Friday, March 11, 2011
Give me a call, and why you can afford to do it.
Bell had a monopoly because the government said that competition would be bad for us. Bell of course agreed. In return the government said it had to control Bell's profits. Bell profited and consumers had no choice.
Then there was a dramatic development in the telephone industry. Bell decided that we could have a new kind of phone, the "sleek" Princess phone. They promised that it was little, lovely and it lights up! Better yet it came in some colors other than black. That was a revolution by the standards of the regulated Bell Telephone.
It took another four years before the next great innovation came along—touchtone dialing. And then it was another 15 years before they came up with the idea of phone jacks where the phones just plugged in and worked. To say the least, change came at a glacial pace, there was little innovation and costs remained high compared to the average income.
Lenny Bruce famously described communism as being like "one big phone company. Government control man. And if I get too rank with that phone company, where can I go. I'll end up like some schmuck with a dixie cup on a thread." This came to be with the New Deal. In 1934 the government made AT&T a "regulated monopoly." By 1940 they owned almost every phone line in the country. In 1956 the government reduced the monopoly slightly, saying that Bell could only own 85% of the the phone network. But even where they didn't own the lines they were still the property of another government sanctioned monopoly. The government worked hard to make sure there was NO direct competition between phone providers.
Then along came Jimmy Carter and his administration decided to try something radical: deregulate phone service.
I remember the howls! AT&T was livid and so was the political Left. AT&T told us that we would become the victims of rapacious capitalists if government didn't continue to protect their monopoly. And many on the political Left told us the same thing. Apparently this alliance of rapacious capitalists and advocates of government regulation didn't see anything bizarre in their cooperation toward the same goal.
Of course, as Gabriel Kolko has noted, in his history of the Progressive Era, The Triumph of Conservatism, the regulatory state was created by industries seeking to cartelize or monopolize their own industries. Big Business used the political Left to lobby for "controls" to prevent monopolization. But the regulatory system was easily, and quickly, captured by the very people who were the alleged objects of the regulation. These corporations then used the political power that was handed to them to restrict competition. As Kolko, a socialist, noted it wasn't that government came to control business, but it was business that came to control government. The result has been 100 years of an alliance between politicians and corporatists. The politicians point at the evil corporations, while greedily accepting massive amounts of funding. They concoct "new" regulations, always on the premise of punishing the people who fund them, and the results always end up favoring the same corporate elite.
But naive reporters continue to pretend that the politicians are protecting us! A lazy reporter for the San Francisco Chronicle reported that Obama would put $15 billion per year in "alternative" energy projects. He noted the project was actually endorsed by major oil companies and said that this was in spite of them being major greenhouse gas emitters. Clearly this must be a wonderful proposal if those Big Oil companies were willing to endorse something that went against their own self-interests.
But the report never looked below the surface. The companies in question were all in line for a chunk of the $15 billion in funding. BP was one of those companies. They were already working on alternative energy in the UK. But when Obama announced his plans they dropped a wind farm they were putting up in the UK and built it in the US instead because it provided a "tax shelter." No new "green" energy was produced at all. All the regulation did was change where the plant was built and put extra money in the pockets of BP. This merely transferred wealth from the poor pockets of the average taxpayer, to the richer pockets of BP shareholders. Of course, BP was grateful.
We watched Democratic politicians line up to endorse ethanol produced by corn simply because they wanted to win Iowa's caucus. They made farmers in Iowa happy. The results of the program was that a relatively dirty form of energy was replaced by a relatively dirty form of energy that cost a lot more. The oil companies got subsidies to produce ethanol. Big Agriculture got artificially inflated prices for their corn, which increased their profits. Big Oil got the subsidies, which increased their profits. The consumers got more expensive fuel and higher food prices. Of course, the energy companies and agricultural conglomerates showered the politicians with donations, donations that were returned many times over by the higher profits and subsidies. Meanwhile, in poor countries, more children went hungry because their families couldn't afford the higher prices. Some simply curled up and died of hunger, there were food riots in many places, and of course the "free" market got the blame.
Meanwhile, what was happening to the deregulated telephone industry? New providers of phone services came onto the market and competition spurred innovation. Prices didn't go up, as the worried AT&T and the hysterical Left had claimed-in fact, they went down. Way down. New kinds of phone service materialized in a relatively short period of time. And soon people found ways to combine telephone service with Internet service.
My phone bill, which had run around $100 to $150 per month with toll calls, got worse. But that was because I was in then living in Africa. The phone company there was not only a monopoly but wholly owned by the government. I would receive a bill with no itemization and no way to challenge it. Suddenly I was paying $300 to $500 per month. I got a meter to check on phone units being used but it never corresponded with what I was charged. And challenging the phone company meant having to drive to their offices, during a limited number of hours per day, and standing in long lines.
If the phone broke it would take a week or two before they could get anyone to fix it. If I found technicians tapping into my line and making long-distance personal calls, which did happen, the phone company would deny it and tell me I had no option but to pay. And since they were the only phone company allowed to operate I had no choice.
Now I pay a flat rate of $30 and I can make unlimited phone calls within the US, Canada, and to another 60 countries. I can talk as long as I like and the bill doesn't go up. I can call friends in Africa, the South Pacific, Europe and around the world. I pay less for a full month of unlimited calling that I used to be charged for just one international call back when government was protecting me from the rapacious greed of the capitalists.
Given the amount of government-created inflation since those days, I would estimate that deregulation, in addition to giving me far more telephone choices than I ever dreamed possible, cut my telephone costs by 95% or more.
During the same period of time the amount of government control of medical care has increased dramatically. Today the government is doing more than ever to protect us from competitive greed in the health care industry. And people find health care costs going in the opposite direction of what they were promised. Greater regulation of health care has not reduced prices-instead prices have shot up dramatically. But in the telephone industry we were warned that deregulation would lead to out-of-control cost spirals, and things turned out completely the opposite way.