FCC Commish Robert McDowell on Regulatory Failure & “Regulate My Rival” Politics

by on June 28, 2012 · 3 comments

This may be the best speech by a regulator that you will read in your entire life. Federal Communications Commission (FCC) Commissioner Robert McDowell delivered an address in Rome today entitled, “The Siren Call of “Please Regulate My Rival”: A Recipe for Regulatory Failure.” I highly recommend it (and not just because I’m cited in it!) It is infused with important insights about the ugly downsides of excessive regulation of technology markets.

McDowell is an astute student of regulatory history and he documents how, despite the best of intentions, economic regulation has often been turned into a tool that industry exploits for their own narrow interests. Sadly, examples of such “regulatory capture” are rampant, as I have documented here before. McDowell notes that many telecom and media companies “suffer from the ‘please regulate my rival’ malady of an industry that has been regulated too much and for too long.  History is replete with such scenarios,” he says, “and the desire for more regulation for competitors always ends badly for the incumbent regulated industry in the form of unintended and harmful consequences.” That is exactly right.

I strongly encourage you to read the entire speech, but if you only have time to read one thing, make it the powerful and poetic closing paragraphs, which I have reprinted below:

“Regulating my rival” is a seductive notion for many, but it only lures its victims to rocky shores before revealing itself as a perilous Siren call.  Telecom companies should not look to regulate their “rivals,” Internet content and applications companies, down to their level – especially not through an intergovernmental body.

Instead, network operators should seek deregulation by their home governments to allow them full flexibility to produce and price freely in competitive markets.  In fact, as history shows us, attempting to regulate rivals will only produce unintended consequences that will harm the companies advocating regulation.  More importantly, consumers end up losing the most.  In short, the opposite of what is desired will occur, something called “regulatory failure.”  No government, let alone an intergovernmental body, can make economic and engineering decisions in lightning fast Internet time.  Nor can any government mandate innovation.  But new rules can undermine investment, innovation and job creation all too easily.

Despite these realities, resisting the temptation to regulate is difficult for many.  Furthermore, deregulation can seem counterintuitive to some.  We always hear talk of “market failure,” but we rarely see analyses of “regulatory failure.”  Perhaps that is why, in the words of Professor Adam Thierer, “regulation always spreads.” As world economies contract and government debt mounts, repeating the same government actions of regulating more and spending more of the public’s money will only produce the same results: shrinking economies and growing debt.  It is time to reverse these trends, but doing so will require tremendous political courage.

We can start by avoiding any expansion of regulation to the Internet.  Its phenomenal success can be traced directly to its voluntary and self-governing structure, the result of a multi-stakeholder process free from top-down governmental influences.  In fact, policy makers should head in the opposite direction of the proposals outlined earlier. We should learn from the voluntary, bottom-up, self governance approach in the image of the non-hierarchical Internet itself, and look to apply this successful model elsewhere.  Revolutionizing public policy through a fundamental modernization of legacy laws to clear away unnecessary regulatory obstructions will uncork the flow of investment capital, spark innovation, drive economic growth and propel job creation.  Couldn’t today’s world economy benefit from such positive and constructive change?

On the other hand, dragging rivals down to the lowest common denominator of overly regulated international telecom companies will enshrine mediocrity at best, and, at worst, snuff out incentives to take risks and reap the resulting rewards, therefore killing opportunities to revitalize moribund economies and improve the human condition.

Thank you, Commissioner McDowell, for speaking the truth and reminding the world that the actual history of telecom and media regulation has been a miserable, cronyist, anti-consumer fiasco.  This is exactly why we need to comprehensively deregulate these markets right now while also making sure that creeping cronyism and “regulate my rival” politics do not spread to new tech sectors.

Previous post:

Next post: