When teaching graduate students, I hammer home the point that foundational to economics are incentives. In a Public-Sector Economics class a key question is: How are the incentives to take risks, invest, start up and expand a business, innovate, invent, and create jobs affected by public policies, such as regulation, taxes, and government spending?
The forces pushing for net neutrality regulation fail to consider – or choose to ignore – the impact that government regulation of broadband pricing and operational decisions will have on incentives for investment and innovation on the broadband front.
On April 14, for example, ComputerWorld.com reported:
The powerful chairman of a U.S. Senate committee will push for additional authority for the U.S. Federal Communications Commission to enforce Net neutrality rules and implement its new national broadband plan, if it's needed following a court ruling against the agency this month. The decision by the U.S. Court of Appeals for the District of Columbia Circuit to throw out the FCC's attempt to enforce Net neutrality rules against Comcast puts the entire broadband plan, released last month, at risk, said Senator Jay Rockefeller, a West Virginia Democrat and chairman of the Senate Commerce, Science and Transportation Committee. But Rockefeller urged FCC Chairman Julius Genachowski to move ahead with the broadband plan and Net neutrality rules anyway. "In the near term, I want the agency to use all of its existing authority," he said.
Senator Rockefeller not only is telling the FCC to ignore a U.S. Court of Appeals decision, but to ignore Economics 101 as well. After all, if the government decides to dictate pricing, business model, and operational decisions for an entire industry – and in this case, an industry among the most dynamic on the planet – that obviously will send up a red signal regarding investment and innovation in that industry. The incentives to invest will be diminished.
Some of the consequences of this economic reality were estimated in a new study from Coleman Bazelon of The Brattle Group, Inc., titled “The Employment and Economic Impacts of Network Neutrality Regulation: An Empirical Analysis.” What this study effectively does is to attach real-world estimates to the reality of altered economic incentives. The Brattle Group report projected that if net neutrality regulations under consideration by the FCC were implemented revenue growth in the broadband sector would slow by one-sixth over the coming decade; job losses in broadband would top 14,000 in 2011, building to more than 340,000 by 2020; and economy wide job losses would exceed 65,000 in 2011, reaching 1.45 million by 2020.
It also is noted in the study: “Mobile broadband is expected to be the source of most of the broadband growth over the next decade. Consequently, it would bear the largest share of the economic burden of network neutrality regulation.”
Fortunately, some in Congress seem to grasp the ills that promise to accompany net neutrality regulation, as well as the state of current law.
The ComputerWorld.com report, for example, noted:
But while Rockefeller and several other Democrats on the commerce committee urged the FCC to move forward with the broadband plan and its attempt to formalize Net neutrality rules prohibiting broadband providers from selectively blocking Internet content, several committee Republicans suggested the FCC has little authority to move forward in either area…
A light regulatory approach to the Internet by the FCC in the past has promoted innovation, said Senator Kay Bailey Hutchison of Texas, the senior committee Republican. The FCC should resist calls to reclassify broadband as a common carrier-type regulated service, she said…
Genachowski declined to say if the FCC was considering reclassifying broadband as a common carrier service. The agency's lawyers are looking at the options for moving forward with Net neutrality rules, he said. After the recent Comcast decision, the FCC does not have the authority to reclassify broadband as a common carrier service, even though the commission deregulated broadband in series of decisions in the past decade, said Senator Mike Johanns, a Nebraska Republican.
And what about small businesses? They obviously benefit enormously from broadband investment and innovation, for example, by empowering them to access information; reach customers nationally and globally; boost competitiveness; enhance efficiency, productivity and mobility; and expand communications.
A leading left-wing group pushing for net neutrality regulation is the Free Press, and it has a very different notion about net neutrality and small business. On an April 28 blog posting, the group actually asserted that small businesses “will be the most vulnerable if strong Net Neutrality rules aren’t enacted,” and that “Net Neutrality will spur investment and job growth for small businesses.”
Really?
To make such claims, of course, one has to turn economics on its head. The assumption must be that the added costs and uncertainties that come with government interference and control over business decisions actually would spur business investment. It is simply absurd.
But absurd is actually what should be expected from a group like the Free Press. As reported in an extensive analysis by Americans for Prosperity Foundation, the Free Press is nothing less than an ardent foe of free enterprise. The group has called for “a revolutionary program to overthrow the capitalist system”; declared support to “limit” and “perhaps even eliminate” advertising; and noted their “broader struggle for democracy, social justice, and, dare we say it, socialism.”
On net neutrality regulation, Robert McChesney, co-founder of Free Press, declared last year: “But the ultimate goal is to get rid of the media capitalists in the phone and cable companies and to divest them from control.”
So, a pro-socialist, anti-free enterprise group somehow knows what’s best for small business and the economy? I don’t think so.
Groups like the Free Press are all about giving government more control over the economy, and obviously that includes broadband networks and the Internet. That would be extremely bad news for small businesses and the rest of the economy.
Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council
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