Net Neutrality is an increasingly popular topic for debate: Consumer advocates preaching about the freedom of choice; lobbyists preach about the freedom of markets; millions of people sit on the sidelines and wonder what they hell they’re talking about. While I can appreciate the arguments from each stakeholder, I’ve come to find both rather moot as internet tiering seems to be more a symptom of a larger economic problems than an actual issue itself. Net Neutrality isn’t a battle about the rights of internet consumers, its about the decline of innovation in the American economy.
Once upon a time ( in a land far far away), companies would compete for consumer dollars based on the strength of their products. The best /whatever/ were solid pieces of machinery that would last for years as the focus of innovation was to create better products. Most people are all too familiar with buying a modern day kitchen appliance that barely lasts a few years, while their parents regularly use products that are decades old.
At some point in time there was a cultural shift in America and we collectively decided to stop making purchases based on the strength of products, but instead on price. At the same time, corporations started to focus exclusively on maximizing their profits — and we all became familiar with planned obsolescence, offshore labor, and eventually offshore customer support as we increasingly complained about inferior goods.
The typical American Company no longer cared to innovate on the strength of their products, and instead focused on their financial statements — trying to make products as cheaply as possible. People began to not care they’d have to replace their blenders every year, because an unserviceable chinese made appliance was cheap enough to not care about how long it lasted. Unfortunately, we all learned the real costs involved on the third, fourth and fifth times we replaced any given appliance.
I doubt manufacturers consciously aimed to reduce quality at first, they simply didn’t care about it anymore; quality was an early casualty of minimizing costs. At some point though, marketers realized that they could position multiple lines of products — using a lower price point of disposable goods to inflate the prices of better made products, and encouraging consumers to trade-up to the higher priced model.
Over several decades, the general focus of what we innovate on — across our entire economy — has shift from what we make, to how we make and market it. American products are no longer as well made as they once were; in fact, many are not even made in America, they’re merely designed or managed within US borders, and manufactured outside.
Our capacity to innovate has shifted focus so much onto Costs and Marketing that an entire industry has grown around virtual goods. No, I’m not talking about the million dollar digital goods purchased in online games — I’m referring to the 1.2 quadrillion dollar “financial derivatives” market that nearly collapsed the US economy. Financial derivatives aren’t products that are linked to tangible goods, they’re essentially complex methods of valuing trading loan repayment obligations. An entire industry worth not millions, billions or trillions — but quadrillions — was created on the premise of selling different types of billing arrangements.
Financial Derivatives are merely an example of our shift from tangible products to intangible transaction-oriented ‘products’. US based Bank of America and Wells Fargo both recently lost class action lawsuits for creating illegal “billing products” in which their customers banking activity was processed in a way to maximize overdraft fees. While a customer’s deposits would be processed in a chronological order, their withdrawals would be reordered into a “largest to smallest” list. This created an abusive and aggressive situation in which multiple overdraft fees and penalty charges would occur. Instead of figuring out ways to lower fees or provide better service, Bank of America and Wells Fargo decided to innovate on how they bill their customers.
Telecommunication companies have operated in a similar manner. If you have a multi-year Cellular or Internet Service contract, you might note that your service has remained the exact same, while you have an increasing number of plans or service changes disclosed in your bills. It’s not uncommon to have an ‘unlimited’ plan suddenly capped at a very limited number; or learn that you now have your choice of 3 different ways to be billed for the exact same phone service. Instead of addressing the countless dropped calls or 2 week wait for customer service appointments, telecommunications companies have pushed their capacity to innovate into their billing department.
In modern times we use the term “billing products” to discuss these types of innovations, but historically this has been called “Rent Seeking (Activities)”. For those unfamiliar with the term, Rent Seeking is when an organization uses their resources to obtain an economic gain, without actually creating any wealth.
While the financial derivatives crisis has shown itself to be outrageous, the Net Neutrality issues is nothing other than perverse. For the first time in history, companies are actively lobbying for the ability to charge people for substantially worse service – and proud of it.
The argument for Tiered Internet Service isn’t one about free markets – in fact its the exact opposite , as its requires the manipulating of telecommunication resources – not to mention garnering government legal support. Instead of spending their energy on faster downloads, larger bandwidth, or cheaper costs… these companies are spending tens of millions of dollars to lobby the government for the ability to charge consumers more money for worse service. Instead of lowering their customer’s bills or improving their service through technological advances, companies like Comcast, Verizon and AT&T are spending time, energy and resources to argue for the ability to charge additional fees for improvements on a degraded service. Even in a purely capitalistic sense, this is a terrible idea — its an implicit sign to stockholders that these companies are technologically unable to compete for products, so must instead find new ways to bill.
I’m simply amazed that no one is discussing the situation around Net Neutrality from the larger economic context. Many people like to talk about the core of the American economy shifting from product to service based, but the service aspects have increasingly proven to be a midpoint on a larger shift — one in which Rent Seeking is a major component. The presence of Rent Seeking Activity has historically been one of the best indicators of substantial economic and governmental problems one can find, if you can find it. Today we’re in a cultural moment where this sort of activity isn’t happening behind-the-scenes , but its being publicly embraced and hailed as an ideal by its benefactors. Our economy has embraced a shift away from innovating on goods and creating better products that push our civilization forward, to one that is just trying to bill people differently. To me, this isn’t troubling, it’s terrifying.