More on Scale and Innovation

PPI’s scale and innovation paper continues to attract discussion. Irving Wladawsky-Berger,  a former leading tech exec at IBM,  discusses the paper, and concludes that

Large companies that make the successful transition to an open, collaborative style of innovation will emerge as effective ecosystem leaders.  Such companies will find that their scale is a major asset for the kind of complex systemic innovation that will be increasingly important in the decades ahead.

At the National Review, Jim Manzi addresses the issues I raise in my paper:

I’m glad to see somebody on the left arguing for a modernized view of antitrust, but I think that what is essential if we are to do this is to reduce simultaneously the political power of large companies to stifle competition, as manifest in manipulation of patents, financial regulation, safety rules, and the endless list of regulations, subsidies, and tax breaks that govern the modern economy. This is similar to what Reihan called in his post “completing the neoliberal revolution.”

The market process is imperfect and takes time, but in my view is preferable to one in which we allow large companies (which will always have an advantage in lobbying and compliance) to use the political process to protect their position, which we then counter-balance with antitrust regulation.

At Mother Jones, Kevin Drum  responds to Manzi by citing my paper, and going on to say:

One of these days, when the Republican Party returns to sanity and Democrats feel like they can safely sit across a table from them again, I suspect that this will be a fruitful area for conversation. Obviously conservatives are always going to have a more expansive view of deregulation than liberals, but if everyone is being honest this is the kind of regulatory reform that can fit the agenda of both sides. For a variety of reasons of political economy, liberals dislike entrenched corporate power and should be eager to dismantle regulations and tax breaks that protect the interests of big corporations and put up barriers to entry that keep smaller companies at bay. Likewise, conservative dedication to the principles of competition and free enterprise should lead them in the same direction. There won’t be any Kumbaya moments here, just a lot of grueling political horsetrading, but there’s still plenty of scope for agreement here. And it’s the only way this stuff will ever happen. Neither party alone will ever be willing or able to stand up to the tsunami of corporate lobbying that stands in the way of this kind of reform.

We’re years away from anything like this taking place. Democrats will have to decide that deregulation per se isn’t a dirty word, and Republicans will need to edge away from the tea party cliff and agree to genuinely deregulate in the interests of competition, not their corporate masters. Maybe it’ll happen someday.

Great stuff.

FDA Reverses Course on Melafind

Remember that a couple of months ago I wrote a piece about FDA overregulation, applied to the particular case of Melafind, a handheld computer vision system intended to help dermatologists decide which suspicious skin lesions should be biopsied for potential melanoma a system for assessing. The FDA’s original response to Melafind had been to deem it  “not approvable,” saying that MelaFind “puts the health of the public at risk.”

In my piece I analyzed why the FDA had unreasonable and contradictory expectations for Melafind. I then testified before a Congressional subcommittee on the subject.

Well, the FDA has surprisingly changed its mind. From the WSJ today:

Doctors in the coming months are likely to have a new tool to diagnose the deadly skin cancer melanoma, after the Food and Drug Administration reversed its earlier decision and said the MelaFind device was “approvable,” pending some final negotiations.

The FDA cleared the path for approval in a letter it sent to Mela Sciences Inc. Thursday night. The letter hasn’t previously been disclosed.

More to follow.

Hamilton Advocates Countercyclical Regulatory Policy

James Hamilton asks What could America be good at?  and considers the impact of regulations:

… if new regulations cause someone to lose their job or kill a new project that would have been hiring, the regulations are making a direct contribution to our cyclical problems, and are significantly more costly than if the same regulations had been implemented when the economy was operating at full employment.

Hamilton’s major concern is regulations that affect our ability to take advantage of natural resources, but it applies to all regulations. He then goes on to say:

Obviously what we need to do is weigh the costs of regulation against the benefits. Just because the costs are higher in a recession, that does not mean that new regulations during a recession are always a bad idea. But I do believe Americans need to acknowledge that, both because of the current economic weakness, and because of the longer-run challenge in finding a basis for future economic growth and current-account balance, we are poorer than we used to be. A challenge of this magnitude needs to be approached with some humility about just what we should be willing to do to get back on track.

Just the argument that I have made for countercyclical regulatory policy (see here and here).   In periods of economic weakness, we have learned how to change our monetary and fiscal policy in order to stimulate the economy, cutting interest rates and running deficits that would be unthinkable in normal times. We should consider using the very powerful regulatory apparatus of the government in the same way.

Can the California Legislature Really Be Serious?

So let me get this straight.   The California economy is a mess:   Private sector jobs  in the state are  down 8% since  2007 (the national average is down  5.5%) . But the state legislature has time to do something like this?

“Gov. Brown vetoes ski helmet, phone fine bills”

Gov. Jerry Brown on Wednesday smacked down what he called overbearing and expensive proposals for state regulations by vetoing bills that would require that kids wear helmets when on ski slopes and increase fines for people who talk on cell phones or text while driving.

<snip>

In his veto message accompanying the helmet bill, SB105 introduced by Sen. Leland Yee, D-San Francisco, Brown appeared to side with GOP critics who had characterized the measure as “nanny government.”

Brown, a Democrat, wrote, “While I appreciate the value of wearing a ski helmet, I am concerned about the continuing and seemingly inexorable transfer of authority from parents to the state. Not every human problem deserves a law.”

<snip>

A bill aimed at getting drivers off their cell phones also fell under Brown’s veto pen. The measure would have increased the base fines for texting or talking on a cell phone while driving by $50 on the first offense and $100 on subsequent offenses. The measure would have brought the total penalty to $328 for the first offense and $528 for subsequent offenses. It also would have applied to bicyclists, but with lower penalties.

Brown said that was too much. In explaining his veto of SB28, he wrote, “I certainly support discouraging cell phone use while driving a car, but not ratcheting up the penalties as prescribed by this bill. For people of ordinary means, current fines and penalty assessments should be sufficient deterrent.”

Or is there something here that I’m missing?

While Economy Burns, Regulators Fiddle

So let me get this straight. The economy is slumping, economists are warning of a double-dip, and the Obama Administration is pleading for companies to invest.

But clearly Obama’s telecom regulators didn’t get the memo, based on the way they are treating AT&T, a company that actually invested almost $20 billion in the U.S. last year, tops in the country.  Rather than encouraging AT&T to speed up investment in this period of economic weakness, the regulators actually seem intent  on slowing down  the telecom provider.

The latest move: An indefinite postponement of AT&T’s request to buy some wireless licenses from Qualcomm, originally proposed in February. From Reuters

AT&T Inc’s $1.9 billion offer for some of Qualcomm Inc’s wireless licenses will be tied to a simultaneous review of AT&T’s $39 billion proposed takeover of T-Mobile USA, U.S. communications regulators said in a letter sent late on Monday.

The Federal Communications Commission, citing the many related issues, dropped the agency’s informal 180-day timeline for review of the Qualcomm deal. The move could significantly delay completion of the smaller Qualcomm deal because the review of AT&T’s bid for Deutsche Telekom AG’s T-Mobile is expected to span at least into the first quarter of 2012.

Qualcomm said swift action on its deal was in line with the FCC’s goal to free up more airwaves for mobile broadband use. The company said the deal would not only re-purpose unused spectrum for wireless Internet services, but it would also allow it to invest and deploy more spectrum efficient technology.

I’m sure this choice seemed perfectly reasonable to the regulators, and who knows, in some ideal world it might be the right thing to do.  But on the day that the stock market is crash,  a move to slow down a successful business sends another signal that the priority of the Obama Administration is regulation rather than the state of the economy today.  No wonder voters don’t believe Obama is serious about jobs and investment. 

Federal Regulatory Jobs Outpace Private Sector

I just heard Cass Sunstein speak  on Obama’s attempt to trim unnecessary rules and reduce the burden on the private sector.  Yet here’s a fact: over the past year, employment at federal regulatory agencies has grown by more than 5%. By comparison, private sector jobs only rose by about 1.5% over the same period. That suggests regulatory intensity is still rising, even as the recovery lags.

 

A few details of the calculation are below the fold.
[Read more…]

More Regulatory Overreach at the FCC

Imagine that you had an industry where customer satisfaction was increasing faster than any other part of the economy.  Now imagine that the same industry showed rising real investment, even during the worst recession in 75 years.  Finally, imagine that industry charged  falling prices for both consumers and businesses.

But of course, that industry is not imaginary: The telecom industry, and in particular the wireless sector, has  outperformed  the rest of the economy on key measures such as customer satisfaction, investment, and price.  Moreover, at a time when President Obama is calling  for more innovation,   the wireless industry has produced more genuine new products and services than anyone else.

So given the great performance of the industry during this tough period, why the heck does the Federal Communications Commission keep imposing additional regulations on wireless providers? The latest case of regulatory overreach: On April 7,  the FCC issued an order forcing the  big wireless providers to sign ‘data-roaming’ agreements with smaller carriers.  In effect,  the smaller carriers can now tell their customers that they could have data service all over the U.S., free-riding on the mammoth investments by the big carriers. In addition, the FCC made it clear that it is willing to set the price for each data roaming agreement if it doesn’t like what the big carriers are offering–effectively reinstituting price regulation for the most dynamic sector of the economy.

This aggressive regulatory move by the FCC follow its enactment of confusing ‘net neutrality regulations’ in December 2010, an 87-page order that raises more questions than it resolves. And then coming down the road is the ‘bill shock’ regulation. In order to address the rather rare and fixable problem of a surprisingly high bill, this regulation would force providers to spend scarce investment dollars on revamping their billing system rather than  building out their networks. 

In many ways, enacting this series of regulations is like throwing pebbles in a stream. One pebble doesn’t make much of a difference, but throwing enough pebbles in the stream can dam it up.

Frankly, the degree of regulation that the FCC wants to impose is more appropriate to a failing industry rather than one which is demonstrably successful and growing.  Let’s just run through the performance of the telecom/wireless industry over the past five years.  According to the American Customer Satisfaction Index,  satisfaction with wireless service has increased by 14% over the past five years, by far the biggest  jump of any industry.

Now let’s look at investment. The data on investment is somewhat fuzzier than for satisfaction, since the government’s figures on industry investment only run through 2009, and merges the telecom and broadcasting industries.

But here’s what we see: In the telecom/broadcasting industry, real investment in equipment and software  is up 30% since 2005, despite the turbulence of the financial crisis. By contrast, overall private sector real investment in equipment and software is down 8% over the same period.

And then of course the price of wireless service keeps falling. The latest figures from the Bureau of Labor Statistics say that consumer wireless prices are down 6% since 2011, and business wireless prices are down a lot more.

Right now the FCC  has the good fortune to preside over one of the few growing industries in the economy.  If the commissioners genuinely want to  support  innovation and growth, they should stop throwing regulatory pebbles into the stream.

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