August 3rd, 2006
Moral hazards and net neutrality
George Ou is probably going to write something on this, as he’s the one who sent me the link, but I just had to pull out one piece that I thought was particularly important.
Timothy B. Lee (which, when I first read it, I thought to be Tim Berners-Lee, father of the Internet, but is in fact a former staff writer at the free-market Cato institute and current editor at the Show-Me Institute) wrote a recent Op-Ed piece for the New York Times where he described some of the problems associated with a rush to Net Neutrality rules. Discussing the creation of the Interstate Commerce Commision to regulate railroads:
After President Grover Cleveland appointed Thomas M. Cooley, a railroad ally, as its first chairman, the commission quickly fell under the control of the railroads, gradually transforming the American transportation industry into a cartel. By 1935, when it was given oversight of the trucking industry, the commission was restricting competition and enabling price increases throughout virtually the entire surface transportation industry. Decades later, in 1970, a report released by a Ralph Nader group described the commission as “a forum at which transportation interests divide up the national transportation market.”
It’s tempting to believe that government regulation of the Internet would be more consumer-friendly; history and economics suggest otherwise. The reason is simple: a regulated industry has a far larger stake in regulatory decisions than any other group in society. As a result, regulated companies spend lavishly on lobbyists and lawyers and, over time, turn the regulatory process to their advantage.
Economists have dubbed this process “regulatory capture,” and they can point to plenty of examples. The airline industry was a cozy cartel before being deregulated in the 1970’s. Today, government regulation of cable television is the primary obstacle to competition.
Sorry, just had to highlight that bit about airlines in response to my horrible experience with the descendants of that "cozy cartel."
Government needs to step back as much as possible from the marketplace not only because they do a bad job of out-thinking the collective minds of the marketplace, but also because a too vigorous entry creates a reaction which leads to use of regulatory bodies designed to "encourage" competition as a way to block it. That applies to AT&T of old, the current cable monopolies, the pre-deregulation airline industry, and could apply in future if net neutrality regulations start to inspire compliance regulations that make it harder for new entrants to enter.
I think there are better reasons for opposing net neutrality rules on the grounds it is a solution without a problem (among other things), but the moral hazard of government regulation is an interesting consideration.
John Carroll has delivered his opinion on ZDNet since the last millennium. Since May 2008, he is no longer a Microsoft employee. He is currently working at a unified messaging-related startup. See his full profile and disclosure of his industry affiliations.
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| 08/03/06
