Knowledge And Decisions

There is nothing peculiar about transportation that brings about such results. The regulated communications industry shows the same patterns. As in transportation, there was once a plausible case for government intervention, when the alternative of free competition did not seem feasible under existing conditions. In the broadcasting industry, there are inherent technological limits to how many competitors can operate in a given area, because broadcast signals interfere with one another, and beyond some point such interference makes all broadcasts unintelligible. This was a clear case where the government creation of a property right — in this case the right to exclude others from broadcasting on a given station’s wavelengths — was a social gain, not simply a gain for the property owners. But the government went beyond defining a property right to assigning a property right. The crucial difference between the two functions is apparent in the case of land, where there are elaborate laws on property rights in general, and elaborate government records on each piece of land, but the actual assignment of ownership occurs almost entirely through market transactions. The defining of a property right in broadcasting over certain wavelengths served the public interest, but the power to assign such rights to particular individuals or corporations served the interests of politicians. The regulatory process they created — and continue to influence through appointments and appropriations — had enormously valuable property rights to hand out at their discretion, with little more legal restrictions than vague phrases about “the public interest.” In exchange, politicians and their appointees were in a position to receive everything from simple obeisance²³ through campaign contributions, favors to constituents and friends, jobs in the regulated industry, and outright bribes.

In communications, as in transit, new technological developments threatened incumbent organizations and incumbent technology. Cable television made possible an unlimited transmission of stations to any given point, unlike broadcasting through the air. The whole structure of the industry — networks, affiliates, advertising patterns — could have been undermined or destroyed by the new technological possibilities. So too would have been the existing regulatory apparatus, which was no longer needed after the industry was no longer inherently monopolistic. But as in transportation after alternative modes (autos, airplanes) eliminated the railroad monopoly on which the I.C.C. was based, so in communications the response to the elimination of the initial rationale for regulation was to extend the regulation to encumber and contain the new threatening technology.

Under this set of institutional incentives and constraints, it is hardly surprising that corruption scandals have plagued broadcasting regulation for decades,²⁴ and surrounding the outright proven corruption is a large gray area of questionable financial windfalls to politicians, including the fortune of Lyndon B. Johnson.

Sometimes the political gains from regulation are more indirect but no less substantial and no less distorting to the use of resources in the economy. For example, the routes of federally subsidized passenger trains reflect the locations of the constituencies of key politicians, rather than the concentration of people requiring the service:

Because the Chairman of the House Commerce Committee and a prominent member of the ICC come from West Virginia, at various times three passenger trains have been run east and west through the state, which has limited demand for passenger service. Similarly Amtrak has had to provide two routes through Montana on the former Great Northern and Northern Pacific main lines because of the political strength of senators from Montana. Because members of Congress from Ohio have shown no special interest in transportation, that populous state receives a relatively small coverage of passenger trains: Cleveland was not served by Amtrak at all in the initial plan. ...²⁵