Monday, November 13, 2017

Strong Property Rights Lead to Economic Prosperity

In July 2017, the Property Rights Alliance at Americans for Tax Reform published the 2017 International Property Rights Index (IPRI), ranking 127 countries around the world based on the strength of both physical and intellectual property rights. The 2017 edition comprises over 98% of global gross domestic product (GDP) and over 93% of the world’s population. Importantly, the IPRI finds that property rights are a defining factor impacting a country’s investment, entrepreneurship, and economic prosperity.
The International Property Rights Index includes three core components (legal and political environment, physical property rights, and intellectual property rights) and ten corresponding categories. The legal and political environment component includes judicial independence, rule of law, political stability, and control of corruption. The physical property rights component includes the protection of such rights, the ability to register property, and the ease of access to loans. The intellectual property rights component includes the protection and enforcement of such rights, strength of patent protections, and the level of copyright piracy. Using data from other international indices, the IPRI compiles these scores into a 0-10 scale for each of the 127 countries.
New Zealand ranks highest with a score of 8.63, followed by Finland and Sweden with scores of 8.62 and 8.61, respectively. The United States ranks 14th with a score of 8.07, moving up from 15th in 2016 when it scored a 7.74. On the other hand, the bottom three countries are Bangladesh, Venezuela, and Yemen, with scores of 3.12, 3.06, and 2.73, respectively.
Significantly, the Index provides insight into correlations between IPRI scores and many economic outcomes. Free State Foundation scholars often have stated that strong protection of property rights, specifically strong protections of intellectual property rights, will foster creativity, innovation, and economic growth. The strong positive correlations found in the IPRI are consistent with those statements. For example, IPRI scores have a correlation coefficient of 0.814 with GDP per capita, 0.764 with gross capital formation per capita, and 0.878 with global entrepreneurship. Other strong positive correlations include a 0.857 coefficient with networked readiness/connectivity, 0.801 with civic activism, and 0.768 with overall economic freedom.
With these robust positive correlations, it should not be a surprise that the top 20% of countries in the IPRI have an average GDP per capita of over $57,000, while the bottom 20% of countries have an average GDP per capita of just over $4,500.
The IPRI, in addition to the U.S. Chamber of Commerce’s Global Intellectual Property (IP) Center’s 2017 edition of the International IP Index, provide U.S. policymakers a useful tool for assessing how to improve our country’s physical and intellectual property rights systems. (See this February 2017 blog.) Providing strong protections to property rights is a principle embodied in the U.S. Constitution and improving such protections will enhance creativity and innovation and foster economic growth. (For much more concerning foundational principles supporting IP rights protections in the United States, please read “The Constitutional Foundations of Intellectual Property: A Natural Rights Perspective” by FSF President Randolph May and Senior Fellow Seth Cooper.)
Additionally, policymakers in the countries which rank towards the bottom, such as Venezuela or Yemen, should use these indices to their advantage. From the correlations cited above, it is clear that strong physical and intellectual property rights foster innovation and economic prosperity. As undeveloped and developing countries continue to improve their property rights protections, U.S. companies will be more inclined to expand international trade into those countries, creating economic opportunities in impoverished parts of the world. Robust property rights reduce poverty by incentivizing economic activity because entrepreneurs understand that their innovations and earnings will be protected.

Finally, the U.S. must continue to be a leader throughout the world by participating in trade agreements that contain effective provisions that support protection of property rights. As more countries adopt strong property rights through trade agreements, the global economy will grow substantially because mutual gains from international trade are much higher when participating countries adopt and enforce laws that protect physical and intellectual property rights.

Shutting Down the Bizarre Bazaar

For many years – you can make that almost two decades! – I have advocated that Congress reform the FCC’s transaction review process to constrain the agency’s discretion, to require it to act on proposals in a timelier fashion, and to reduce the current duplication of effort that exists between the FCC and the antitrust authorities. I have testified to this effect several times at congressional hearings. Here is my testimony before the House Communications and Technology Committee in July 2013.

But until Congress gets to work on a #CommActUpdate – which it should – it’s up to the FCC to exercise self-restraint so as to carry out its merger review responsibilities in a proper manner. The Commission’s recent action approving the CenturyLink - Level 3 merger presents an opportunity for comment to highlight briefly a salient point relating to past abuse of the review process.

It is common knowledge that, in the past, the Commission often has availed itself of the “opportunity” presented by the indeterminate nature of the “public interest” review standard to impose conditions unrelated to harms supposedly arising from the transaction. This usually has been accomplished by Commission officials engaging in an unseemly bargaining process in which parties to the transaction are advised to “volunteer” certain conditions if they wish to have the transaction approved. As I explained in a Legal Times column entitled, “Any Volunteers?”, published in 2000, the proffered conditions aren’t really “volunteered” in the sense in which the term normally is understood. Moreover, the resulting “regulation by condition” is bad policy because, among other reasons, similarly situated parties are treated in a disparate fashion.

Subsequently, in 2010, after observing more instances of “regulation by condition,” I called the process of extracting “volunteered” commitments, a “Bizarre Bazaar.”  I can think of worse names for it.

This past March, I returned to the subject once again in “A Proposal for Improving the FCC’s Merger Review Process.” There I urged the Commission to consider issuing a policy statement regarding transaction reviews to include at least these two fundamental elements:

·      A commitment to review proposed mergers in a timely fashion.
·       A commitment to refrain from imposing conditions on approvals of transactions unless they are narrowly tailored to address harms uniquely presented by the specific transaction.

This brings me back to the FCC’s approval of the CenturyLink – Level 3 transaction. As to timeliness, the FCC approved the transaction just a few days after the bell rang on the Commission’s 180-day shot. But unlike most timepieces, the shot clock stops and starts at the government’s discretion, so the reasons for the stops and starts are pertinent. Hopefully, in the dynamic, fast-changing communications marketplace, the Commission will strive to beat the shot clock substantially, not just run it out.

Regarding a commitment to refrain from imposing conditions unrelated to harms allegedly arising from the transaction, the Commission deserves credit for its handling of CenturyLink – Level 3. The Commission majority stated clearly that it would impose conditions only to address transaction-specific harms which are related to its responsibilities under the Communications Act and related statues. Given past history – the “Bizarre Bazaar” – this is important because it should offer some assurance to those who come before the agency in the future, or who are contemplating doing so, that they will not be subject to the vagaries of “regulation by condition.”

 After a careful and extensive economic analysis, the Commission did impose one transaction-specific condition to address potential competitive concerns in ten specific locations where it considered the merger might decrease competition and increase prices. Commissioner Mignon Clyburn dissented because she thought the Commission should not have credited potential competition to the extent that it did and, therefore, should have imposed substantially broader conditions. But, in essence, she was using the occasion to reargue her position that did not prevail in the Business Data Services proceeding.

So, I commend the current Commission for the emphasis placed on limiting the imposition of conditions to those directly related to transaction-specific harms. For shutting down the Bizarre Bazaar.

But here’s the final point: Congress needs to amend the Communications Act to embody that constraint in law so that it will be durable. And it should adopt other reforms such as requiring the Commission to render a final appealable order regarding proposed transactions within a definite time frame, absent a showing of good cause for exceeding the deadline. Then the conception of the agency’s proper role in reviewing proposed mergers will not be determined by what three of the five commissioners happen to think on any given day, or in any given administration.
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Regarding Congress and the need to update the Communications Act, the new Free State Foundation book, #CommActUpdate - A Communications Act Fit for the Digital Age, Randolph May and Seth Cooper is now available on Amazon in paperback for $9.95 and on Kindle for $2.99! And it is available as an ebook for $2.99 from seven different bookstores here. Read more about the book here.


Friday, November 10, 2017

A Properly Run Lifeline Program Is Important

At its November 16 meeting, the FCC will consider changes to its Lifeline program that provides subsidized communications services to low income persons. As readers of this space know, for many years, even decades, I have been a supporter of a properly run, efficient Lifeline program. So, as the Commission considers certain rule changes, I offer these thoughts about what the Commission has proposed.

First, I am unabashedly free market-oriented. For as long as I have been a Lifeline supporter, at the same time, I also have been a forceful (I hope) advocate of eliminating or curtailing unnecessary, costly FCC regulations – of which there are too many.

Second, I do not consider my support for Lifeline to be inconsistent with my free market disposition because I consider Lifeline service a “safety net” for qualifying low income persons who otherwise might not have access to communications services. But I emphasize, as I did in Senate testimony in June 2015: “Lifeline should be a ‘safety net’ that operates within boundaries to aid those truly in need, not another federal entitlement program that is structured, or that evolves, in a way so that its subsidies inexorably expand to subsidize those further up the income scale who are not truly in need.”

Third, like other “safety net” programs, it is very important that Lifeline be run efficiently and that waste, fraud, and abuse of the program is absolutely minimized. To the discredit of the Commission, and especially of those who knowingly abused the program, this has not always been the case in the past. Yet, over the past few years, corrective measures have been initiated, and they have had some positive impact. It is imperative that the Commission continue these efforts, such as implementing the National Lifeline Eligibility Verifier, to enhance and maintain the program’s integrity. At a time when the USF fee (yes, a “tax”) paid by consumers on all interstate and international calls is nearly 20%, the public will not long support one of the Universal Service programs if waste and fraud is prevalent. Nor should they. So, the FCC must continue the efforts it has begun in this regard, especially by targeting “bad actors.”

Fourth, even though I have made clear on many occasions that policies incenting facilities-based providers should be favored over those that do not provide such incentives, the Commission’s proposal to eliminate non-facilities-based providers from Lifeline participation gives me substantial pause. Approximately 70% of current Lifeline subscribers are served by resellers, and a large proportion of those 70% are served by wireless providers. Moreover, surveys consistently show a significant proportion of low-income households are “wireless only.”

For whatever reason – and the reason may well be that Lifeline-eligible persons understandably are not as profitable to serve as those with higher incomes – the evidence appears to show, at least thus far, that facilities-based providers have not targeted this market segment. So, the Commission ought to be concerned about its proposal to eliminate resellers from participation in the program, at least at this time when they serve such a large proportion of eligible subscribers.

Of course, the Commission should continue to pursue policies, including reducing unnecessary regulations, to stimulate facilities investment in all areas of country, particularly underserved rural areas. FCC Chairman Ajit Pai deserves much credit for calling attention to the rural-urban “digital divide” and for proposing ways to address it. But the primary objective of the Lifeline program is to provide a “safety net” for those who demonstrate their eligibility. The Commission shouldn’t lose sight of that objective.

Thursday, November 09, 2017

Montgomery County Hikes Minimum Wage to $15

Montgomery County passed a new law raising the minimum wage to $15 per hour by 2022, or by 2024 by small employers.

While the phase-in is better than none, the increase is likely, over time, to reduce employment, especially for entry-level jobs that often are filled by younger workers and those less-skilled. The $15 minimum wage may be politically appealing, but that doesn't make it good economics.

Tuesday, November 07, 2017

Foreign Countries Are Infringing on American IP

In a recent article in the Washington Examiner, Dan Schneider, Executive Director of the American Conservative Union, discusses how intellectual property rights are under assault outside of the United States. For example, a report from the IP Commission finds that the U.S. loses between $225 billion and $600 billion in intellectual property each year. Moreover, the Fair Trade Commissions in Taiwan and South Korea have fined the American company Qualcomm for charging too high of a price to allow other companies to access its technology. 

In order to prevent IP infringements abroad, the Trump Administration should promote international trade agreements with strong IP rights protections - thereby encouraging creativity, innovation, and economic growth. 

Friday, November 03, 2017

Michigan Senate Holds Hearing on Bills to Streamline Wireline and Wireless Broadband Deployment

The Michigan Senate is considering a pair of bills that would limit fees, streamline permits, and generally make it easier for private network providers to deploy both wireline broadband and 5G wireless broadband.
Senate Bill 636 would cap permit fees required for a wireline telecommunications provider working within a county right-of-way and set limits on bonding and insurance requirements for wireline telecommunications providers working within a county right-of-way. It is similar to the package of HB 5096, HB 5097, and HB 5098 currently being considered by the Michigan House of Representatives.
Senate Bill 637 would provide similar regulatory relief for wireless providers. It would limit fees charged by local government for attachments to utility poles and access to other facilities; provide for use of rights-of-way; put limits on certain permitting processes and zoning reviews; prohibit certain commercially discriminatory actions by state or local authorities; and prohibit certain indemnification or insurance requirements.
I had the opportunity to appear before the Michigan Senate Energy and Technology Committee on November 2, 2017. Senator Mike Nofs chaired the hearing on the proposed bills. My testimony before the committee is available here.