Screenshot: It's a Wonderful Life

Reading Tim Wu’s “The Master Switch,” one can’t help but conjecture that the author and Columbia University professor looks under his bed each night to ensure no transactions are taking place wherein one party actually derives a profit. If they are, he cries “Monopoly” in the same fashion a frightened child would cry out for his mother in the middle of the night.

Or, perhaps he was terrified as a child by a man with a handlebar mustache wearing a monocle and top hat.

I, however, respectfully assert that every time a company succeeds against unfettered competition and government regulation, an angel gets its wings. Hey, it’s a stretch, but makes more sense to me than dropping the “M” bomb whenever a company exerts a competitive advantage.

In the “The Master Switch,” Wu attempts to bring perspective to the last 150 years of information and telecommunications history by documenting the missed opportunities, shortsightedness, genius, and, yes, frequent failings of acumen displayed by the giants of telegraph, telephony, film, radio, television and the Internet. In each instance, Wu argues the innovative geniuses at the heart of each technological revolution pursued the almighty dollar by pandering to the lowest common denominator of a crass American public.

Still in Bedford Falls

According to Wu, when a business succeeds where its competitor does not, it’s because the public is oblivious to the evils perpetuated upon them – and the rules weren’t fair to begin with because it presupposes some businesses succeeded at the expense of others’ failing.

Competition, by its very nature, guarantees that one party will rise above its opponent – if only temporarily, until something or someone, some better service, some better product, knocks it off its perch. I believe this is what economist Joseph Schumpeter meant when he labeled the process “Creative Destruction,” not, as Wu would have it, a glass half-empty philosophy turning all-American towns into ugly dystopias.

As Frank Capra’s Mary Bailey might’ve put it: “Trouble is, Professor Wu, we’re still in Bedford Falls, and you think we’re in Potterville.”

Indeed, sometimes a bit of business and political chicanery occurs as well. The first is best handled by allowing the market, clearly understandable law, a light regulatory touch, and, as a last resort the courts, to rectify the ill. The latter, however, is truly a breach of the trust a public places in its elected officials and their respective appointees.

Government Barriers of Entry

Even Wu relates government-instituted barriers of entry when he details how the Federal Communications Commission protected the Bell “monopoly” by playing devil’s handmaiden to its persecution of the Hush-a-Phone company from 1948 to 1956. The small company, explains Wu, developed and marketed a “silencer” consumers could attach to telephone handsets, thereby ensuring increased speakers’ privacy from potential eavesdroppers.

AT&T, however, threatened customers contemplating the purchase and use of Hush-a-Phone with termination of their telephone service on the grounds the device violated a federal tariff: “In 1950 the FCC decided to hold a trial (officially a ‘public hearing’) in Washington, D.C., to consider whether AT&T, the nation’s regulated monopolist, could punish its customers for placing a plastic cup over their telephone mouthpiece.” (p. 110)

The FCC, Wu writes, sat on the case for five years before deciding for AT&T. The Washington, D.C., Court of Appeals reversed the FCC decision, reproached the commission for taking five years to render a determination, and affirmed customer’s “right reasonably to use his telephone in ways which are privately beneficial without being publicly detrimental” (p. 123). Astute readers may recognize the parallels from this past April when the same court ruled the FCC had no authority to impose network neutrality principles on cable and broadband provider Comcast.

AT&T is too easily depicted as the Mr. Potter in Wu’s Capra-esque melodramatic rendering – abetted by the FCC as doddering Uncle Billy intent on defending its initial protectionist role. Poor George Bailey is played by Hush-a-Phone’s Henry Tuttle, the little man vindicated by the Court of Appeals’ angel Clarence.

What Wu fails to grasp, however, is had the government not bestowed its noncompetitive regulatory blessings upon AT&T in the first place, Hush-a-Phone just might’ve been Ernie Bishop, successful Bedford Falls cab driver. When Uncle Billy shows up three-pints in, nothing but mischief can result, including stifled investment, job creation and technical innovation wrought by regulatory uncertainty.

We’re not just talking about the Bedford Falls Savings and Loan here, folks.

Selecting Winners and Losers

Wu acknowledges in his discussion of the Taft administration’s investigation of AT&T practices: “We see for the first time something that will occur again and again in the state’s calculated exercise of discretion over whether to bless or destroy the monopoly power, deciding in effect what industry it will allow to be dominated.”

In short: government assumes the power to select winners and losers in the marketplace, ostensibly under the guise of leveling the playing field.  But for the indisputably inherent fact the playing field can never be level. There’s always an earlier riser, a faster gun, better long-distance service, and even better advertising and product placement, not to mention the game-changing elements economists call externalities over which players often possess little or no control.

That’s the reality of free-market competition, not monopoly, Professor Wu. And it’s truly a wonderful life.

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Bruce Edward Walker is managing editor of The Heartland Institute’s Infotech & Telecom News and former managing editor of MichiganScience at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.