Innovation: Touchstone of Internet and Economic Growth

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Innovation improves our lives. This season, I was able to watch my Dallas Stars, whose games are only on local television, from any computer that has an internet connection and hardly missed a game. Technology is one issue area that should be of particular interest to Swampland readers. It has been an issue I have followed my entire career, and I worked hard to pass the Telecom Bill back in 1996.

The internet as we know it was created by entrepreneurs free from government interference. As long as entrepreneurs are in control, we can expect innovation. I worry we are entering a new era. Internet entrepreneurs are being replaced by bureaucrats and regulators. This will have implications for our ability to keep our economy dynamic and competitive.

Since America pioneered the internet, most people do not realize that we are in danger of losing our leadership position in this critical field. In fact, the United States has slipped to 15th in broadband penetration, according to the O.E.C.D., and Asia and Europe are leaders in the mobile internet. One reason we’re falling behind is the myriad of regulations for the “last-mile” of cable, phone, or fiber that connects homes to the internet. Local cable is too often still a monopoly, although states like Texas and Missouri are beginning to change that.

On the telephone side, our rules and laws are still struggling to escape the traditional, “Ma Bell” monopoly view that the phone grid is a common public resource. But if phone companies have to share the benefits of new investment and innovation with their competitors, they won’t make those badly needed investments. The bottom line: we need more competition and stronger property rights to expand affordable broadband to all Americans.

Even more troubling are the storm clouds on the digital horizon. Many of the free-market policies that helped grow the internet in the U.S. are now under outright attack in Congress.

Take taxes, for example. Remember the internet rumors in the 1990s about an “email tax” bill? Well, that threat is real after November of this year. That’s when a law known as the “Internet Tax Moratorium” expires, lowering the gates to a horde of state and local tax collectors.

Currently, federal law blocks state and local governments from saddling your internet access bills with extra taxes. This measure is an appropriate federal preemption that recognizes both the interstate commerce aspects of the internet, as well as the internet’s importance to free speech. The current moratorium has been a bipartisan policy, but there are signs that the consensus is ending as the law expires this year. The local tax and spenders have Congressional supporters in Senators Lamar Alexander (R-Tenn.), Daniel Inouye (D- Hawaii), Tom Carper (D-Del.), and others. Quite literally, if these Senators have their way, your email inbox will become the government’s tax collection box.

A further irony is that many of these same Senators support generous government subsidies for broadband deployment in schools and rural areas. It’s a classic Washington parlor game to tax something on one hand and then subsidize it on the other. The only winners are bureaucrats, lobbyists, and of course politicians.

In addition to low taxes, another reason the internet has blossomed and driven so much economic growth is that it has remained largely an unregulated space. And, if we leave entrepreneurs and venture capitalists free to innovate, the internet will continue to grow and evolve in ways that we cannot predict. That’s especially true as we add video and even telephone to the internet experience. But some of the biggest winners of the current internet—like Google and eBay— have evolved from innovators to rent seekers and want the feds to lock in their business model by creating new “Net Neutrality” regulations.

Google, eBay and friends, like the internet exactly how it is structured now, and they fear continuing investment and innovation will produce another wave of entrepreneurs who might displace their businesses. “Net neutrality” isn’t even a real problem— the only companies I know of that are blocking web sites from users are Yahoo! and Google in China. Once the F.C.C. and political Washington gets their hands on the internet, they will never let go.