Neglect and Uncle Sam, not the Internet, Killed the Middle Class

In an interview with Salon and his newest book, “digital visionary” (Salon’s words) Jaron Lanier claims that the internet has destroyed the middle class. Kodak employed 140,000 people, while at the point of its sale to Facebook, Instagram employed just 13, and (without much exaggeration) thus, the internet killed the middle class. QED.

What a crock.

Lanier is apparently incapable of stepping back from technological determinism and looking at the actual causes of our ballooning economic inequality — which, to cut to the chase, is primarily a result of our policy choices. Yet the role of government in determining the overall shape of the economy is too often understated or outright ignored by those who wring their hands about growing economic inequality.

With some noted exceptions, those who criticize Lanier still mostly point at the old standby twin bogeymen of automation and outsourcing. The HuffPost chat in which all of the guests are willing to challenge Lanier’s conclusions is typical on this count but hardly alone. To his credit, Buffalo State College economist Bruce Fisher starts heading in the right direction with his concerns about fostering and preserving the political and social engagement of those who are being left out, but he fails to take it the next step and discuss the major policy changes and political neglect that have brought us to this point.

The best explanation that I’ve seen of America’s growing wealth inequality is Winner-Take-All Politics, in which Jacob Hacker and Paul Pierson start with a simple look at other industrialized countries to show that inequality isn’t an inexorable outcome trade and automation. The Germans and Swedes certainly have similar chances to outsource their manufacturing and use technology to reduce labor forces.

Not only does the rest of the industrial world have the internet, too, better telecom policy means they generally have faster connections and cheaper prices. Yet as measured by the Gini Coefficient, a measure of economic inequality, their economies have far more equal distributions of income in take-home pay and wealth.

The wealth distribution in particular is just shocking — the US has a wealth Gini of .801 (where 1.000 is “one person owns everything”), the fifth highest among all included countries and almost exactly the same as the distribution of wealth across the entire planet (.803). Think about that for a second; we have the same radically unequal distribution of capital within the US as among the entire population of the world across all countries — from Hong Kong and Switzerland to Nigeria and Haiti.

With our paper-thin social safety net and highly unequal distribution of income and wealth, we’re left with an economy where tens of millions struggle to get by while wealthy Manhattanites are hiring handicapped “relatives” for $1,000 per day to be able to skip the lines at Disney World.

Across countless major policy areas —health care, education, financial regulation, taxation, support for the unemployed, and many more — the rest of the industrialized world generally does far more to make their societies fairer for all. Our shrinking protections for workers may be the greatest single cause of the shrinking middle class. Of course, this can be done badly — I would certainly not want to swing as far as Italy and Spain, where it’s nearly impossible to fire somebody once they’re a regular, fulltime employee. Yet we should not allow employers to fire union organizers with near impunity. We should not force organizers to wait for months between card check and votes to unionize so that employers can “educate” their captive audience workforce with the most pernicious disinformation and intimidation. We should not sit idly while nearly half of states fail to meet even “minimum workplace-safety inspection goals, due to state budget cuts and reduced staffing.”

It’s true that the middle class is being gutted in the US, but this is primarily due to how our political system turns the act of surviving and thriving into a high-wire act for an ever-larger slice of the population. Laid-off baby boomers, even those with desirable skills, are having a devil of a time finding work in a country where age discrimination is only nominally illegal. Meanwhile, our children attend public schools with an unconscionably unequal distribution of funding, so moving or being born into a more affordable neighborhood may cost kids their futures, too.

Teens and laid off workers alike are told that college is the route to a better future, but the cost of education is skyrocketing as states and the feds slash public investment in higher education. Many families — even many families with health insurance — are one major medical problem away from unemployment and bankruptcy. Since it’s totally legal to use credit reports and current employment status in making hiring decisions, being laid off or losing one’s job after a medical problem can quickly become a death spiral. None of this is due to outsourcing or automation, but is instead the result of a noxious combination of deliberate policy changes (the privileged seeking to strengthen their own hand) and policy drift (the rest of us sitting idly by or being ignored when we do speak up).

Frankly, I’m glad that Lanier has released this book, sloppy though it may be. (The people raving about this book as a carefully wrought masterpiece are deluding themselves — and not, as Lanier accuses others of doing, “diluting themselves”.) This is not primarily because he has some insights here and there, but because we need to talk about the gutting of the middle class as loudly and as frequently as possible. We must do so, however, in a way that examines how our collective decisions have gotten us to this point. That includes making international comparisons with other “laboratories of democracy” to see how we can do better.

After even a cursory glance abroad, we will see that we should stop returning to the too-easy explanations based on globalization and technology. These forces are at play across the world, and the other wealthy industrialized countries have generally not had the same dismal results. The more likely culprit is in the halls of government.

Dear Commissioner Copps: Thank You for Your Public Service

On Monday evening, the Hunter College Roosevelt House is hosting an event on media policy and reform, featuring former FCC Commissioner Michael Copps. Sadly, it’s in the middle of my Monday class, so I will be unable to attend — and it’s oversubscribed, so I can’t urge you to attend either.

Still, I’m really excited for my colleague Andrew Lund, who is leading the conversation with Mr. Copps, as well as the many Hunter students and faculty who will be able to attend. Thus, I wanted to share a bit about what I’d like them (and the world) to know about this great public servant.

To fully appreciate how exceptional Copps was as an FCC Commissioner, a role he fulfilled from 2001 to 2011, you need to know how thoroughly the Commission has traditionally been a “captured” agency — that is, generally doing the bidding of the industries that it was constructed, in principle, to regulate.

You should also know how the “revolving door” of government works: After working in government in a position of any real importance, many former public servants often take plum jobs in the private sector where they can leverage their regulatory knowledge and even their interpersonal connections to the advantage of their new employers.

Once he started his term at the FCC, Commissioner Copps knew that, after his time in government, he could easily walk into a plum job in the private sector. After all, this had been the route taken by many of his predecessors — as well as many of his colleagues who stepped down in the interim.

Unfortunately, when looking at the decisions that many of these FCC folks who turned that experience into very-well-paid private sector jobs, one could be forgiven for wondering whether many of them truly had the public interest at heart. Some of their decisions suggest that they were, at least in part, also thinking about their long-term earning potential. I won’t name names, but all of us who follow communication law reasonably closely know the most obvious examples.

When looking at Commissioner Copps’ decisions, however, nobody could possibly doubt that his true allegiance really was with the public for the full decade of his service. Media reform groups like Free Press and Public Knowledge finally had an unabashed, reliable ally with his hand on the levers of power, on issues from broadcasting to telecommunications to pluralism and diversity.

Want a sense of where Copps stands on the issues? Go listen to this interview with Democracy Now. Or this one. Read this collection of speeches or this collection of op-eds. Over and over again, you see him supporting the importance of using the power of the state to shape a more democratic, fair, and representative media system.

Copps is probably best known for his opposition to consolidation in ownership between media companies. He “was the one vote against approving Comcast’s takeover of AT&T’s cable systems in 2002” (p. 261), but this was just a warm-up.

The real sea change on ownership came in late 2002 and 2003, as then-Chair Michael Powell proposed a substantial roll-back in the rules against media consolidation. Copps and fellow Commissioner Jonathan Adelstein pushed to have substantial public discussion around the proposal, including multiple, well-publicized hearings. Powell said no — allowing just one hearing — so Copps and Adelstein went on tour, holding 13 unofficial hearings.

Through this and other efforts, working alongside public interest-minded NGOs, Copps helped bring major public attention to Powell’s proposal, ultimately bringing it to a halt. This slowed (though certainly did not stop) the process of media consolidation, through which ever fewer companies control ever more of our media landscape.

Copps has continued to be known for his opposition to media consolidation — though unfortunately, when Adelstein stepped down in 2009, Copps lost an important ally in the fight. Echoing the 2002 vote, Copps was the only Commissioner to vote against allowing Comcast to purchase NBC-Universal in 2011.

I would love to say a great deal more about Copps’ time at the FCC, but I’ll say just a few more words on one more issue: broadband regulation. He came in just in time to dissent from the FCC’s decisions to give away the keys to the kingdom on broadband interconnection, in the decision that led to the Brand X ruling by the Supreme Court.

The FCC ruled that broadband infrastructure companies — the folks who’ve used imminent domain and massive public subsidies as key tools as they’ve laid the cable, phone, or fiber lines over which broadband is transmitted — are not obligated to share their “last mile” systems with competitors. (This requirement for “interconnection” was already in place for landline local and long-distance telephone service, which led to an explosion of competition and plummeting prices.)

The Supremes held that the FCC was within their rights to make the decision, not that it had to come out that way; if Copps had won the day, we wouldn’t be dogging it in the horse latitudes of poor service, high prices, and slow broadband speeds as the world runs past us on all three counts. In the years after, Copps made the best of a bad regulatory position, serving as the most reliable vote for for mandatory network neutrality.

Again, though ownership and broadband policy are among his best-known issues, Copps was a tireless voice for the public interest on virtually every issue imaginable that came before the Commission. Even though he stepped down from the Commission over a year ago, he continues the work today.

Even as a former Commissioner who spent a decade being the thorniest thorn in the sides of those seeking to make a quick buck at the public’s expense, Mr. Copps could still quickly make a quick buck himself working for industry. There are a large number of companies, industry trade groups, and swanky D.C. law firms that would be quite happy to give him a huge salary, cushy office, and first class travel budget to speak on their behalf.

Instead, Copps has moved on to work for Common Cause, one of our nation’s strongest voices fighting for the best interests of ordinary people. This is just the latest in a long line of decisions in which he has chosen to fight for the public interest, even though it’s easier and more lucrative to fight for those who already have disproportionate money and influence.

For public interest advocates, Michael Copps was, at a minimum, the greatest FCC Commissioner since Nicholas Johnson retired nearly 40 years ago — and perhaps the greatest ever. His work at the Commission will be missed, but I look forward to seeing him continue to have a major role in pushing for a fairer, more just media system for many years to come.

One more point, for anybody who’s read this far: As of now, Copps’ Wikipedia page is a mere stump — the Wikipedia term for an article that is too short and needs to be expanded. In this case, a great deal more needs to be said in order to do its subject justice. I call on you to help me do this in the coming weeks. Mr. Copps was and remains a tireless and effective servant of the public, and this is but a small favor we can do in return.

AT&T/T-Mobile Merger: Less Competition, Higher Prices

I was dismayed to learn that AT&T is trying to buy T-Mobile for a whopping $39 billion.

AT&T can use the extra towers to improve reception in very crowded metropolitan areas, but the decrease in competition and likely resulting increase in price is a big problem.

People who sell a product charge what the market will bear, but if the market isn’t fully competitive—if customers have few options to take their money elsewhere—then customers can’t punish high prices or poor service, and providers charge more for less.

The wireless market is already not competitive for two important reasons. First, providers lock in customers with a combination of contract law and technology. They claim contracts and handset locks are necessary to recoup the costs of subsidized handsets, but why don’t they all charge less for month-to-month service on unsubsidized handsets? (T-Mobile is still alone in offering such a discount.)

Second, the industry is already an oligopoly, with so few major competitors that they already have the power some power to charge inflated prices. The standard measure of an industry’s competitiveness is the Herfindahl–Hirschman Index, or HHI.

To calculate an HHI, you take the square of the percentage of each firm’s market share. A firm with 20% share adds 400 points (20 x 20) to the HHI. According to Department of Justice antitrust guidelines (which, unfortunately, the DoJ and FTC have stopped following), if the HHI is over 1,000,  the market is moderately concentrated—that is, not fully competitive. If the HHI is over 1,800, the market is highly concentrated and thus non-competitive. If a market is already over 1,000, then any merger raising the HHI by 100 points or more is presumptively a problem for competition.

To see how bad things are already, and how much worse they would be after the proposed merger, we should calculate the HHI for the wireless industry, both before and after. First, here are the ComScore market shares for each carrier as of March 2010:

Table 1: Market Concentration in the Wireless Industry, March 2010

Carrier Share, % Share Percentage, Squared
Verizon 31.1% 967
AT&T 25.2% 635
Sprint 12.0% 144
T-Mobile 12.0% 144
Tracfone 5.1% 26
Totals 85.4% 1916

 

This is what a noncompetitive oligopoly market looks like. We already see this in a lot of important ways—suboptimal cell service, attrocious customer service, stubbornly high prices, and charges that are often exponentially larger than the marginal cost.

The prices for text messaging in particular are a great example of “price gouging” and illustrate the industry’s tacit collusion (pdf). The cost for the network provider of handling a text message is virtually zero, since the messages are small enough to fit into the “control channel,” or the tiny bit of data that your phone and cell network are exchanging even when you’re not talking or using mobile data.

In a truly competitive wireless market, a customer would drop a provider who charges up to $20/month for something that’s actually nearly free to provide. Imagine if McDonalds sold hamburgers at their current prices but charged $0.20 for each french fry—or $20 for all the fries you can eat. Potatoes are cheap, so we’d be offended and take our money elsewhere, because the fast food market is highly competitive.

In mobile telephony, however, there almost is no “elsewhere” to take our money, especially if you need reliable nationwide coverage. The number of players is small enough, and customers are locked in enough, that there is little opportunity to punish this price gouging.  (Thankfully, free messaging-over-data via services such as Google Voice allow customers some opportunity for arbitrage, but expensive data plans and technological know-how limit this opportunity to to the most economically and technologically well-positioned customers.)

So the bad news of an uncompetitive market is already here. Now, let’s see what the market might look like after an AT&T/T-Mobile merger. Here’s that table, assuming that all T-Mobile customers stay with AT&T (and most will have to for some time, thanks to their two year contracts):

Table 2: Approximate Market Concentration Following AT&T/T-Mobile Merger

Carrier Share, % Share Percentage, Squared
AT&T plus T-Mobile 37.2% 1384
Verizon 31.1% 967
Sprint 12.0% 144
Tracfone 5.1% 26
Totals 85.4% 2521

 

A substantial number of T-Mobile customers will switch to Verizon or Sprint, but the HHI would still be in the mid-2000’s, and no scenario makes this market more competitive than today’s market. In short, customers and regulators should be worried.

Now imagine what happens when it’s specifically T-Mobile that goes away. They have long been the cheapest option, offering the worst service among the big four in exchange for much cheaper prices. They’re the only company that has experimented with discounted pricing for month-to-month customers. Inexplicably, they’re still the only major US carrier to deploy UMA, which allows voice calling over wifi. (I’d love to use my Verizon minutes to make and receive calls over my home wifi router; instead, I’m forced to take the chance that I’ll drop yet another call in my first-floor apartment. Can you hear me now?)

T-Mobile offers several unique features in the otherwise troublesome wireless market, and AT&T is unlikely to keep many if any of them. Ma Bell just wants the customers, towers, and spectrum. If they wanted to sport UMA or cheaper pricing, they could have offered them years ago.

The current cell market is already highly concentrated, so we get service that is overpriced, with limited features and a quality of service that does not justify what we pay. If federal regulators allow AT&T to buy T-Mobile—which, unfortunately, is practically a given—the market will be even less competitive.

This merger means less choice and still-higher prices for something like the service we’ve long since been promised. If you have a lot of stock in the telecom industry, however, it’s a big win.

 

Why Media and Journalism Scholars Support Network Neutrality

[This is a draft blog post as submitted to SaveTheInternet.]

Academic associations tend to be politically conservative.

I don’t mean they revere Ronald Reagan and Milton Friedman, though plenty of scholars do. Rather, each group–representing a field’s professors and graduate students–tends to evade controversy, rarely taking a public stance on an issue that might divide the membership.

Thus, it is remarkable that the Association for Education in Journalism and Mass Communication (AEJMC) has declared its support for network neutrality.

The issue is too important to stay on the sideline any longer.

AEJMC represents a diverse group of scholars who research and teach nearly everything related to mass media. Based on our research–and, in some cases, years of industry experience–we know the media business, and letting ISPs pick online winners and losers is bad policy.

Nearly all revolutionary internet ideas–from Amazon and Google to Skype and Twitter–came from cash-strapped outsiders. Somewhere in the world right now, another tinkerer is developing what might become the next big idea. Before it catches on, though, ISP demands for a broadband toll might strangle this idea in its crib.

Also, some of the best stuff online never turns a profit. Imagine if, in 2001, Wikipedia had to pay through the nose just to compete on a level playing field with Encarta. It may have stalled, and even today, forcing Wikipedia into the slow lane would harm and might kill the project.

AEJMC is also concerned about the slow death of the daily newspaper’s business model. We embrace the internet age, but we also hope to ensure financial viability for “print” journalism. ISP tolls would make this much harder.

MSNBC and FoxNews could afford to pay extra for the rapid delivery of rich, interactive media. Most newspapers could not, forcing them to choose between deeper debts and worse user experience. Citizen journalists and exciting nonprofit experiments would also be muted by ISPs.

In addition to concern about the media system in general, we also have a selfish motivation to support network neutrality: Our roles as scholars and teachers. Academics in all disciplines depend heavily on the internet, and most of the educationally valuable content is not backed by big corporations.

If ISPs choose winners and losers online, the online content we professors assign would not often win. Would ISPs bend over backward to ensure my students’ access to the PDF of James Boyle’s Creative Commons-licensed book? Or the Internet Archive audio of WWII-era radio broadcasts?

Boyle and Archive.org are great, but I don’t expect them to pay off Verizon just to make my students’ downloads faster. This means my students have less access to educationally valuable content, they learn less, and the educational value of the internet drops. The same will be true of my research productivity.

As students of the media system and as researchers and educators, we have deep value and respect for the neutral internet. It is a privilege to have contributed to the drafting of the AEJMC statement, and I thank AEJMC President Carol Pardun for having the courage to lead this charge.

P.S. As if ISP profiteering weren’t enough, other interested parties are muddying the issue. The copyright industries, for instance, are desperately trying to force and cajole ISPs into serving as the copyright cops.

P.P.S. In the interest of full disclosure, I am the co-author (along with Minjeong Kim of Colorado State) of a research project examining the online framing of network neutrality. This project won a competitive research grant from AEJMC, though this is in no way related to my long-established opinions on this issue.

Tiered Broadband Pricing and the Myth of the Internet Flood

Over at Public Knowledge, Robb Topolski has written an inspirational post, ISPs Behaving Badly, which criticizes Time Warner’s trial runs at tiered pricing.

I’m not opposed to tiered pricing in principle, though TW appears to have handled it rather badly, and it still fails to solve the root problem of weak competition in the wireline ISP market. Also, I’m skeptical that it’s necessary–rather than a way for TW to keep maintenance costs down and prices up in a market where consumers have few other options.

I really appreciate Topolski taking on the ever-invoked myth that the internet is about to become so choked up as to become unreliable. This is the threat that the “Internet Tubes” will get full, invoked by then-Senator, now-convict Ted Stevens was threatening all the way back in 2006.

Basically, this threat is still a bogeyman and looks to be so indefinitely. Last year, Telegeography concluded, “Internet traffic is growing fast, but capacity is keeping pace.”

Further, DSL Reports debunks the “exaflood myth” in their typical sharply opinionated style.

For a more detached, scholarly view of internet traffic, see the Minnesota Internet Traffic Studies (MINTS) site. Chief investigator Andrew Odlyzko and company are doing great work here. He also suggests that, if anything, the rate of growth in wireline broadband traffic is decreasing. The most recent MINTS post cites a Cogent estimate of 30% growth in internet traffic in Q4 2008 versus 2007.

Last February, Odlyzko argued that, at least as far as the network industries are concerned internet growth may be too slow. This was even based on higher estimates of growth; Odlyzko’s estimate at the time was that internet traffic grows at about 50% per year.

The key is that the cost of managing a network declines by about one third per year. Even exaflood believer Lawrence G. Roberts adopts the latter estimate, following Moore’s law.

If the cost of managing network traffic next year will be roughly 2/3 of this year’s per-bit price, and total traffic is around 3/2 of this year’s total, network providers spend about the same year-over-year for network maintenance (2/3 * 3/2 = 1) and thus make the same profit per subscriber.

Of course, it’s very un-sexy to tell your stockholders that per-subscriber profits will be the same as last year, especially considering the ever-decreasing potential for new subscribers in a broadband market that is approaching saturation.

Thus, dare I suggest: Maybe the exaflood threat is actually about broadband providers leveraging their way into a new business model–whether the Tony Soprano business model of “Charge Google,” or the wireless carriers’ model of tiered pricing.

To draw a comparison with the wireless industry is instructive; even when wireless data transmission is more than doubling every year, wireless carriers keep charging lower prices for better service and rolling out every more reasonably priced all-you-can-everything plans.

Where there’s even modest (and far from ideal) competition, customers come out far better than in the duopoly-at-best home broadband market.

But then again, maybe “global traffic will exceed the Internet’s capacity as soon as this year.” That is, if you listen to Phil Kerpen’s commentary at Forbes–from January 2007.

Stimulus Bill: Content Filtering Out, Open Networks Requirement In

Thanks to Alex Curtis at Public Knowledge for the stimulus bill content filtering update. The good news is in the headline: No on content filtering, yes on open network requirements.

He also posted a PDF of the relevant section. See the highlighted portion on page 9 for the nondiscrimination requirements.

FCC Approves Unregulated Use of ‘White Spaces’ between TV Channels

In a(nother) huge election day win, yesterday the FCC deregulated the “white spaces” between TV stations, allowing technology firms and enthusiasts the right to play around in these unused channels of high-quality spectrum.

In a 5-0 decision, the Commission issued a ruling allowing anybody to transmit messages in white spaces, within fairly limits on the generation of interference. By declaring the spectrum open to unlicensed experimentation, they’ve green-lighted the development of new technologies that some describe as “wifi on steroids.”

Unsurprisingly, Google is happy, and unless you’re invested in one of the incumbent industries on Wired’s list of losers (see first link), you should be, too.

Visit today’s FCC Daily Digest, where you can see the FCC press release and the five Commissioners’ statements.

FCC Hearing: Comcast Hired Seat Warmers

At yesterday’s FCC hearing into Comcast’s practice of blocking BitTorrent traffic in Cambridge, Comcast hired several dozen seat warmers to reduce the number of critics who could get into the hearing.

The hearing was held at Harvard’s Berkman Center for Internet and Society. When Catherine Bracy, the Center’s administrative manager, opened the door to the hearing at 7:15 am, “none of the 35 to 40 people waiting to get in appeared to know what the hearing’s subject matter would be,” the AP reports. She also saw a couple of the ringers sleeping in the front row during the hearing.

So far, this means that Comcast has:

*Blocked most BitTorrent traffic by adding fraudulent bits to transit streams
*Claimed that it was doing no such thing
*Once confronted with two different studies (one by the EFF, the other by the AP) proving as much, admitted that they do indeed block BT traffic
*Described its actions as “delaying” BT traffic when the goal and effect is to stop most BT transfers
*Pretended this was all no big deal
*Changed its ToS to reflect the blockade

And now, we add:

*Hired ringers to reduce public access to a hearing into these practices

Let’s hear it for Philadelphia’s own cable giant, Comcast!

(For more on the hearing, check out Berkman’s FCC hearing linkfest.)

Comcast to FCC: Why Regulate? We Have the Blogosphere

In a filing with the FCC (pdf), Comcast claims that, thanks to market competition and blogging watchdogs, there is no need for regulatory intervention to protect net neutrality.

The company’s recent discrimination against peer-to-peer traffic is the cause of the hearing. Last August, Comcast denied the charges (which were first documented on… drumroll please… a blog), but now the company has stopped fighting the clear and convincing evidence, instead changing the Terms of Service to reflect the fact that they are willfully throttling BitTorrent traffic.

Now, they claim:

Network Management is best left to the sound, good-faith judgment of the engineers and proprietors who run and own the networks and who are best able to remedy customer service issues promptly, rather than to regulation. The self-policing marketplace and blogosphere, combined with vigilant scrutiny from policymakers, provides an ample check on the reasonableness of such judgments.

There’s only one problem: whatever market pressure and public criticism can be leveled has already come to pass, and Comcast still has not changed direction. Could this have something to do with the market failure in the broadband market? After all, a duopoly is rarely the sign of a healthy market.

At least one prominent blogger and vocal Comcast critic finds the argument laughable.

On DRM-related sidenote, somebody (presumably Comcast) put a password on the PDF, preventing the wholesale one-step copying of text. Yet further evidence that the company is deeply committed to an open dialogue on net neutrality.

(Link from Lok)