New Year's 2012: Hayek, Liberty, and the Communications Policy Reform Agenda

I spent part of the holidays re-reading Friedrich A. Hayek's The Constitution of Liberty. (I know. Not exactly light reading like, for instance, The Girl with the Dragon Tattoo!)

During the holiday period, I also devoted considerable time to thinking about the Free State Foundation's ongoing efforts to spur reform of the nation's communications laws and policies. (I know. Not exactly light thinking, like, for instance, thinking about whether to go see Meryl Streep in The Iron Lady before catching up on missed episodes of Glee).

In Hayek's famous work, The Use of Knowledge in Society, he explains the important role that dispersed bits of incomplete and frequently contradictory knowledge -- that is, information possessed by individuals acting on their own in response to price signals – play in the working of free markets.

The Constitution of Liberty, on the other hand, is not a work of economics, but rather of political economy. Here Hayek explains why a system of government based on certain foundational rule of law principles is a predicate not only for the functioning of a rational, efficient economic order but, just as importantly, for a government that both preserves liberty and promotes prosperity.

I acknowledge that when Hayek wrote The Constitution of Liberty, published in 1960, he was not focused on reforming communications law and policy. I understand this. Nevertheless, the fundamental principles he espoused have much relevance in thinking about that topic today.

To show why this is so, first, I want to set forth a few key excerpts from The Constitution of Liberty that fairly capture overarching central themes of Hayek's work:

"[T]here are two reasons why all control of prices and quantities are incompatible with a free system: one is that all such controls must be arbitrary, and the other that it is impossible to exercise them in such a manner as to allow the market to function adequately."

"If there is to be an efficient adjustment of the different activities in the market, certain minimum requirements must be met; the more important of these are, as we have seen, the prevention of violence and fraud, the protection of property and the enforcement of contracts, and the recognition of equal rights of all individuals to produce in whatever quantities and sell at whatever prices they choose."

"All experience confirms what is 'clear enough from American as well as from English experience, that the zeal of the administrative agencies to achieve the immediate ends they see before them leads them to see their function out of focus and to assume that constitutional limitations and guaranteed individual rights must give way before their zealous efforts to achieve what they see as a paramount purpose of government.' It would scarcely be an exaggeration to say that the greatest danger to liberty today comes from the men who are most needed and most powerful in modern government, the efficient expert administrators exclusively concerned with what they regard as the public good."

"[T]here is a strong presumption against such [general regulations of economic activity] because their over-all cost is almost always underestimated and because one disadvantage in particular – namely, the prevention of new developments – can never be fully taken into account."

Next, with the above excerpts in mind, I want to extract from these themes several key principles that are relevant to establishing welfare-enhancing communications policies in today's competitive, fast-changing, technologically dynamic marketplace, and also to understanding the FCC's proper role and stance. These principles are:

•       A proper role for government is the protection of property and the enforcement of contracts.

•       The free market, not government officials, should dictate the quantities of goods and services produced and the prices at which they are sold because the decisions of government officials necessarily will be arbitrary in relation to those of the market.

•       Even if they are well-intentioned, administrative agencies are, by definition, almost always overzealous in pursuing what they claim as the public good at the expense of individual freedom.

•       The costs imposed by new regulations almost always are underestimated, while new developments are not fully anticipated.

Finally, I want to suggest, what should be obvious: Communications law and policy, as it stands today, is far from grounded in Hayekian principles. And the FCC, as the administrative agency charged with implementing the communications laws, regularly acts just in the way Hayek suggested such an agency would act – by overzealously and arbitrarily regulating in the name of the "public good," while downplaying the costs imposed by its regulations and failing to anticipate new developments.

So, as we continue our efforts at the Free State Foundation to spur free market-oriented reform of our nation's communications law and policies, we will do so with Hayek's themes and principles in mind.

This is true, for example, with respect to our efforts over the coming year to:

•       Prevent broadband services from being subjected to public utility-style regulation and rolling back such regulation where it already has occurred, for example, with respect to the FCC's imposition of net neutrality mandates. See my recent commentary, "Build Back That Broadband Wall."

•       Free up additional spectrum through authorization of incentive auctions and removal of current FCC rules that unnecessarily restrict licensees' freedom to use their spectrum more flexibly and to dispose of their spectrum more easily through workable, transparent secondary markets.

•       Eliminate or curtail outdated video regulations such as the FCC's program carriage rules. In a recent FCC administrative law judge's decision, the program carriage regulations were (mis)used by the judge to arbitrarily abrogate negotiated contract rights in mid-term, and substitute the government's judgment concerning program carriage for that of a private business operator's, all the while disregarding First Amendment free speech rights regarding program content selection. See my recent commentary, "The Tennis Channel Case: No Mere Foot Fault."

•       Eliminate, as contemplated by the newly-introduced "Next Generation Television Marketplace Act," the obsolete regulatory regime in which the government requires that multichannel video operators "must carry" certain kinds of channels with particular kinds of program content, restricts the number and kinds of media outlets that may be commonly owned, and establishes a compulsory license regarding retransmission of certain kinds programming by cable operators, all the while offending free market and free speech principles. For a good short primer on why the "Next Generation Television Marketplace Act" warrants a positive reception, see the paper, "The FCC and the Unfree Market for TV Program Rights," by Free State Foundation Academic Advisory Board Member Bruce Owen.

•       Reform the FCC's broken merger (transaction) review process in which the agency frequently exercises its largely unfettered discretion under the indeterminate public interest standard to impose conditions on the merging parties that are unrelated to the transaction before the Commission and which are not justified by competition analysis. Nothing has changed to improve this "regulation by condition" process of coerced volunteerism since I first wrote about the problem in "Any Volunteers" in 2000.

•       Oppose efforts to get the International Telecommunications Union's World Congress on Information Technology (WCIT–2012), to be held in October 2012, to adopt policies that, under cover of the ITU, sanction control and regulation of the Internet in various ways, including regulation of transmissions and content that governments deem offensive. See FCC Commissioner Robert McDowell's recent speech warning about those advocating at the WCIT for a new regime that "would create a new overarching layer of international regulation."

I understand there are other communications policy topics that could be highlighted, and that there are issues within issues in the topics listed above. The listing is not intended to be exhaustive. What I intend to show is that, running through the compilation, is a Hayekian approach that respects contracts and private property, constrains otherwise unbridled administrative discretion, and promotes free markets and the rule of law.

This is the surest – and, in the end -- the only sure way to advance prosperity and protect liberty at the same time.