For all the talk of getting money out of politics we don’t really seem to understand what draws it there in the first place. Why does money funnel into politics? Because in politics there is influence and power. Influence and power gives you control. It helps you get what you want. And those in power don’t mind utilizing their power in exchange for some money. If we really want to address the question of money in politics, we need to remove what draws it there in the first place; power. But yet for some reason I do not understand we keep on handing more power to those in government and then complain that the money follows there.
Consider some of the most heavily regulated industries in the US. There is a strong correlation between regulation and lobby spending. The top 6 spenders are Pharmaceuticals/Health Products, Business Associations, Insurance, Oil and Gas, Computers and Internet, followed by Electrical Utilities. The total money spent by the top 6 was $936 million. All except Computers and Internet are heavily regulated entities and Computers and Internet wants to be.
Why would that be? Recount the number of new businesses in the Pharma, Insurance, Oil and Gas, and Utilities sectors that have been started over the past 10 years or so. I can’t. Regulation allows stasis. Stasis is great if you are the incumbent. That way you can focus on your front lines without having to watch your supply lines. If someone goes after your supply lines all you have to do is tell your lawyer to file suit and tie them up in court until they run out of money. You, as the incumbent, have more money and better lawyers than they do. Rather than defending your position you can simply get the government to do your dirty work.
Think this is fantasy? Consider this quote from an article in the WSJ featuring the CEO of Goldman Sachs. I quote it at length.
“More intense regulatory and technology requirements have raised the barriers to entry higher than at any other time in modern history,” said Mr. Blankfein. “This is an expensive business to be in, if you don’t have the market share in scale. Consider the numerous business exits that have been announced by our peers as they reassessed their competitive positioning and relative returns.”
Longer term, Mr. Blankfein sees more opportunities for global giants like Goldman to grab even more market share, as “only a handful of players” will likely be able “to effectively compete on a global basis.”
While the Goldman boss wasn’t endorsing all of the added directives from Washington, he said his bank is “prepared to have this relationship with our regulators”—and the regulators are prepared to have a deep relationship with Goldman—“for a long time.”
Is that really what we want for the Internet?
You might be wondering how this applies to Net Neutrality, and how it affects you. Why should you care if the rules around big business make big business’ lives more difficult? Beyond the assertion that regulation stymies innovation there is a very real, practical side to this. In a WSJ opinion piece on Feb 8, 2015 the author quoted a 2005 statement by the Supreme Court that if Internet Service Providers are regulated under Title II by the FCC any service provider on the Internet is subject to the regulators. In other words, if you provide a service on the Internet it is possible (likely?) that you will be subject to the regulators whims. If the FCC deems that it has the power to regulate how service providers provide bandwidth it has the power to regulate anyone who can be called a service provider. Who will be called a service provider? Anyone whom a large company with sufficient lawyers and a judge agree to be called one.
Given how regulation tends to favor the incumbent why is it that Net Neutrality detractors are smeared with cozy-ing up to big business? Comcast and Time Warner suck as ISPs (I have Time Warner (I don’t any more. I switched over the weekend)). Do we really want them cementing their hold on the Internet? Do we want that to stay the same? The FCC promises, cross their heart and hope to die, that they will only use 1% of the power that they have under title II to regulate ISPs. And we can be assured of this because other government organizations, such as the NSA, the IRS, the CIA, etc. are all such warm and fuzzy operations. Don’t get me wrong. They’re all needed in our modern world. But they all wield way too much power and operate with way too much impunity. But the FCC will be different, right?
Proponents of Net Neutrality state that they do not want ISPs to have the power to manage this content. I quote an article from The Nation at length.
Without net neutrality, your Internet service provider could block or slow online content, depending on which websites or apps they wish to preference. For example, an ISP might speed up your access to NBC.com, but slow or degrade your access to AlJazeera.com. They could also charge different prices for different content. An ISP might charge NBC.com more to host last week’s episode of Parks and Recreation than to feature an article about it. Internet service providers could also charge fees to Internet companies for providing that content to you. They might, for example, begin charging Netflix a fee for carrying online video over its network, which it likely will pass on along to its customers.
Is that a possibility? Yes, it is possible (though more likely they will charge Netflix. More on that later). And the article goes on to highlight several times when this has been the case. Interestingly enough, in most of the cases highlighted the ISPs lost. But how is this possible given that we have very limited Net Neutrality protections in place? In its attempt to defend Net Neutrality the article ends up making the case that Title II regulations are NOT required to force access to services because, in large part, the services were restored.
But if existing conflicts were largely resolved without Net Neutrality why are these issues used to argue for it’s necessity?
I wonder if the proponents of Net Neutrality have noticed that the companies in favor of Title II regulation are companies that use gobs of bandwidth, but don’t actually pay for the infrastructure itself? In many cases they build out large, concentrated data centers whereas the ISPs build out vast networks. Netflix consumes a reported 35% of ISP bandwidth, but wants to only pay for their datacenters and media licensing, as if that were the only costs. Might that explain why they are so vocal about it? Did it not occur to anyone that Netflix became a vocal proponent of Net Neutrality AFTER it saw an 88% drop in profitability and public outrage over their change in packages? Do you really think that Netflix, Amazon, Microsoft, Google, etc. are in favor of Net Neutrality out of a spirit of goodness and Comcast and Time Warner are against it out of greed? Do you really think that Netflix is concerned about bunnies and lollipops but Time Warner is only concerned about shareholders and 3 martini lunches? (mmmm, Martini)
If it is bandwidth that we are truly concerned about why not, instead of tying the hands of those providing the bandwidth (a massively expensive endeavor), make it easier and cheaper to increase bandwidth? Instead of regulating the size of the pie and who controls the pie why don’t we make the pie bigger so all can enjoy its sugary goodness? Does that mean that Comcast is innocent in all of this? By no means. But be careful about who you blame. What Net Neutrality really is is proxy fight between large corporations with one side simply having a stronger rhetorical high ground. “Freedom! Openness!” vs. “Margins! Cost!”
If you are prepared to hand over regulatory power to the FCC you also need to understand that the regulated companies will be “prepared to have this relationship with the regulators”—and the regulators will be prepared to have a deep relationship with the regulated—“for a long time”. What this means is that Comcast and Time Warner, because they are smart companies with smart lawyers, will find ways to use this regulation to their advantage. Why not? It’s worked for Goldman Sachs.
If you question this premise (which you are free to) I have a chart that is worth looking at. I did some searching on the WSJ website to see what the earliest mention of Netflix and Net Neutrality is. I found a video from April 17, 2012. The following chart shows Netflix’ margins. The arrow is the rough approximation of the date of the video. Correlation does not prove causality, but that’s a whole lot of correlation there.