Convergences

Ronald Coase's Anniversary lectures at George Mason

Yesterday I attended "Coase's Federal Communications Commission at 50," at George Mason Law School, a discussion featuring FCC Commissioner Robert McDowell, Tom Hazlett, Jeff Eisenach, Evan Kwerel and John Williams. On the whole, a cheering event, for it was a strong reminder that truth will out, and advances can be made in government in spite of its being perpetually beseiged by opportunists.

Fifty years ago economist Ronald Coase wrote an article in which he challenged the conventional wisdsom that the electromagnetic spectrum used by wireless devices such as broadcasting had to be centrally planned by government. He argued that instead there could be property rights in spectrum, and it could be sold in the market. This would be a much less costly way of making sure services reached consumers. At the time this idea was considered absurd. But gradually as the FCC became overwhelmed by the problems with central planning for spectrum, they became willing to experiment with spectrum markets. John Williams, formerly an engineer within the FCC, quietly toiled away within the agency on the engineering end of this problem since 1965 (the year I was born); economist Evan Kwerel likewise for the economic end (not for quite so long). The experiments were successful--overwhelmingly so--and progress continues to be made today. Slowly.

But what does the future hold? Commissioner Rob McDowell pointed out that recent auctions show some backsliding on the part of the Commission. In the recent sale of spectrum for 700 Megaherz wireless services, the FCC insisted on describing services that the winners would have to provide, instead of granting flexibility. Commissioner McDowell suggested that the future is likely to prove this move was a mistake.  Economist Tom Hazlett pointed to the Commissions' slowness in recognizing that the spectrum now being used by televsion broadcasters is mostly wasted; to move more valuable services out to consumers more quickly, broadcasters should be free to sell their rights to other types of providers. Evan Kwerel cheerful identified those holding up more rapid progress--opportunists, who wish the government to hand out spectrum so long as it goes to their favorites; "taxation through regulation" forces within the public sector, who wish to hang on to it for government uses; "technology romantics" who see technology as being able to solve economic problems without property rights; and anti-capitalists, who fear private companies' power in the market--to such an extent that they are willing to forgo trillions of dollars in economic growth that would benefit consumers. Jeff Eisenach is concerned about current political trends, which look to government as the solution to all ills; if the "public option" is best for health care, why not for communications? (Indeed, one might ask, why not for food, clothing, shelter, transport?) .

What grounds for optimism are there? First, that Coase's ideas were tried and did, slowly, take hold, in spite of the mockery to which he was subjected when they were first pronounced. Second, the government-run systems are likely to collapse of their own weight. Third, and most importantly, the power of consumer demand. Businesses feel it; the FCC feels it; legislators feel it--it has become overwhelming, and it is driving change. Slowly. 

Having observed the policy process for twelve years now, I am beginning to feel that the power and importance of consumer demand *to policy* (as opposed to business matters like sales) has been greatly underestimated and overlooked. It is undeniably shaping spectrum policy. It is certainly shaping copyright policy. It is shaping privacy policy, another area I have observed for some years. It strikes me that it would be worth making a more systematic study of consumer demand and policy. Both the right and the left seem to leave it out as a force to be reckoned with. Daniel Spulber's recent work on consumer coordination is a good start.

Sketch shows Jeff Eisenach top left, Commissioner McDowell top right, and Evan Kwerel, lower down.

Spectrum White Spaces

The FCC voted to open up the white spaces. All five Commissioners agreed, though Tate would prefer to limit the number of channels covered, and each issued his/her own statement. All emphasized the careful and tentative nature of the action; were they into Deng Xiaopeng quotations, they would have said "Mozhe shitou guo he" ("Crossing the river by feeling for stones").

The underlying Second Report and Order (08-260) will be published within a few days.

Chairman Martin commented:

Today’s action was advocated by a diverse coalition of consumer groups, technology leaders and Internet pioneers. Opening the white spaces will allow for the creation of a WiFi on steroids. It has the potential to improve wireless broadband connectivity and inspire an ever-widening array of new Internet based products and services for consumers. Consumers across the country will have access to devices and services that they may have only dreamed about before. I fully expect that everything from enhanced home broadband networks, to intelligent peer-to-peer devices, and even small communications networks will come into being in TV “white spaces.”