Net Neutrality: Triumph of the Ruling Class

from A triumph of “core of free expression and democratic principles”? How stupid do they think we are?

It’s been painful to watch the gradual tightening of government
control in the name of net neutrality. 

The Federal Communications
Commission’s decision to rewrite the rules and declare the Internet as a
public utility seals the deal. It cartelizes the industry and turns a
“Wild West” into a planned system of public management — or at least
intends to. 

All the rest is a veneer to cover what is actually a power grab. 

This whole plot has had all the usual elements. It has a good name
and its supporters say it is about stopping private and public control.
It’s had the backing of all the top names in content delivery, from
Yahoo to Netflix to Amazon. It’s had the quiet support of the leading
Internet service providers. The decision to impose the rule has been
declared by a tiny group of unaccountable bureaucrats operating with the
support of the executive lame duck. 

The opposition, in contrast, has been represented by small players in
the industry, hardware providers like Cisco, free-market think tanks
and disinterested professors, and a small group of writers and pundits
who know something about freedom and free-market economics. The public
at large should have been rising up in opposition but people are
largely ignorant of what’s going on. 

Here’s what’s really going on. The incumbent rulers of the world’s
most exciting technology have decided to locked down the prevailing
market conditions to protect themselves against rising upstarts in a
fast-changing market. To impose a new rule against throttling content or
using the market price system to allocate bandwidth resources protects
against innovations that would disrupt the status quo. 

What’s being sold as a public fairness and a wonderful favor to
consumers is actually a sop to industrial giants who are seeking
untrammeled access to your wallet and an end to competitive threats to
market power. One person I know compared the move to the creation of the
Federal Reserve itself: the creation of an industrial cartel in the
name of improving the macroeconomic environment. That’s a good

Let’s back up and grasp the position of the large content providers.
Here we see the obvious special interests at work. Netflix, Amazon, and
the rest don’t want ISPs to charge either them or their consumers for
their high-bandwidth content. They would rather the ISPs themselves
absorb the higher costs of such provision. It’s very clear how getting
the government to make price discrimination illegal is in their
interest. It means no threats to their business model. 

By analogy, let’s imagine that a retailer furniture company were in a
position to offload all their shipping costs to the trucking industry.
By government decree, the truckers were not permitted to charge any more
or less whether they were shipping one chair or a whole houseful of

Would the furniture sellers favor such a deal? Absolutely.
They could call this “furniture neutrality” and fob it off on the public
as preventing control of furniture by the shipping industry. 

But that leaves the question about why the opposition from the ISPs
themselves (the truckers by analogy) would either be silent or quietly
in favor of such a rule change. Here is where matters get complicated.
After many years of experimentation in the provision of Internet
services — times when we went from telephone dial up to landlines to T1
connections to experimenting with 4G data coverage — the winner in the
market (for now) has been the cable companies. Consumers prefer the
speed and bandwidth over all existing options. 

But what about the future? What kind of services are going to replace
the cable services, which are by-and-large monopolies due to special
privileges from states and localities? It’s hard to know for sure but
there are some impressive ideas out there. Costs are falling for all
kinds of wireless and even distributed systems. 

If you are a dominant player in the market — an incumbent firm — you
really face two threats to your business model. You have to keep your
existing consumer base onboarded and you have to protect against
upstarts seeking to poach consumers from you. A rule like net neutrality
can raise the costs of doing business but there is a wonderful upside
to this: your future potential competitors face the same costs. As an
established player in the market, you are in a much better position to
absorb higher costs than those barking at your heels. This means that
you can slow down development, cool it on your investments in fiber
optics, and generally rest on your laurels more. 

But how can you sell such nefarious plan? You call it a vote for the
“open internet” that will “preserve the right to communicate freely
online.” But when you look closely at the effects, the reality is
exactly the opposite. It closes down market competition by generally
putting government in charge of deciding who can and cannot play in the
market. It erects massive new barriers to entry for upstart firms while
hugely subsidizing the largest and most well-heeled content providers. 

So what are the costs to the rest of us? It means absolutely no price
reductions in internet service. It could mean the opposite. Watch your
bills. I predict that it is not going to be pretty. It also means a
slowing down in the pace of technological development due to the
reduction in competition that will immediately follow the imposition of
this rule. In other words, it will be like all government regulation:
most of the costs will be unseen but the benefits will be concentrated
in the hands of the ruling class. 

There is an additional threat to how to the FCC has reclassified the
internet as a public utility. It means a blank check for government
control across the board. Think of the medical marketplace, which is now
entirely owned by a non competitive cartel of industry insiders. This
is the future of the internet under net neutrality. 

If you look at how all this shakes out, this is really no different
from how most every other sector in life has come to be regulated by the
state, from food to money to medicine to education. It always shakes
out this way, with sleepy public believing the propaganda, an elite
group of insiders manipulating the regs for their own benefits, a
left-wing intelligentsia that is naive enough to believe platitudes
about fairness, and a right wing that is mostly ignorant and for sale to
the highest bidder. 

No, I don’t believe that this ruling means the end of times for the
internet. But it does mean that progress going forward in the digital
age will be slowed compared with what it would otherwise be. 
generations will laugh in bemusement: it was the dawn of a new age and
yet they believed it could be control the same as all that came before.

Written by Jeffrey Tucker

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