In May 1989 my wife took me to London for my birthday. She picked out a charming, trendy hotel in Knightsbridge with each room decorated by Laura Ashley. We had lived in London before and May weather was usually pretty chilly. But that year, London had a 90 degree heat wave which we dodged by watching a lot of CNN International in our room. If our top floor un-air conditioned room was not hot enough, the live reporting from Tiananmen Square in Beijing was sizzling. Thousands of miles away in London, I had a front row seat to the end of Chinese Communism, that is, the type of authoritarian, anti free market capitalism that had been demonized in American academic curricula since the 1950’s.
At that moment it occurred to me that this was not only the end of Chinese communism, but of the Soviet Union and eastern bloc communism as well. Communism is an irrational political system running counter to human nature. Humans want to better themselves, to own private property, to freely communicate and to choose their leaders. On the other hand, communism thrived on state control of information. Think Pravda and the KGB in their heyday. Introduce satellite communications, high speed data lines, CNN, the World Wide Web and cheap computers and you have a breakdown of a communist government’s centralized monopoly on that control. I did not expect this dynamic to play out so soon, but by November of 1989 the Berlin Wall had fallen. By December 25, 1989, Leonard Bernstein was in a reunited Berlin conducting Beethoven’s 9th Symphony celebrating the demise of the old, repressive order. An irrational structure was overtaken by communication technology and the free flow of information.
The United States has also created irrational structures. Telephone regulation is an excellent example of a 20th century regulatory mentality trying to keep up with rapid technological innovation. To encourage investment in the nascent telephone industry, the government granted the original AT&T a monopoly, wherein no one other than AT&T could connect a telecommunications device to their network. Along came the 1968 Carterfone decision which permitted private telecom devices to be connected to that network. The next major event: MCI battled AT&T and won the right to provide competitive long distance services. Regulation soon fell in the wake of rapid changes in semi conductor and microwave technology.
Even now, with advances in fiber optic technology, the regulator has not stopped carving the market into local and long distance service with separate federal and state regulatory structures. But by ignoring physics, government is waging a losing battle. Electrons do not particularly care where they are embedded: in a packet traveling over a cable network, a DSL line from a central switch, a high speed fiber optic line, wireless packets, Skype, X.25 packets or any of numerous communication modalities. Any of the following companies is now a telecommunications provider: AT&T; Verizon; Comcast; EBay: Cisco; Google; IBM and more. Yet, government still intrudes in this market and decides that some of these modalities should be heavily or lightly regulated, or unregulated depending on whim, tradition or political expediency. Eventually, if it does not change its regulatory stance, government will drive many of these companies out of business or retard technological progress.
Let’s now think more broadly than one industry. There are other larger, irrational structures. One is government itself. Every day competitive American businesses, restructure, exit unprofitable businesses and downsize. Against a backdrop of ever rising taxes at all levels of government, an obvious question arises: why isn’t there a public outcry to downsize and re-engineer government? The political system has delayed deployment of labor saving technologies. In addition, the government could downsize some of its regulatory operations where they are unneeded. See Why Not Reengineer Government?
Another irrational structure is the current worldwide financial system. While we have permitted “winner take all capitalism” in bubble years, the taxpayer pays for losses when the inevitable bust occurs. Innovations such as high frequency trading, credit derivatives and the interrelated nature of worldwide markets has outstripped regulatory capacity to oversee, and has organically destabilized the system. Perhaps a different government response such as old fashioned “trust busting” could end the “too big to fail” misguided policy response.
Finally, in a dramatic example, the US has a foreign policy of establishing over 730 foreign bases against a back drop of a declining economy and burgeoning federal budget deficits. Why do we tolerate this irrational structure? A large, “heavy iron” military force may no longer be effective against non state actors, armed with biological weapons or “back pack” nuclear weapons. We engender a backlash by stationing American troops on foreign soil. This suggests a major reevaluation of policy.
Perhaps there is no end in sight to the proliferation of irrational structures. But technology and changing economic circumstances will inevitably lead to their demise.
loading...
