Sunday, January 17, 2010

Your Choice: An Internet Designed by Political Pull or an Internet Designed by A Profit and Loss System

In an article entitled "Parties Lobby FCC on Net Neutrality", PC World covers and breaks down the various positions of lobby organizations that are petitioning the FCC to do in the name of Network Neutrality which is supposedly justified in the name of some public good.  I disagree with the notion that there can be such a thing as the public good, or that it justifies actions taken by the FCC to restrict the use of private property (which the Internet is) where no crime has been committed and no rights have been violated.  I not discuss my position on that here.

Today, I want to talk about Economics.  If you've read the linked article then you've seen all sorts of goals specified for the FCC to achieve on the internet.  The means to achieve these are not described in detail in the article and perhaps are not described in detail by the lobbying organizations in their petitions to the FCC either.  These groups all have their opinions about what Internet Service Providers (ISPs) must do with their networks and, assuming that the FCC chooses to act on any of them, all service providers will be compelled to comply.

It is important to recognize that producers and consumers of internet content, the customers of ISPs, bear the largest share of the burden of paying for the internet.  Each lobbying organization is asking for things that will require ISPs to change their networks, to take on new costs and new responsibilities and where it comes to regulations of any kind, a thinking person must consider some questions: who benefits from these regulations, by how much, what is the cost, and who will pay for it?

In Economics, a free-market profit and loss system serves a lot of purposes.  Profit serves to govern supply when they run high by bringing on new capacity and greater efficiency of delivery.  Loss serves to communicate that a certain service is undervalued (i.e. overproduced) the production of which must be cut back.  Thomas Sowell holds that one of the virtues of such an economy is that "resources tend to flow to their most valued uses". In deciding the structure of the Internet, such a profit and loss system would govern how much in the way of premium services are needed on the internet and how much of the internet is not sensitive to delay or throughput.  It would be up to each ISP to tune and provision their network according to the dictates of the economy.

If we understand that these basic principles hold true about the allocation of resources in production and consumption in a society (Economics), why would we let a regulating body make arbitrary decisions based on a system of politics and pull, where we let pressure groups vie over who will determine the design of the Internet.  Shouldn't we let a free-market profit-and-loss system do that?  Shouldn't we let service providers continue to come to agreement on what standards they will implement (on their own private property) as they have done for decades now?  Shouldn't we let their ability to make a profit while competing with others choose the winners and the losers in the structure of the Internet?

There are many articles that begin by conceding that the FCC has a role to play in determining the structure of the Internet.  But I don't think this question has been considered carefully enough.  An FCC regulated internet would be an internet designed by political pull and lobbying groups.  The alternative is the one that is designed by the free market and by the ingenuity of ISPs that have to put their money where their mouths are and make a profit or go bankrupt trying.  One of these alternatives requires that ISPs and their customers pay for requirements defined by some lobbying group, the other is honest in the sense that it pays for itself based on the pursuit of honest profit.

If you have decided that it's right and proper for the government to leave the Internet alone, you have some work to do.  They are presently taking comments on Network Neutrality in preparation for the issuing of new regulations.  I don't have advice on the best way of petitioning the government to put a leash on the FCC and leave the Internet alone at this point but I intend to research this and to write my congressmen in the meantime to let them know.   Feel free to comment with your suggestions.