The FCC Should Embrace Competition, Not Regulation

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On Tuesday, the U.S. Court of Appeals for the District of Columbia clipped the wings of the Federal Communications Commission in an opinion stating the agency overstepped its authority when it released its Open Internet Rules aimed at regulating "net neutrality." While this is a clear victory for the Internet services providers who gave the capital to build the Internet's infrastructure, the debate is far from over. While the court's decision will have a clear impact on the evolution of the technology sector, the entire issue raises a larger question over the federal government's efforts to manage economic growth.

In his response, FCC Chairman Thomas Wheeler claimed the decision "‘vests [the Commission] with affirmative authority to enact measures encouraging the deployment of broadband infrastructure' and therefore may ‘promulgate rules governing broadband providers' treatment of Internet traffic.'" Further, he noted: "We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans."

As many have noted, the current recovery from the 2008 financial collapse is different from previous recessions, with the economy shedding more jobs and economic growth stubbornly low. In fact, some economists point to structural changes to the economy that suggest returning to the previous economic growth path may be difficult, or even impossible. Northwestern University professor Robert J. Gordon famously asked if growth in the United States was over, citing "faltering innovation" due to headwinds like changing demographics, taxes and regulations that hamper future growth. Briefly, Professor Gordon notes that there was virtually no growth prior to 1750, after which a series of industrial revolutions led to 250 years of unrivaled growth and progress. The third industrial revolution, according to Gordon, was the Internet revolution, which began around 1960, but has quickly peaked, with productivity stalled, leaving us on a lower growth path.

Tyler Cowen, a professor at George Mason University, raises similar concerns in his recent book, Average Is Over. Professor Cowen argues the low-hanging fruit is gone, which will make innovation more challenging moving forward. Moreover, technological innovation has had dramatic effects on the distribution of income; those in the knowledge-based economy reap significant benefits, while firms shed workers who lack the necessary education or skills to participate in this new economy. Professor Cowen notes that many of the productivity gains in the last 25 years have been from innovations that lower costs and eliminate workers. To improve moving forward, we need productivity gains that make individuals more productive.

While technology will continue to make everyone better off, Professor Cowen fears that the middle class may be hollowed out by technological change. Some for the good, as those willing to educate themselves for the knowledge-based economy will be able to move up quickly, and some for the worse through technological obsolescence. Clearly technology matters. Professor Cowen is optimistic that the future may ultimately hold another revolution in technology that will once again boost economic growth.

Yet the FCC's response to the recent court decision on net neutrality suggests Professor Gordon's headwinds of regulation may continue to impede efforts to restore economic growth. If we know anything about technology, we know it is dynamic and fast-paced. Should the FCC push to impose outdated common carrier regulations on this vibrant sector of the economy, incentives for innovation and capital investment will be diminished, effectively freezing the Internet in its current form, much as phone company monopolies locked in "plain old telephone service" and rotary phones for most of the last century.

Technology matters. A lot. If Chairman Wheeler truly believes in competition, he should embrace the market and entrepreneurs working to move technology forward. Companies like Google, Amazon and Facebook are not startups. They are corporate giants with the resources and wherewithal to navigate a world where they may have to negotiate with Internet service providers for the massive amounts of bandwidth they use. In fact, market forces may force them to invest in even newer technologies that help spur the innovations and productivity increases necessary to restore economic growth that will benefit all Americans.

 

Wayne Brough, Ph.D is Chief Economist and Vice President of Research at FreedomWorks.  

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