The Unseen Consequences of Regulatory Delay

Thursday, June 22, 2017

What would the child of Frédéric Bastiat's Fallacy of the Broken Window and Ayn Rand's essay on "The Property Status of Airwaves" look like? A recent article at the Foundation for Economic Education gives us the answer: A world that got cell phone service forty years earlier than we did, because the Federal Communications Commission wasn't there to thwart the technology. Let's start with an excerpt from Rand's 1964 essay, as anthologized in Capitalism: The Unknown Ideal:

The history of the collectivization of radio and television demonstrates, in condensed form, in a kind of microcosm, the process and the causes of capitalism's destruction. It is an eloquent illustration of the fact that capitalism is perishing by the philosophical default of its alleged defenders.

Collectivists frequently cite the early years of radio as an example of the failure of free enterprise. In those years, when broadcasters had no property rights in radio, no legal protection or recourse, the airways were a chaotic no man's land where anyone could use any frequency he pleased and jam anyone else. Some professional broadcasters tried to divide their frequencies by private agreements, which they could not enforce on others; nor could they fight the interference of stray, maliciously mischievous amateurs. This state of affairs was used, then and now, to urge and justify government control of radio.

This is an instance of capitalism taking the blame for the evils of its enemies.

The chaos of the airways was an example, not of free enterprise, but of anarchy. It was caused, not by private property rights, but by their absence. It demonstrated why capitalism is incompatible with anarchism, why men do need a government and what is a government's proper function. What was needed was legality, not controls. [bold added] (Capitalism: The Unknown Ideal, p. 125)
Cell phones are, as the FEE piece indicates, an idea that had been around since just after World War II! The FEE piece and Rand's piece combined will make it clear to any layman that private property rights would have made implementing that idea extremely easy. Let me urge you to read both pieces, with the last paragraph of the FEE piece as its teaser:
It was a Motorola vice president, Marty Cooper, who placed the first cellular call with a mobile handset in 1973. It might as well have been a pocket-dial. Motorola's lawyers were placing calls of their own, lobbying FCC bureaucrats to keep cellular networks from being built. (Motorola misjudged its own interests: It would become a leading beneficiary of the new marketplace. By 2006 it was the world's second-largest vendor of cellphones, selling more than 200 million units per year.)
Consider what a revolution cell phones have proved to be, even without their added functionality as portable computers. (Even then, there were hints of this, which were missed or ignored by Motorola and AT&T.) Motorola may have benefited from the new market, but how much greater might it have been had it not thwarted itself along with everyone else through privilege-seeking (more commonly and mistakenly called "rent-seeking" or "regulatory capture")?

Apart from Motorola getting partial justice in the form of stunting itself, the silver lining of this tale, such as it is, is that advocates of capitalism now have a powerful example of regulation greatly lowering the standard of living of countless individuals on a personal level. That said, as a case of What Might Have Been, it requires more intelligence and imagination to deploy (and to grasp) than the usual indictments of capitalism -- lent surface credibility by perceptual-level events -- served up by the panic-mongerers of the left. But then again, anything worthwhile takes effort.

-- CAV


Anonymous said...

Hi Gus,

The reality of the radio spectrum before the FRC was actually better and worse than Rand related.

It was better in that various court rulings were slowly establishing property rights based on frequency, transmitter power, precedence, and geographical location.

It was worse because Herbert Hoover, as a Progressive, thought that the radio spectrum should belong to the government, so he used his position as Secretary of Commerce to actively work with big names in the radio business to gin up support for licensing schemes, including violations of settled frequency/geography agreements to 'prove' that trying to establish property rights 'wasn't working'.

Far worse than anarchy, what you had was a apparatchik using the force of government in actively subverting the market and judicial processes for the purpose of extending gov't power.

Guess who got the bulk of the licenses and who got frozen out, come the day...

c andrew

Gus Van Horn said...


Thanks for weighing in, and for the link to that interesting-looking book.