Monday, July 23, 2007

The Case for Regulation

When it comes to issues like free trade, globalization and de-regulation, a lot of time, money and effort has gone into ensuring we're thoroughly indoctrinated in our views. Tariffs? They're bad, aren't they? Isn't that why we joined the World Trade Organization? Free Trade, Globalization? A rising tide floats all boats, eh? De-regulation? Open marketplace, competition - right?

These pitches all rely on the same thing - assumptions. We assume that tariffs are always bad, that they lead to bottlenecks in the trade of goods that injures both sides of the deal. In the course of assuming that we assume away the social, political and economic utility of tariffs. I know, we haven't actually done away with tariffs but we're certainly marching down that road.

De-regulation was the cause celebre of the Mulroney/Thatcher/Reagan cabal. In Canada, the Mulroney Tories de-regulated the airline industry and our two, flag carriers which then competed themselves into oblivion until there was but one and even it had to struggle its way through bankruptcy proceedings. Canadian Pacific swallowed up Pacific Western Airlines and the once-magnificent Wardair; changed its name to Canadian Airlines International; began hemorrhaging money as it gradually collapsed under its own weight; tried to rescue itself by grabbing Air Canada - and then died to be swallowed up by the same Air Canada it had targeted. And just how well did that de-regulated coup d'etat work out for Air Canada? We all know the answer to that, especially anyone who flew Air Canada during those miserable days.

Sometimes the absence of regulation in an industry is simply unhealthy. Sometimes the central government has a role to play in regulating industries that goes beyond health and environmental issues. In today's New York Times, columnist and economist Paul Krugman examines how de-regulation caused America to lose its lead in high-speed internet connectivity:

The numbers are startling. As recently as 2001, the percentage of the population with high-speed access in Japan and Germany was only half that in the United States. In France it was less than a quarter. By the end of 2006, however, all three countries had more broadband subscribers per 100 people than we did.

Even more striking is the fact that our “high speed” connections are painfully slow by other countries’ standards. According to the Information Technology and Innovation Foundation, French broadband connections are, on average, more than three times as fast as ours. Japanese connections are a dozen times faster. Oh, and access is much cheaper in both countries than it is here.

As a result, we’re lagging in new applications of the Internet that depend on high speed. France leads the world in the number of subscribers to Internet TV; the United States isn’t even in the top 10.

What happened to America’s Internet lead? Bad policy. Specifically, the United States made the same mistake in Internet policy that California made in energy policy: it forgot — or was persuaded by special interests to ignore — the reality that sometimes you can’t have effective market competition without effective regulation.

...when the Bush administration put Michael Powell in charge of the F.C.C., the digital robber barons were basically set free to do whatever they liked. As a result, there’s little competition in U.S. broadband — if you’re lucky, you have a choice between the services offered by the local cable monopoly and the local phone monopoly. The price is high and the service is poor, but there’s nowhere else to go.

Meanwhile, as a recent article in Business Week explains, the real French bureaucrats used judicious regulation to promote competition. As a result, French consumers get to choose from a variety of service providers who offer reasonably priced Internet access that’s much faster than anything I can get, and comes with free voice calls, TV and Wi-Fi.

It’s too early to say how much harm the broadband lag will do to the U.S. economy as a whole. But it’s interesting to learn that health care isn’t the only area in which the French, who can take a pragmatic approach because they aren’t prisoners of free-market ideology, simply do things better.

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