Technology: The Great Deregulator

[rah@shipwright.com (Robert Hettinga)]

St. Pete (Peter Huber, that is) Speaks!

Cheers,
Bob Hettinga


--- begin forwarded text

Date: 27 Oct 1995 14:23:50 GMT
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Subject: Technology: The Great Deregulator
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     Following is an article by Peter Huber. More articles by Mr. Huber
can be seen at http://khht.com/huber/home.html.

   -----------

   The sun is finally setting on a dismal century of economic commissars.
   Not Russia's, ours. I mean the people who, for most of this century,
   controlled price and output in markets for trucking, air travel,
   railroads, telephone service, cable TV, natural gas and electricity.
   Until recently, these mammoth industries, representing a sizable
   fraction of the U.S. economy, had about as much to do with free-market
   competition as the steel industry in Stalingrad.

   It started with the Interstate Commerce Commission. Established in
   1887, the ICC was to be the federal antidote to rapacious railroad
   monopolies. Perhaps it was, for a while, but in the end it drove them
   into bankruptcy. Meanwhile, local, state and federal legislators set
   up baby ICCs left and right on the assumption that highways,
   pipelines, phone wires and power grids all required much the same
   handling as railway track. In track-like industries, monopolies were
   natural. Competition was wasteful. Commissions were smart enough to
   run things better.

   Most of the people who believed such things died years ago, but the
   government pyramids they built have endured. A great decommissioning
   of economic life in America is now under way. The job is almost
   finished for airlines and trucks. It's inching ahead in the
   communications arena. Electricity is just getting started. We'll find
   out in due course whether Newt Gingrich and Bob Dole can deregulate as
   boldly as Ted Kennedy and Jimmy Carter, who kicked off serious
   economic deregulation in the 1970s.

   As the Kennedy/Carter legacy confirms, the impetus for change isn't
   hatred of government. Nor can the decommissioning of America be blamed
   on right-wing capitulation to big business. We've just learned the
   hard lessons of commissariat collectivism, in much the same way as the
   Hungarians and the Czechs.

   Consumers end-run the regulators. Fed up with prices that force them
   to subsidize residential consumers, factories and hospitals cogenerate
   electricity in their heating plants. They install "private branch"
   telephone exchanges that displace about one-third of the phone service
   they'd otherwise buy from the local phone company. Landlords set up
   rooftop satellite dishes on apartment buildings and sell "private
   cable" service to tenants. When you mow your own lawn, regulators get
   trimmed too: There's no income tax for them to collect, no maternity
   leave to grant, no minimum wage to enforce.

   Technology outwits the regulators. Hub-and-spoke routing and
   yield-maximizing pricing schemes concocted on supercomputers that
   shattered the old Civil Aeronautics Board's point-to-point vision of
   how air travel should operate, and at what price. The FCC's vision of
   "local" broadcasting provided by a few, community-based stations
   collapsed when Ted Turner began bouncing his UHF station off a
   satellite and back down to cable systems nationwide. And billions of
   dollars of commission-prescribed prices will soon have to be
   rejiggered because smart-aleck programmers have worked out how to
   transmit two-way voice conversations live over the Internet. The
   commission's policy is to price voice connections about $ 4 an hour
   higher than "date," but digital technology obliterates the
   distinction.

   Regulators are cannibals. As commissions proliferate, they undercut
   each other. Long distance phone companies and "access providers" like
   Teleport expand under lenient federal control -- at the expense of
   local phone companies kept on a tighter leash by state commissions.
   Wireless phone service has been almost completely deregulated by its
   federal regulators, so it grows far faster than service by way of
   telephone pole, which remains heavily regulated under the price
   regulation maintained by one bureau of the FCC. Direct broadcast
   satellite, cable's competitor, is booming under the hands-off watch of
   another bureau of the same federal commission.

   Regulators invest badly. They direct utilities to put billions in
   overpriced power plants, inefficient wires and extravagant service out
   to the very last ranch at the end of nowhere. Cost is no object; it
   just gets dumped in the "rate base." Competition, when it arrives, is
   devastating, just as the fall of the Berlin wall was devastating to
   the factories that built Trabants.

   In these times of radical technological change, utility monopolies are
   as unstable as politburos. Many of the old-guard enterprises may still
   grow and prosper, but only if they learn to sell to a whole new class
   of buyers. Consumers, not commissars.

--
   Copyright 1995 by Peter Huber. Electronic copies of this document may
   be distributed freely, provided that this notice accompanies all
   copies.

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-----------------
Robert Hettinga (rah@shipwright.com)
Shipwright Development Corporation, 44 Farquhar Street, Boston, MA 02131
USA (617) 323-7923
"Reality is not optional." --Thomas Sowell
>>>>Phree Phil: Email: zldf@clark.net  http://www.netresponse.com/zldf <<<<<