Congrats Tim Wu! But Please Don’t Toss “The Regulatory Switch”

by on February 8, 2011 · 6 comments

Congrats are due to Tim Wu, who’s just been appointed as a senior advisor to the Federal Trade Commission (FTC). Tim is a brilliant and gracious guy; easily one of the most agreeable people I’ve ever had the pleasure of interacting with in my 20 years in covering technology policy. He’s a logical choice for such a position in a Democratic administration since he has been one of the leading lights on the Left on cyberlaw issues over the past decade.

That being said, Tim’s ideas on tech policy trouble me deeply. I’ll ignore the fact that he gave birth to the term “net neutrality” and that he chaired the radical regulatory activist group, Free Press. Instead, I just want to remind folks of one very troubling recommendation for the information sector that he articulated in his new book, The Master Switch: The Rise and Fall of Information Empires. While his book was preoccupied with corporate power and the ability of media and communications companies to posses a supposed “master switch” over speech or culture, I’m more worried about the “regulatory switch” that Tim has said the government should toss.

Tim has suggested that a so-called “Separations Principle” govern our modern information economy. “A Separations Principle would mean the creation of a salutary distance between each of the major functions or layers in the information economy,” he says. “It would mean that those who develop information, those who control the network infrastructure on which it travels, and those who control the tools or venues of access must be kept apart from one another.”  Tim calls this a “constitutional approach” because he models it on the separations of power found in the U.S. Constitution.

I critiqued this concept in Part 6 of my ridiculously long multi-part review of his new book, and I discuss it further in a new Reason magazine article, which is due out shortly. As I note in my Reason essay, Tim’s blueprint for “reforming” technology policy represents an audacious industrial policy for the Internet and America’s information sectors. In concrete regulatory terms—and despite Tim’s insistence to the contrary, his approach most assuredly would require regulation—the Separations Principle would segregate information providers into three buckets: creators, distributors, and hardware makers. Presumably these would  become three of the new “titles” (or regulatory sections) of a forthcoming Information Economy Separations Act.

While conceptually neat, these classifications don’t conform to our highly dynamic digital economy, whose parameters can change wildly within the scope of just a few years. For example, Google cut its teeth in the search and online advertising markets, but it now markets phones and computers. Verizon, once just a crusty wireline telephone company, now sells pay TV services and a variety of wireless devices. AOL reinvented itself as media company after its brief reign as the king of dial-up Internet access. Would firms that already possess integrated operations and investments (for instance, Microsoft or Apple) be forced to divest control of them to comply with the Separations Principle? If so, wouldn’t that hinder technological development?

In his book, Tim shrugs off such concerns. “The Separations Principle accepts in advance that some of the benefits of concentration and unified action will be sacrificed,” he writes, “even in ways that may seem painful or costly.” Such a flippant attitude ignores not only the potential benefits of certain forms of integration but also the fact that his proposed information apartheid would upend the American economy as we know it (for instance, by forcing the breakup of  dozens of leading technology companies as well as countless media and entertainment providers). He also ignores the litigation nightmare that would ensue once the government started forcing divestitures.

More shockingly,Tim never explains how the bureaucratic machinations and regulatory capture he decries throughout his book would be held in check under his proposed regime. He breezily writes that “the government [should] also keep its distance and not intervene in the market to favor any technology, network monopoly, or integration of the major functions of an information industry,” but does not explain how this will be accomplished. Does he believe we can build a better breed of bureaucrat if we just try harder? (I suppose he does now that he’s been appointed as one!!)

Equally astonishing is Tim’s assertion that “a Separations regime would take much of the guesswork and impressionism…out of the oversight of information industries.” To the extent that his Separations Principle eliminates “guesswork” and creates more regulatory certainty, it would do so only by creating rigid artificial barriers to market entry and innovation across the information economy. That’s the kind of “certainty” we can live without!

I can only hope that Prof. Wu leaves this particular idea back in the ivory tower as he makes his transition to policy advisor at the FTC.  America’s high-tech sector cannot survive the sort of regulatory wrecking ball approach to public policy that Tim has recommended.

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