Cynthia’s intriguing posts on “Internet powered politics” and the political philosophies of those for and against net neutrality rules, got me thinking. My basic point is that old labels may no longer apply and that we may be in the midst of a major political realignment. As my lack of posts in recent weeks suggests, I’ve been having trouble finding time for blogging, so I’ll try to be brief.
I’ll start with a quote from a recent post by Markos Moulitsas (a.k.a. Kos, founder of the dailyKos political blog):
Traditional “libertarianism” holds that government is evil and thus must be minimized…The Libertarian Democrat understands that there is a third danger to personal liberty — the corporation. The Libertarian Dem understands that corporations, left unchecked, can be huge dangers to our personal liberties.
According to Thom Hartmann, Thomas Jefferson shared this concern of Kos’ Libertarian Democrat (underline is mine):
Because of the unique frailties and depths of passion unique to humans, just after the United States Constitution was ratified Thomas Jefferson and James Madison began a campaign to amend it with a 12-point explicit statement that would clearly and unambiguously place humans - who had created government - above their creation. This was the birth of what would become the Bill of Rights, and it originally had twelve - not ten - protections for citizens’ rights.
On December 20th, 1787, Jefferson wrote to James Madison about his concerns regarding the Constitution. He said, bluntly, that it was deficient in several areas. “I will now tell you what I do not like,” he wrote. “first, the omission of a bill of rights, providing clearly, and without the aid of sophism, for freedom of religion, freedom of the press, protection against standing armies, restriction of monopolies, the eternal and unremitting force of the habeas corpus laws, and trials by jury in all matters of fact triable by the laws of the land, and not by the laws of nations.”
Hartmann goes on to explain how Jefferson got 10 of the 12 amendments he favored:
But on the issues of banning a standing army and blocking corporations from gaining monopolistic control over industries, Jefferson was getting resistance. The nation had just fought a bloody war against England, and there was little sentiment for completely dismantling the army. And the Federalists who were in power - a party largely made up of what Jefferson called “the rich and the well born” - were opposed to government constraints on business activities.
Thus only ten of his twelve visions for a Bill of Rights - all except “freedom from monopolies in commerce” and his concern about a permanent army - were incorporated into the actual Bill of Rights, which James Madison shepherded through Congress and was ratified as the first ten amendments to the constitution on December 15, 1791.
Maybe a growing appreciation for the value of “freedom from monopolies in commerce” can help explain the fact that the NRA is among those who support network neutrality. Perhaps there’s a sense shared by many on the “left” and “right” that it’s not just the government that can exert too much power to restrict individual freedoms, but also large corporations that enjoy great market power AND great political power, the latter achieved in large measure through “investing” some portion of the economic surplus acquired via economic power in political lobbying, campaign contributions and access to mass media, which have historically been relatively few, expensive and powerful political megaphones.
The result has been a cycle of increased aggregation of economic, media and political power. To some extent, this cycle is threatened by the nature of the neutral Internet, where, as Adam Cohen put it, “a 15-year-old with video software and Internet access can now create and disseminate a professional-quality political ad” and “[t]he breakout commercial in the next presidential cycle could be one produced on a teenager’s computer and e-mailed from friend to friend.”
So, while Cynthia may be right that some libertarians “might naturally oppose net neutrality because it injects some form of government regulation into a marketplace where none exists now,” I’d suggest that others (including “Libertarian Dems” and the NRA), are realizing that Jefferson may have been prescient when he argued for inclusion of “freedom from monopolies in commerce” in the Bill of Rights…and that the Internet’s “neutral network” architecture provides a powerful (albeit only partial) counterbalance to the cycle of consolidation of market and political power by corporations that (as Hartmann also discusses) get to combine this power with all the freedoms the Bill of Rights grants to individual human “persons.”
Mitch Shapiro at 3:25 PM|Comments(5)
Matt...I forgot to mention that I took a quick look at your blog. The title is great and it alone will insure that I'll be back to check out some of your posts when I have more time. Thanks for engaging in the debate.
I like discussing these kinds of issues with "empirical free-market thinkers." But I'm not so keen on wasting my time on "theoretical free market thinkers," who come up with fancy formulas based on assumptions not linked to reality and draw conclusions layered artfully in caveats that only a careful reading reveals as meaningless. I think there's far too much of that in the arena of "free market" economics.
I remember when I was an undergrad majoring in Economics and, after really enjoying books on basic economic theory and reality-based "political economy," I discovered that the more advanced classes were basically math classes where most of reality was assumed away because it couldn't be hammered into prestige-winning formulas and papers. My response was, "if you guys want to do fancy math and be respected for it, you should call yourself mathematicians, not economists."
If economic analysis is too divorced from reality, to becomes worse than useless, especially when used to argue for political agendas, which I think is rampant in today's political environment. And it's part of that self-reinforcing imbalance in power I spoke of in my last comment. A company or group of companies pay an economist to do a carefully defined analysis likely to draw some conclusions that are politically useful but, when examined carefully, have very limited relevance to the broader policy issues at hand. And, depending on the economist's own biases, skills and integrity, the real-world irrelevance of their analysis will, to varying degrees, be invisible to most people and (conveniently so) to politicians who also get their campaign paychecks, golf trips, etc. from the same source that funded the non-reality-based research. I'd call it a non-virtuous cycle, and one that feeds the broader unhealthy cycles I talked about in my last comment.
Posted by: Mitch Shapiro at June 15, 2006 4:14 PM
Matt,
You make some good points, but I still disagree on key elements:
You said that telcos' "ability to abuse a market is the result of a long history of ill-considered regulation."
I think that's too simplistic--blaming market abuse on poor regulation and concluding that no regulation is a better solution. I'm not a fan of regulatory solutions and agree that they can cause unintended consequences, but I see no evidence that telco abuse of market power has been due primarily to regulation and that removing regulation is the solution. I think a more reasonable argument is that it has been too ineffective in halting market abuse and, rather than halting the abuse, has too often just shifted its mode of operation or merely slowed the unfolding of its competitive harm. Your argument appears to confuse "competition" with "deregulation," which to me is a fundamental weakness (or, in some cases, simply a political smoke screen) in many "anti-regulation" arguments.
You say: The idea of "excess" market power is a dangerous one, not unlike "excess profits". How do we define it? I would speculate that Google has higher returns and market share than any one of the telcos.
I agree that it may be difficult to clearly and consistently define "excess market power," but it is doable (and is done in antitrust cases all the time), and is sometimes necessary to avoid harm. I also think its easier to define than "excess profits."
I also think that a careful analysis of market power in "Internet access" vs. the search market (and any others that Google is involved in) would yield very clear and meaningful differences (e.g., barriers to and costs of entry, control of bottleneck facilities, ability to leverage market power into adjacent or "upstream" markets, etc.). And I think these differences strongly suggest regulation would be more appropriate in the Internet access market vs. the search market.
You said: "The trends are toward greater competition, if a bit haltingly."
I'm not so sure. In the dial-up world, which was subject to common-carrier "net neutrality" rules, there were a lot of ISPs offering a range of creative competitive offerings with very dynamic price competition. In the broadband world there's pretty much two pipes and two ISPs. And, in spite of all the talk about broadband competition, cable's broadband ARPUs have not declined significantly and they enjoy pretty fat margins. Telcos have attempted to compete more on price because they basically have an inferior product in terms of bandwidth, availability, etc. and they've had to settle on price points that reflect this difference in service. And even their ARPUs are holding steady and are quite a bit higher than their promotional prices would suggest. And real innovation in service offerings has been minimal, especially when compared to the world of web-services, which is the key market sector in which pipe-owners hope to leverage their market power and capture margins currently captured by web-based service providers.
So basically what we have is a duopolistic bottleneck sector that provides very little innovation or what I'd call "healthy" competition (as defined by product innovation, market entry, downward pressure on prices, etc., not just trying to out-market each other and competing at the margins of 50/50 market share with short-term promotions without any real downward pressure on prices and margins). The duopolists inhabiting that sector hope to leverage their control of the essential "access" facility to capture profits from the web-services sector, which exhibits dynamic competition and innovation. Though Ed Whitacre and others have suggested that Google, etc. are "parasites" that use the telco networks, I'd suggest that the opposite is equally true, that duopoly pipe-owners hope to leech profits from companies that every day compete aggressively to deliver more value at lower costs and whose services are largely the reason we all pay $30-$40/mo. for broadband access. And that's where these companies spend their money--on innovation, not on lobbying.
I agree, though, that crafting and implementing net neutrality rules is problematic, as I discuss in this post.
And while I see your point challenging access mandates as a means to protect First Amendment rights, I think the other side of the argument is still valid and, if I'm not mistaken, has been held up in various court rulings over the course of American history. I think its a question of balancing the rights of the various parties. And I stand by my point about First Amendment rights having very little practical meaning in the case of "I own a TV station and you own a TV."
In fact, an argument might be made that our current system of TV licensing (and arguably cable franchising, and probably most everything in current telecom and media legislation) violate the First Amendment because they "abridg[e] the freedom of speech" for millions of Americans, since these laws grant use of public spectrum assets and "megaphone" power to some entities at the expense of the freedom to express of the other millions. I don't claim this argument would prevail in today's Supreme Court (before we bow too deeply before the Court's pure and unvarnished Constitutional wisdom, let's remember that its "conservative" wing pretty clearly abandoned some of its core principles in selecting Bush as president). But I don't concede that this makes the argument invalid, only that this court wouldn't embrace it. I'd also point again to Jefferson's proposed 11th Amendment as something that's unfortunately missing in today's Constitutional debates. And I'd certainly rather see Congress debating this Amendment versus spending time haggling over an amendment to ban gay marriage.
My basic position is that, if incumbents want to pursue their two-tiered, private network, IMS-based quad-play vision of the future, then they should stop lobbying for restrictions on muni-broadband and stop suing any muni-broadband network that might pose a significant threat to their market share. I don't have time to get into the details now, but basically what they're pushing for are restrictions that would make it much more difficult for local communities to build the kind of fiber-based (or fiber/wireless) neutral networks that some communities want. And they might get these passed in the coming weeks.
Ultimately, it seems to me that the incumbents want to preserve their duopoly through regulatory restrictions on munis (they don't have to legislate against private "overbuilds" since, as they often tell Wall Street, a private facilities-based overbuild/CLEC model is extremely risky, unattractive to private capital sources, and has typically led to bankruptcy court, whereas muni-broadband models have unique strengths that are more threatening to incumbents).
At the same time, they want to migrate the world of IP services (which today is mainly the open Internet) to a model that more closely resembles the cable TV model, where owners of access facilities are gatekeepers who can intervene in all sorts of ways between end-users and service providers that currently use the Internet.
If incumbents are willing to drop their demands for regulatory restrictions on muni-broadband projects, then its OK with me if they pursue their preferred model for IP services. That seems like a fair tradeoff. It allows them to do what they want with their facilities and businesses, and allows local communities, if they choose, to build "neutral networks" that fully maintain the values and virtues of the open Internet. You might say its about citizens and communities being free to exercise their First Amendment rights.
When I consider these issues I look at them in a broader and unsettling context. History has shown that when balances in wealth and power develop a self-reinforcing momentum that leads toward increased extremes, something has to give. In some cases its been a war (civil or international), a depression, or something else that's pretty severe and even violent. In other cases it can happen more peacefully and through reform and reason.
I'd argue that we've been headed in this direction of increased imbalance for the past 25 years in this country. I think the open Internet offers a unique and powerful tool to support a peaceful and healthy return to a more sustainable balance. That's the broader framework in which I view the net neutrality debate. Frankly, I think this country (our economy, political system, healthcare and educational system, climate, ecology, etc.) are heading toward major crises that are probably not unavoidable but seem pretty likely to occur at some unknown point down the road. And I think an open-access, next-generation Internet can help avert or at least moderate the effects of these looming crises.
So, I'm disinclined to cut incumbents too much of a break if I think doing this would put the potential benefits (including crisis mitigation) of the Internet at significantly greater risk of not manifesting. The way I see it, there's too much at stake for policymakers to focus mainly on protecting the business models and margins of incumbent facilities owners (which, BTW, I'd be very happy to see remain healthy). Unfortunately, I think that's pretty much what's going on in Washington today, fueled in large part by the power of still-predictable cash flows reinvested in political muscle that yields very high rates of return on invested capital.
Posted by: Mitch Shapiro at June 15, 2006 3:49 PM
Thanks for the link Mitch, a dose of empiricism is always welcome.
I certainly wouldn't disagree that telcos have a long history of monopolistic ways. But I would also argue that their ability to abuse a market is the result of a long history of ill-considered regulation. I don't think we can legislate our way out of that -- new regulation will most likely entrench it further, good intentions notwithstanding.
The idea of "excess" market power is a dangerous one, not unlike "excess profits". How do we define it? I would speculate that Google has higher returns and market share than any one of the telcos.
Keep in mind that Verizon, AT&T and the various cable operators are knives-out competitors when they are not banded together in the lobbying world. (Ditto Microsoft, Google and the pro-neutrality folks.) The trends are toward greater competition, if a bit haltingly.
The issue for me is whether neutrality is a place for legislation. The Free Press paper points out that neutrality has resulted in great economic gains, and I concur. A neutral net will continue so long as there is a market for it -- and with the user base of Google and eBay I believe there will always be someone to provide it.
Neutrality legislation, however worded, does seek to prevent a "proprietary" net on the same wires. The existence of premium services has always been a boon to consumers. I would hate to see them snuffed before we find out what they are.
The place that we will see differentiation is in triple- and quadruple-plays. No, we haven't seen much yet but these are nascent markets. We are just beginning to grow out of the copper-and-coax days.
On the free speech side, that's a whole other issue, but I do believe First Amendment arguments are misplaced when applied to neutrality. For one thing, the First Amendment does not guarantee a place on someone else's platform. The essence of it is that government has little say on the subject -- "Congress shall pass no law..." after all. To force any private entity to carry speech that it does not choose is really a violation of this concept, IMHO.
Really appreciate your very informative site, keep it up. Click the link on my name to see my slightly more polemic approach.
Posted by: Matt S at June 14, 2006 10:43 PM
Matt...I have to go and am in a hurry, but here's a quick response to your comment:
The issue is excess market power and its impacts, which is not restricted to only monopoly situations, though this does tend to be the most extreme example.
There are other issues as well, including barriers to entry, extent of fixed/sunk costs, related markets that will be distorted by leveraging of excess market power and the impacts of that distortion, not only economic, but also political, as in freedom of speech (I mean real freedom, not theoretical freedom, as in "I own a TV station, you own a TV, we both have the same freedom of speech").
Overbuilders and facilities-based CLECs were not restricted in terms of their ability to "differentiate" their products and networks. I don't see too many of them operating in the mass market space, nor do I see a whole lot of "differentiation" that would be restricted by network neutrality-type requirements (which could, for that matter, be lessened as actual and sustainable market competition evolved). Why hasn't this been the case?
I recommend this paper, which does a pretty good job of responding to the argument about discouraging "differentiation" and its impacts on market entry: http://www.freepress.net/docs/roycroft_study.pdf
On the issue of antitrust enforcement, I'm not an expert on the law, but my opinion based on observation of prior decisions is that the combination of current law and current enforcement would be pretty useless in addressing the issues at hand. I could be wrong, but I haven't seen any credible argument to convince me otherwise.
Posted by: Mitch Shapiro at June 14, 2006 8:57 PM
Except that most of the companies involved here are not monopolies. It's funny -- when there is competition, it's called a duopoly or an oligopoly. How many competitors would it take not to be an -opoly?
It's true that there are certain places where there is only one provider, but those places are increasingly rare. (WiMax will obviate it further.) If our standard for a neutrality manadate were that we enforce it on in actual instances of market abuse, that would be reasonable.
Instead, things like Markey eliminate any sort of product differentiation regardless of actual market conditions -- which in turn makes it hard for new entrants, and competition suffers. Have a look at the public utilities to see where that would take us.
If the issue is monopoly, the FTC already has power to enforce it, case-by-case.
Posted by: Matt S at June 14, 2006 8:17 PM
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