February 12, 2016 - 3:00 pm
By Michael O'Rielly | Commissioner

American capitalism, and its role in the communications industry,[1] should be embraced, celebrated, and exported throughout the world.  Instead, it is under continuous assault domestically by self-defined progressives and ultra-liberals, who have found sport in using misguided rhetoric and false pretenses to denigrate one of the core tenets of American society.  They demonize company executives, decry profits and income, promote class warfare and push policy positions favoring government-provided services over private sector solutions.  Beyond being disingenuous and inflammatory, these views completely ignore the extraordinary benefits that the American capitalistic system brings to communications services.  

Without proper checks and reassertion of our commitment to free enterprise, the latest anti-capitalism talk risks seeping into Commission proceedings and underlying activities.  In fact, signs of it can be seen in multiple Commission proceedings, from municipal broadband advocacy to the harmful net neutrality overreach.  The following briefly explores just some of the benefits of capitalism.

1. Connects Willing Buyer and Seller in Marketplace

One of the fundamental components of capitalism is that it brings together those willing to sell a product or service with those seeking to purchase the same.  This voluntary arrangement, in which buyers and sellers are free to conduct transactions as they see appropriate, not only benefits each party but helps generate an overall marketplace.  In the communications sphere, the rates, quantity, duration, and any other features or terms for a particular good or service are determined between the parties and based on what the market is willing to bear.  While individual consumers do not tend to negotiate every element of their communications experiences, they have free right to purchase or subscribe – or decline to do so – as they see fit.  The presence of more providers and a larger number of consumers is likely to produce natural competition, generating certain multiplier effects, including cost and production efficiencies unable to be replicated by any other economic system.  Quite simply, true competition cannot exist without capitalism.

In the communications sector, the free market has generally resulted in the innovative and competitive commercial wireless offerings that we have today.  More specifically, the free market eschews government efforts to choose the “best” Internet access technology for consumers.  Instead, it's up to consumers to decide whether, for example, mobile broadband provides the most functionality in a cost effective way -- as many consumers seem to believe -- rather than a fixed alternative. 

2. Minimizes Need for Government Interference

All governments make decisions (even indecisions are still decisions), and the good people that make up the government workforce are susceptible to human error.  Despite the best intentions, mistakes will be made, paths chosen, and lines drawn.  More points in the decision-making chain increase the likelihood that human emotion, political pressure or some other factor will prevent the best outcome from being implemented.  A great example of this is the favoritism provided to companies that could qualify for “reserve” licenses in the Commission’s upcoming broadcast incentive auction.  The free market system, however, tends to lead to the most efficient and just result, even if it is not readily apparent at the time.   Take for instance the market reaction to the offerings by the original Clearwire compared to the government’s subjective intervention in selecting low-power FM stations.  Some consider this ruthlessly cold-hearted or immoral, but the collectiveness of the marketplace expedites arrival at the same unavoidable end point, with reduced graft. 

In communications, government is exceedingly busy and involved.  It tries to dictate performance of the private sector, enter the marketplace itself, prop-up failing firms, chase flawed policy goals, subsidize favored classes or companies, stifle the offerings of goods and services by disliked firms, tilt the playing field in certain directions and much worse.  While some level of activity occurs because of legacy policies, the constant tinkering inevitably interferes with the workings of capitalism and promotes bad outcomes. 

3. Protects Consumers Efficiently and Sufficiently

A fully functioning free market system provides the greatest level of protection for consumers while generating the fewest inefficiencies in the overall marketplace.  Although there may be a certain criminal element – such as those engaged in fraud – that needs government attention, capitalism generally prevents communications providers from acting outside the interests of consumers.  For example, if telecommunications rates are too high or service quality too low, another provider will respond to the opportunity to compete for customers, as long as the barriers to entry created by government regulatory burdens are low enough to justify the time and cost investment needed.  Experience shows that government entities cannot respond quicker than the marketplace, nor provide comparable remedies.  Moreover, the government’s ability to anticipate future problem areas is woefully lacking and its predictive judgment is poor, at best.

This is particularly true on the technology side.  If the product quality is low or too expensive, an innovator will spring forward to steal market share.  A great case study of this reality is the difference between the government’s efforts to force product disintegration for Internet browsers versus private developers’ new browser offerings.  Which of these had more positive impact for consumers: the Department of Justice’s antitrust case against Microsoft, or the development of Firefox, Google Chrome, and Apple’s Safari browsers?

4. Facilitates Profits and Economic Growth

Whether through an individual proprietorship, partnership, joint venture, limited liability company, public corporation or some other structure, capitalism forces firms to produce profits or face certain failure.  In the communications sector, this means high risk and profit margins are needed to offset the huge capital investments, longer trajectory of revenue returns, and cost of innovation.  This isn't true in other economic systems as negative profits can be propped up by some other entity and margins are an irrelevant measurement. 

The alternative to a marketplace served by healthy, profitable firms is extremely damaging on many levels.  A firm’s collapse doesn't just lead to harm to company executives, it means unemployment for all workers (union and nonunion), likely erasure of any debt (thereby destroying any equity held by investors, such as pensions holders or small investors holding stock investments), elimination of a buyer for equipment manufacturers and related vendors, and an overall reduction in the number of competitors vying for consumers’ attention and dollars.  Since many communications firms are also significantly involved in their local communities, it also means fewer charitable contributions, voluntarism, and sponsorships of local events.

At the same time, communications firms’ profits contribute significantly to the economic growth of America.  Without their success, our standard of living would be compromised or diminished.  Communications firms’ profits also feed the tax base and allow Federal, state and local governments to perform certain functions, as authorized by the electorate.

5. Fosters Entrepreneurialism

Capitalism also creates a conducive environment to spur innovation, develop new technologies, and stimulate creativity.  Its gritty competitive nature provides the necessary platform and complements the initiative required to start new firms, venture into new fields or test new ideas.  In effect, American entrepreneurs thrive or fail within the economic and individual freedoms embodied in capitalism.  This risk/reward spirit also applies to the willingness of investors – whether family, crowdfunding, angel, hedge funds, banks, financial firms or otherwise – to expend capital for a new start-up or a unique business vision.      

America’s entrepreneurial success, especially those in the communications field, stands in contrast with other governments’ inability to generate a great number of entrepreneurs or innovation within their borders using other economic systems.  Despite their overall interest, some governments seem unwilling to make the necessary changes to their regulatory policies and capital markets to fully support a strong entrepreneurial structure made possible under capitalism. 

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The Commission should reject views and rhetoric antithetical to American capitalism.  Instead, we must fully embrace its benefits as we consider all matters and root out those instances where past activities have diverged.

 

[1] For purposes of this document, communications is used broadly to include the telecommunications, media, and high tech industries.

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February 12, 2016