TCS Daily

It's the Structure, Stupid

By Duane D. Freese - November 15, 2002 12:00 AM

"Political revolutions are inaugurated by a growing sense, often restricted to a segment of the political community, that existing institutions have ceased adequately to meet the problems posed by an environment that they have in part created." - Thomas Kuhn, The Structure of Scientific Revolutions, 1962.

Republicans, once a restricted segment (minority party), are now basking in a political victory that gives them a true ruling majority in both houses of Congress, the majority of state legislatures around the nation as well as the White House. Republican candidates overall won not by a barebones margin, as in 2000, but by a substantial majority - 53 percent to 47 percent - head-to-head with Democrats, according to the final polls.

Now they have the challenge of actually using that victory to cement their revolution that began more than 50 years ago.

That revolution seems a modest one. It amounts mostly in reasserting, as the author of the Declaration of Independence and founder of the Democratic Party, Thomas Jefferson, put it: "The government governs best that governs least."

Since the New Deal, the GOP has been seeking to devolve authority to those institutions closest to the people, or to the people themselves. From Goldwater to Reagan and now to Bush, limited federal government has been the goal.

But the key in a political revolution that has no intent to overthrow the government itself is not merely to have a better idea to replace the old one, but a way to implement it. Republicans don't want to topple the national house; they want to drastically remodel it to make it more freedom friendly.

As Sen. Bill Frist, the Tennessee physician who ran the National Republican Senatorial Committee, told The New York Times: "These elections were for me, and the country, about trust - and with that trust comes huge responsibility that the government must deliver on. That window is not going to be open for a real long period of time."

It certainly won't be if Republicans go about handing out special favors instead of seizing a unique opportunity to do something truly beneficial: examine and change underlying political structures.

Structural Shift

Defense Secretary Donald Rumsfeld seems to understand this. He has taken steps to reform the military to deal with current crises. President Bush has done so in the aftermath of 9/11 with the restructuring of homeland security to protect the nation - and people's liberties - from the diffuse yet real threat of terrorism.

Now, though, Republicans need to give full consideration to structural changes in three critical areas - taxes, entitlements and telecommunications.

Why are those areas of such concern? All three fundamentally affect the national economy. Taxes and entitlements heavily influence the ability of people to save and invest, which is vital for future economic growth. Telecommunications, meanwhile, is the foundation for growth of the New Economy.

I will look in subsequent columns at the reforms needed in taxes and entitlements. I take up telecommunications now in part because it is the least in need of any major structural reform by government, yet it is the first that the GOP Congress or the Federal Communications Commission might attack next year.

Telecom Structures

As Karen Kornblum of the New America Foundation correctly noted, the Internet unleashed the productivity boom of the 1990s by connecting all the computer networks and making the sharing and use of information cheaper. The advent of new high-speed connections offers the potential for even greater improvements.

But when the boom busted, and washed out hundreds of billions in investment in the process, some tech companies started urging federal action. What to do?

Well, doing something just to do something would be dumb. The Telecommunications Act of 1996, which aimed to open up the local telephone loop to competition, finally is yielding results. After six years of court fights, state utility commissions are using their authority to put in place wholesale rates for competitors to the regional Bell telephone monopolies that make it possible for those competitive local exchange carriers to compete.

Yet, the FCC is considering as part of its triennial review of the 1996 act to remove some elements from those requirements.

Edward Whitacre, chief executive of the second-largest Bell, SBC, told the seventh annual UBS Warburg Global Telecom Conference that the "outlook for change is good" on FCC rule changes favoring the Bells. And he held out the carrot that if the FCC does so, then the company would increase its capital spending, now slated for $7.5 billion in 2002 and $5 billion in 2003.

"We're trying to be extremely conservative at this time," the Dow Jones News quoted Whitacre telling the conference. "We do have some room to revise up."

And the ascendance of John McCain as the Senate Commerce Committee chairman - in place of Ernest Hollings, who served as a break against such "regulatory relief " - also has given those proponents of federal intervention additional hope. McCain opposed the telecom act in 1996 and is seen as a proponent of gutting the bill.

"Senator Hollings has historically been very clear about his opinion of the Bells," said William M. Daley, President Clinton's commerce secretary who now heads the second biggest Bell, SBC. "McCain may be a little more open to some of the positions that we as an industry articulate."

Being open, though, doesn't mean McCain or the FCC can afford to be foolish. And nothing would be more foolish than further changing the rules and opening the door to a whole new round of litigation, which is just what McCain foresaw and was a key reason for his opposition to the 1996 Telecom Act in the first place.

And relying on the monopolist Bells to keep their promises about investment and competition has never worked. The FCC recently fined SBC $6 million for violations, with FCC Chairman Michael Powell saying: "SBC ... went out and broke the (requirements) in five different states. Such unlawful, anti-competitive behavior is unacceptable. Instead of sharing, as the law requires, SBC withheld and litigated, forcing competitors to expend valuable time and resources to exercise their rights under the FCC's order."

Should such duplicity be rewarded now with regulatory favor?

The Goal: Competition

As long as states and local governments are not impeding competition with cumbersome rules that prevent new competitors from entering a market, the federal government should not remove their authority to promote competition and consumer choice.

The FCC and Congress need to look closely at the structure of telecommunications to ensure that competition can flourish on a broad scale. For example, the FCC and Justice Department may have erred in opposing the merger of Echostar-Hughes in satellite delivery by focusing too much on its affect on rural markets and ignoring technological limitations of satellite delivery. Only by merging may Echostar and Hughes be able to make satellite video, high-speed Internet and voice services competitive with phone and cable giants nationally.

But deregulation isn't the goal, as was demonstrated in the electricity markets in California. Ill considered deregulation can open the door to market manipulation that bilks consumers and give deregulatory efforts generally a bad name.

What is the goal? A competitive market. For only competition will spur investment, by the Bells or any of the other telecom players. And only competition will deliver the kinds of services people want at fair prices.

If the Republicans do favors for the big telecom players and markets return to monopoly or duopolies, they will have betrayed their ideals and earn the distrust of voters. On telecommunications reform, governing best at the federal level now means doing less, not more, on reform.

That isn't the case with either taxes or entitlements.

Editor's note: This article is the first in a three-part series on political structures and political reform.

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