Oversight agencies stalled the cell phone and cable TV: Is the internet next?

Recently, Sens. Elizabeth Warren (D-Mass.) and Lindsey Graham (R-S.C.) proposed legislation to regulate online platforms such as Amazon, Google and Meta. They argue that their bill “would rein in Big Tech by establishing a new commission to regulate online platforms.” 

In a New York Times editorial, the senators pointed to such agencies as the Interstate Commerce Commission and Federal Communications Commission for “preserv[ing] innovation while minimizing harm presented by emerging industries.”

Unfortunately, history shows that such ideas can instead harm innovation, American consumers, and the U.S. economy. This is demonstrated by the very agencies the senators cited as success stories.

The ICC, founded in 1887 to “rein in” railroad monopolies, instead oversaw the formation of a railroad cartel under the terms of the Transportation Act of 1920. That statute stifled competition by requiring that the ICC establish rates providing a “fair rate of return” to railroads. The act also gave the ICC authority to control market entry and oversee railroad mergers. The ICC then extended its powers to trucking when that new industry threatened railroads’ viability. Busing was next to come under its regulatory monopoly.

The end result? American consumers and businesses faced unnecessarily high prices and quality improvements suffered. According to an American Enterprise Institute study, the substantial deregulation of railroads pursuant to the Staggers Act of 1980 led to reduced operating expenses and subsidies. Rate increases slowed and service quality improved, with benefits enjoyed by most shippers, consumers and taxpayers. The ICC was finally abolished in 1995.

The FCC also imposed major costs on the American economy, becoming a “captured agency” dominated by the same huge firms subjected to its regulation.

For example, it sheltered the AT&T monopolist it regulated by slowing the introduction of cellular service and competition in long-distance telephony. This kept prices artificially high for consumers and lessened innovation. AT&T’s breakup due to the 1982 settlement of a Justice Department antitrust suit and subsequent 1995 legislation eventually helped break the regulatory logjam.

Consumers were big time losers due to FCC-caused delays in the expansion of mobile telephony, specifically a four-decade delay in the broad availability of cellular telephony (with AT&T officials also responsible). Similarly, the FCC delayed the widespread rollout of cable television at the behest of the “big three” television networks it oversaw.

The ICC and FCC cases are typical of what happens when big firms are regulated by new government agencies. In a famous 1971 article, “The Theory of Economic Regulation,” Economics Nobel Prize winner George Stigler described how industries distort regulatory processes for their private benefit. In particular, he showed how powerful firms demand the enactment of regulations that they can manipulate to harm or exclude their potential rivals from the market.

Remember this the next time a tech company calls for its own regulation, such as when Facebook (now Meta Platforms) CEO Mark Zuckerberg touted government regulation of big platforms and Google’s policy chief advocated common “rules of the road.” Sincere or not, their ideas are far more likely to serve private interests than the public interest, with American consumers the losers.

Big firms have the scale to bend rules to suit their interests through lobbying and legal filings. Smaller firms, or firms not yet in the market, are in a weaker position to represent their interests to the regulator. Thus, instead of promoting healthy competition, regulations on very large companies tend to undermine it.

In his book “Permissionless Innovation,” Adam Thierer showed how new high-tech products and services — commercial drones, driverless cars, 3-D printing, virtual reality, the internet of Things, etc. — thrive when they can develop largely free from government rules. Indeed, the phenomenally rapid growth of the commercial internet, which has showered consumers with benefits (think online ordering, Google searches, and navigation apps), is the prime example.

Creating new complexity and legal risks to be dealt with discourages entrepreneurs (including possible rivals to big platforms) from experimenting with new innovative solutions that could lower costs, better protect our privacy, and spur the economy.

Adding to the confusion, Warren and Graham’s proposal does not displace existing antitrust and consumer protection oversight. This would amount to a piling on of government costs, as well as confusion when enforcement actions by established agencies clash with new rules.

Most proponents of internet regulation are undoubtedly acting with the best of intentions. But, as John Adams pointed out, “facts are stubborn things.” The stubborn facts show that without caution, America could wind up with a more monopolistic and less competitive high-tech future. This would be particularly unfortunate with China threatening to outstrip the U.S. in this area.

Winston Churchill famously stated, “Those that fail to learn from history are doomed to repeat it.” It would be a shame to have an internet retrofitted with 1970s-style trucking and telephone policies.

Alden F. Abbott is a senior research fellow with the Mercatus Center at George Mason University and a former general counsel with the Federal Trade Commission.