Bloomberg Radio: Garrity on Cybersecurity Summit, FCC, Net Neutrality

Today I joined Kathleen Hays and Vonnie Quinn on The Bloomberg Advantage. You can listen to the replay here.  Below are some of the discussion points from the segment.

1) Internet Regulation: Historical Precedents Are Abundant & Instructive: The issues involved in the upcoming FCC decision pertain to the use, ownership and regulation of shared infrastructure. There an abundance of historical economic & legal precedent ranging from the UK’s experience of the partition of the commons which preceded the rise of industrialization and the creation of the urban lumpenproletariat, the establishment of the national canal & railroad network in the US during the 19th century (Jay Gould, Cornelius Vanderbilt and the assorted crew of robber barons) to the Eisenhower Administration’s Federal-Aid Highway Act of 1956, all of which are underpinned by different schools of economic thought (the Commons = possession is 90% of the law; the Railroads = charging what the traffic will bear; the Highways = a publicly funded infrastructure supporting accelerated growth of private sector enterprise and concomitant growth in employment). Of these particular schools of thought, I favor the last.

2) Internet Regulation: The FCC Decision Will Reverberate Through The 21st Century: The issue before the FCC is whether the Internet and access to it should be regulated as a utility. Have no doubt the costs of providing and operating the Internet are considerable involving capital costs in the $bn and a recovery of same over years, if not decades. This is big, if not even bigger given its ubiquity for daily commerce (e.g. growth in digital as the primary advertising medium), a business platform as the interstate highway system was from the 1950s to the present (and unfortunately something that the present Congress appears wholly incapable of maintaining), so the policy decisions made today will materially shape the development of the US economy well into the next century.

3) Internet Regulation: Providing Infrastructure To Allow Greatest Economic Benefit Demands “One-track” System: That said, a “two-track” system espoused by the telecom sector (i.e. you want faster speeds, pay a higher price) is reminiscent of the railroads charging what the traffic would bear. Note that after the competition to the privately-owned railroads that came from the publicly-maintained highway system the US economy enjoyed some of the fastest and sustained growth rates in its entire history either as a colonial subject or a free country. Working as I do with the venture capital community and the start-ups they nurture, I can tell you in an admittedly partisan manner that raising the cost of internet access would serve to depress the economic activity of the small-to-medium enterprise (SME) sector that drives the bulk of the employment in the US, both in growth and in sheer numbers. Allowing the “two-track” system to move forward would institutionalize business practices that optimize marginal returns on capital (i.e. giving the providers a bigger slice of the pie) rather than instead maximizing the opportunity to sustain and accelerate overall economic growth (i.e. give providers a slice of an overall bigger pie). In sum, our economic history offers precedent (i.e. the railroads) that a “free-market” approach to infrastructure development and operation will result primarily in profit maximization for the provider, not creation of greater opportunity for society at large. Consequently, the FCC must favor a regulatory regime that ensures universal access to the Internet. If not, the doors are left open for the rise of the new Robber Barons.