The McCain Tech Policy Part II: Why McCain Can’t Fix The “Mercedes Divide?”

O.K., jokes aside about the lameness and lateness of McCain’s tech policy and associated privacy policy. How does this all really stack up as a substantive plan?

Two quotes from former FCC Chair and McCain tech adviser Michael Powell nicely illustrate the fundamental thrust of the plan. Not so coincidentally, both come from Powell’s first press conference as Chair of the FCC.

Quote 1.

“I don’t believe deregulation is like the dessert that you serve after people have fed on their vegetables, like a reward for competition,” Powell said. “I believe deregulation is instead a critical ingredient to facilitating competition, not something to be handed out after there is a substantial number of players and competitors in the market.”

Quote 2:

“I think the term [digital divide] sometimes is dangerous in the sense that it suggests that the minute a new and innovative technology is introduced in the market, there is a divide unless it is equitably distributed among every part of the society, and that is just an unreal understanding of an American capitalistic system. I think there is a Mercedes divide. I would like to have one, but I can’t afford one. I’m not meaning to be completely flip about this. I think it’s an important social issue, but it shouldn’t be used to justify the notion of, essentially, the socialization of deployment of the infrastructure.”

Once you accept the “Mercedes Divide” frame, you have run out of tools to deal with the issues because, by definition, whatever the market provides is what result you should get. McCain, obviously, does not wish to accept this rather obvious consequence, and therefore falls back on the usual platitudes and reliance on the gods of the marketplace, the competition fairy, and the delightful myth that — Adam Smith to the contrary — getting a collection of companies with similar interests together to regulate themselves will somehow work.

Surprisingly, as David Isenberg noted on his blog, what is amazing is that the plan leaves out the few bright stars of Michael Powell’s tenure at the FCC — notably Powell’s commitment to spectrum reform. While I certainly opposed Powell’s efforts to make spectrum licenses a species of property I enthusiastically applauded his equal willingness to engage seriously on opening more spectrum for non-exclusive unlicensed use (you can see a very old primer of mine from the dawn of the spectrum reform debates here). Perhaps spectrum reform proved too complicated or controversial an issue for McCain to address, even buried at the bottom of a tech policy.

But having ruled out open spectrum, McCain has left himself very few tools to actually provide all the benefits he promises. Rather like the current administration, which will tell you that Bush achieved his 2004 promise of universal broadband by 2007 so shut the heck up about those stupid international rankings, McCain’s tech platform will work swimmingly for true believers unconcerned with the impact on actual reality. Below, I draw out the substantive problems with the McCain tech & privacy plans in greater detail, and explain why the Obama plan actually looks like it would make real improvements in people’s lives because Obama recognizes that there is a real difference between “the government needs to build roads rather than wait for car companies to build them” and mandating that “everyone must have a Mercedes.”

More below . . . .

If You Throw Away Your Tool Kit, You Can’t Fix Anything.

Ever since Republicans shacked up with the most unyielding wing of the Chicago School, they’ve had an internal consistency problem. On the one hand, they want to see the United States remain the acknowledged world leader in technology, maintain solid economic growth, and provide good jobs at good wages for everyone. On the other hand, they utterly lack the tools to make it happen. Embracing the “government intervention is always bad, bad BAD!!! Because even when government means well it just screws things up” worked great for awhile because it was so simple you could package it and shout it at Democrats who dared suggest government might have a role in making people’s lives better. It also brought in lots of PAC money from businesses who thought they’d be happier without regulation. But when things turn sour — like say with massive market concentration and a total meltdown because you allowed your financing system to become a Ponzi scheme — you really don’t have too many tools to address the problems other than cheerleading, explaining why everything is really going swimmingly whatever you might actually think based on the evidence of your senses and other silly forms of empirical evidence, and deregulating some more or cutting taxes. If that doesn’t work, you can disguise subsidies in a couple of different ways. But at the end of the day, if you have forsworn all efforts at regulation as an evil matter of “picking winners” or “command and control” or whatever other buzzword strikes your fancy, you got nothing.

Powell was at least intellectually honest about the consequences of relying exclusively on deregulation. Under sound free market doctrine, it means you write people off because the world is unfair, but that trying to fix it only makes it more unfair. McCain, of course, cannot say this because he is running for office and needs the votes of people who want their problems actually solved, or at least acknowledged as problems that the government can address. The result is that the McCain tech policy and privacy policy laud all manner of goals everyone wants — universal broadband, privacy for All Americans, access to competitive services — that he cannot possibly achieve because by accepting the simplistic view that all government regulation of “the market” is bad, he has abandoned any tools to achieve his public policy ends beyond the approved strategy of tax credits (which don’t amount to much if you have already dropped the corporate tax rate to virtually nothing) and the grudgingly accepted new orthodoxy of disguising subsidies as “market incentives.” Ultimately, as Sascha Meinrath observed in his analysis, the problem with pretending to have (in McCain’s words) “simple common sense solutions” to incredibly complex problems means you either don’t understand the core problem or are selling something you know you can’t deliver. Or, as Sascha concludes, “platitudes about competition aren’t going to cut it.”

This stands in stark contrast to Obama’s tech policy, which takes a more progressive capitalist approach. Yes, the market is a powerful engine and useful tool, but to achieve positive social goals requires recognition of when to use what tools. The market is a means to an end, not an end in itself, and some principles – like freedom of speech and maintaining a media with enough diverse voices to give us different views and perspectives — require protection no matter what market theory says. That doesn’t mean always using the same regulatory tool, eliminating private property, command and control, socializing the internet, blah blah blah Ginger blah blah, which invariably gets tossed about from the Republican/Neocon chorus. It means actually taking the time to study a situation, figure out the proper approach, and be prepared to do some preventive maintenance or set up some incentives.

Put another way, the Obama tech policy is like a tool box with a wide variety of tools designed to fit their proper need. For some things, such as protecting the rich diversity of speech and freedom to innovate on the internet, there can be no compromise, and the Obama plan makes an unyielding commitment to Network Neutrality. For other things, such as promoting competition, it means a substantive review of mergers and reexamining what needs to happen to antitrust law to ensure that we have genuinely competitive markets rather than merely deregulated markets. Certainly you find tax incentives and government subsidies in the tool kit as well. But its all about finding the right tool for the right need to make sure that competitive markets are a means to an end — job creation, higher standard of living for everyone, ensuring all Americans an opportunity to have access to the educational, governmental, and economic resources of the web, promoting real civic engagement and innovation — and not an end in themselves. Obama doesn’t promise everybody a Mercedes, but he recognizes that building roads helps everyone from Mercedes owners to the folks who now can walk more easily from place to place so they can get a job and earn the money they need to buy — if not a Mercedes — a decent way to get around for a change.

But McCain, by rejecting just about any role for government as a matter of policy, doesn’t have much by which he can promote his promised goals. Like Michael Powell in the first quote above, McCain probably still believes that deregulation, and dereguation alone, actually creates the competition that brings the promised benefits. And sometimes it does. But whereas Obama can pull out the deregulation tool when appropriate or one of the dozen or so finely calibrated regulation tools when appropriate, McCain has dumped out every tool but a hammer and a saw for fear he might grab a power drill instead of a level.

Not Entirely Helpless, But Pretty Damn Close

So what tools does McCain have to deliver the promised competition, privacy and security? Well, there’s always tax credits. Or, if you have already dropped taxes so close to zero as to make no never mind, promises not to raise taxes. That accounts for the first couple of substantive bullet points. (The first, promising to “promote conditions favorable to investment,” is usually a promise not to actually regulate any line of business. The problem, as anyone out in Silicon Valley will tell you, is that this sometimes ends up with monopolies or oligopolies that make investment an utter waste of time. That’s why, for example, according to folks trying to create start ups in wireless VC funding for wireless start ups is on the decline.)

What else ya got, McCain? Well, then there’s letting in more workers, that’s pretty deregulatory. There’s also subsidies by a couple of different names, such as a commitment to provide education funding. Push for free trade, protect intellectual property (because locking up ideas forever or forcing other countries to adopt our patent and copyright rules is not “regulation” but “protection of private property.”) Providing some certainty on a few issues like digital signatures, is certainly useful, although hardly a panacea. Government act as leader is fine, since it essentially amounts to another subsidy in the guise of “government as purchaser.” But just how many new laptops can the government buy, and how will that actually spur innovation or any of the other good stuff?

But when it comes to where the rubber of our imaginary Mercedes meets the road government shouldn’t build because government intervention is bad, there ain’t much. McCain’s actual strategy for promoting broadband competition consists of two things.

1) “continue to encourage private investment to facilitate the build-out of infrastructure to provide high-speed Internet connectivity all over America;”

2) If that doesn’t work, try harder to encourage “public/private partnerships” where the federal government bribes or cajoles private industry into deploying new infrastructure — but do nothing to hold these companies accountable for their promises and don’t raise taxes to pay for it.

3) Remove restrictions on local government that allow them to solve the problem if the first two don’t work.

Mind you, I’m all in favor of the last point. I applauded McCain for being an early supporter of the Community Broadband Act and continue to applaud him for it, especially as I know that even allowing local government to spend local money on local services is a heresy to many worshipers of the gods of the marketplace. But the broadband plan basically boils down to “stay the course, suck up to industry, and hope the market does something good. Otherwise, you’re on your own.”

McCain’s Privacy Policy suffers from a similar problem. It has lots of aspirational goals (although one can fault it for its tone that the internet is really a scary, scary place), but it is predicated entirely on the idea that the only role of government is to punish individual bad actors that steal things, attack people, or break contract. Thus, consumers are to be educated (good), but other than telling them that they need to protect themselves and be aware that companies can do whatever they want with their information, this education doesn’t do much good. Being educated that you have no options if your ISP decides to track your every move and sell that information to advertisers other than refusing to use the internet service sort of sucks. Possibly enough people will decide that they won’t use the internet if that happens, but I doubt it. While McCAin may not realize this because he personally does not use a computer, most people are effectively stuck. Not using an internet connection would make it impossible for them to engage in activities that have become fundamental — whether it is telecommuting, seeing videos of the grandchildren, keeping in touch with friends around the globe, or even reading this delightful blog by yr hmbl obdn’t. Classic free market doctrine says “tough nuggies” because it’s voluntary to use the internet and surely someone will provide a service that offers me privacy guarantees. Unless, of course, they don’t.

Mind you, McCain goes through the motions of pretending that “industry must exert appropriate efforts to protect sensitive personal information and prevent unintentional loss or theft.” But that’s expensive, and if there are no consequences for not bothering to make sch efforts, the rational profit maximizing firm doesn’t bother to do it — especially as not enough consumers make an initial selection based on privacy or security, or don’t have more than one or two options. Further, as Tate and McDowell just demonstrated back on August 1, even if you lie your ass off to your customers and blatantly violate your user agreement, the worst you can expect is a scolding and a stern reminder to regulate yourself or you might get in trouble. You tell me, what does rational actor theory tell us companies will do? Improve their self-regulation? Or go through the motions just enough to make you shut up and go away? Anyone who has raised a child can tell you the answer, especially if you know someone who doesn’t believe in “punishing” their six year old but relies on six-year old “self-regulation” to set the limits of proper behavior.

McCain is perfectly correct that “[b]usinesses know that people must continue to feel safe and secure in their use of technology. Industry must be proactive to help protect individual Americans from the ever-present threats posed by advanced technology through security tools, effective self-regulation, and educational initiatives.” You can hear industry CEOs mouth this at every press conference after a major data leak or when they get caught using personal data for something sleazy. And they are, no doubt, sincere. But the rational economic decision for each individual business, and therefore for all businesses, is not to spend more money on this than they have to spend, and to use the personal information in ways that are profitable to do so.

This used to be obvious. We have laws that say the phone company cannot listen on your conversations or track who you call, even though they could make boatloads of money doing that. We have laws that prevent cable operators from tracking what shows you watch or whether you are getting the Disney version of “National Treasure” or the porn version (I’m sure someone must have made one somewhere!) on pay-per-view, although I have no doubt they would be happy to resell that information. But such old-fashioned command-and-control messing-with-the-market socialist regulation that picks winners and ruins the level playing field will not find its way into a McCain administration!

A Nice Choice On The Merits

With the countdown to election now begun in earnest, it is nice to have a clear choice. If you think any role of government in protecting our core principles, promoting economic development, or otherwise trying to make sure all that good stuff candidates promise actually happens is anathema because any government action other than lowering taxes is tantamount to socialism, will impose a crushing burden on business, and cause investment capital to dry up and vanish, then vote for McCAin. He promises to limit government to its proper role — cheerleading industry, deregulating everything, avoiding taxes like the plague, slipping industry the occasional under-the-table subsidy, and — above all else — never, ever, EVER actually holding companies accountable. On the other hand, if you find that your business has gone bankrupt because you can’t get affordable broadband, or because bigger rivals conspire together to freeze you out, or if you find that your credit card company lost your personal information, or if your kids can’t get into good colleges because families that live in wealthier urban areas have broadband access and you don’t — you’ll just have to suck it up. Because sadly, you’ll be on the wrong side of the Mercedes Divide. And, as all McCain supporters know, government shouldn’t try to solve the Mercedes Divide.

On the other hand, if you’re tired of simplistic dumb ass analogies and want someone willing to actually figure out how government can make your life better and give you the tools you need and a real opportunity to live out the American dream and improve your life, vote for Obama.

Stay tuned . . . . .

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