix of "These guys are just corporate whores!" and "Can't you see the sky is falling?"