Thoughts on Tim Wu’s Master Switch, Part 4 (on Regulatory Capture)

by on October 29, 2010 · 3 comments

After posting the first three installments of my ongoing look at Tim Wu’s important new book, The Master Switch: The Rise and Fall of Information Empires, [see parts 1, 2, & 3], I’ve heard back from some readers as well as Prof. Wu himself that I may be going a bit hard on him, or that I am under-appreciating some of his valid critiques.  In particular, Wu and others have claimed I’ve ignored or downplayed his admission that the problem of regulatory capture is a prime culprit of “the cycle” he addresses in his book.  So, let me address that point here today.

I have acknowledged that Prof. Wu’s book includes some occasional references to the problem of regulatory capture or bureaucratic bungling throughout the history of communications and media policy.  In a comment to my previous post, Wu itemizes a couple of those instances, most of which I’d already cited before. But here’s probably the best passage from the book on this point:

Again and again in the histories I have recounted, the state has shown itself an inferior arbiter of what is good for the information industries. The federal government’s role in radio and television from the 1920s through the 1960s, for instance, was nothing short of a disgrace…. Government’s tendency to protect large market players amounts to an illegitimate complicity … [particularly its] sense of obligation to protect big industries irrespective of their having become uncompetitive. (p. 308)

I agree.  And, as I also noted in my previous essay, I very much appreciated this footnote in chapter 3 of Wu’s book: “The technical term for such a system is ‘corporatism’: in its extreme manifestation it is called ‘fascism.”  Wu is absolutely right.  I applaud him for labeling this system what it really is.

But here’s what’s so damn peculiar about Wu and his book when it comes to the problem of regulatory capture and bureaucratic mismanagement: as soon as he raises it, he immediately walks away from itThere’s seemingly never any serious lesson drawn from it.
Indeed, sometimes within a line or two of raising such concerns, Wu seem to dismiss them entirely and propose giving the State far more power to play games within the information sector. If Wu really believed in what he said about the dangers of regulatory capture, he wouldn’t also be so eager to empower the State to do even more meddling in these sectors. Indeed, as we’ll see in the next installment of this series, Wu goes on in his book to propose a truly audacious regulatory regime for America’s information sectors. It is a breathtaking information industrial policy.

Thus, after reading Wu’s book, one is forced to conclude that he is asking us to accept this rather silly syllogism:

  • Premise #1: Information industries are prone to “cycles” that generally advance from “open” to “closed” and from competition to monopoly.
  • Premise #2: Regulatory capture and bureaucratic mismanagement are major culprits.
  • Conclusion: Therefore, the solution to the problem is to empower the State to take more, or better, steps to correct for this “market failure.”

That logic just doesn’t add up.  But that’s exactly what Wu asks us to accept in The Master Switch.

Regrettably, therefore, one is forced to conclude that Wu either has a complete disregard for public choice theory, or, worse yet, he is the victim of the stunning naive belief that his new vision or his new team of benevolent-minded, technocratic philosopher kings can save the day and will be immune to the problems of corporatism, regulatory capture, and bureaucratic mismanagement. Excuse me, but I’ve heard that one before, and I’m still not buying it.

Moreover, if one understands that the history of information sectors is indeed littered with examples of regulatory capture and bureaucratic bungling, one cannot also then conclude, as Wu does in his book, that a “purely economic laissez-faire approach” to information industries must be rejected.  By definition, a “purely economic laissez-faire approach” does not exist in markets characterized by regulatory capture and bureaucratic mismanagement.  And you won’t ever get less regulatory capture and bureaucratic mismanagement by increasing the scope of government control over a market!

You can’t have it both ways, Professor Wu.


[Jump to Part 5 in the series.]

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