Regulatory Capture "vs." Socialism

Tuesday, July 22, 2014

An interesting example of cronyism (This involves government meddling in the economy, so please don't call it "crony capitalism".) surfaces at a web site devoted to the idea that free broadband would be a great way for governments to distribute loot.

The Broadband Report enumerates and details "19 State Laws That Stop Your City From Installing Blazing Fast Internet". Whether the government can or cannot provide superior Internet service is immaterial here, because it can only do so by stealing from individuals. (I do not mean this as a defense of these "roadblock" laws, although they are forestalling the government entering the ISP market with a huge price advantage.)

Here's an example of such a law, which the article holds (and I have no trouble believing) a small number of internet service providers (ISPs) lobbied to have put on the books:

Virginia allows municipal electric utilities to offer telecommunication services such as broadband.

But there is a catch.

Legislators in Virginia have forbidden cities from cross-subsidizing money for the purposes of creating a municipal broadband installation. (This is something corporations can do without regulation.)

Then to make matters worse, municipalities are required to artificially inflate prices to match the costs of private industries for materials, taxes, licenses, and more.

Certainly, administrative hurdles can act as one of the largest barricades to a municipality starting their own broadband service when legislators are involved.
It is interesting to see how the outfit presenting this information has decided to frame this issue, as an obstacle to lots of people getting "free" broadband. I propose that we re-frame this as: ISPs have successfully thrown up roadblocks to subsidized competition from the government in their most profitable markets.

As far as I know, telecommunications is one of the most regulated industries in the country, and has been for quite some time. Many of the players have doubtless not just grown accustomed to regulation, but have earned a share of the guilt for this sordid state of affairs via "regulatory capture", gaming the rules to avoid real, free-market competition -- much like the alcohol industry and taxi companies have.

This is wrong, but even if this were not the case, ISPs might still end up lobbying the government, like railroads once did. Commenting on such a state of affairs (after providing historical context I don't have time to rehash here), Ayn Rand notes, in Chapter 7 of Capitalism: The Unknown Ideal:
[W]hat could the railroads do, except try to "own whole legislatures," if these legislatures held the power of life or death over them? What could the railroads do, except resort to bribery, if they wished to exist at all? Who was to blame and who was "corrupt"--the businessmen who had to pay "protection money" for the right to remain in business--or the politicians who held the power to sell that right?
Sadly, in today's mixed economy, the parties on both side of this battle want it both ways: (1) The now-corrupt businesses, which should instead be competing for profits on merit are lobbying for profits with protection from hard work and competition; and (2) Too many disappointed (or potential) customers are demanding the removal of these regulatory hurdles -- not to unleash the power of the free market, but so an entity (the government) can force some people to subsidize Internet service for others. At best, the ISPs are blind to the fact that government control of their businesses isn't freedom, and those who want broadband are blind to the fact that, in the government, they are putting themselves at the mercy of an entity that is larger and more powerful than the businesses currently getting fat off its rules.

Perhaps, if we wanted cheap, "blazing fast" Internet (and better ISPs), we (and any pro-capitalist ISP's out there) should agitate for a prohibition of the government from interfering in the economy. Then, the profit motive could work again for cheaper, higher quality service, and the people who actually used it would be the ones paying for it. (As an added benefit, for those concerned with any remaining people "under-served" by the freer market, they would be free to subsidize (at lower cost) as many as they could afford.)

One final note: As much as I disapprove of regulatory capture, it is ironic that this phenomenon seems to be all that (temporarily) stands in the way of a de facto government takeover of the Interent (via loot-funded competition) in some states.

-- CAV


Steve D said...

'please don't call it "crony capitalism"'

‘Crony capitalism’ is an oxymoron!

Gus Van Horn said...

The commonality of that phrase is testament to how well Ayn Rand chose the title of her book.