How to Fix the Entire System - in just one talk
Why the system stopped working for average Americans
How to Change the World is a weekly blog about reversing American decline. I will (1) study successful models of governance throughout history, primarily in the West, (2) highlight what’s going wrong leading to institutional decline or ‘political decay’, and (3) present models of democratic innovation that could lead us into a prosperous, peaceful and abundant 21st century.
Greetings
The Canadian Parliament gave a standing ovation to a literal, literal Nazi the other day. I’m not talking about just a ‘literal nazi,’ (the chosen description for MAGA Trump supporters) but an actual, literal member of the SS. It was an accident of course. All they knew is that he was 98 years old and fought the Russians. Apparently the entire Canadian Parliament are mathematically challenged because that places this particular gentlemen in WWII, when Russia was our ally, and those who fought them were… the racial essentialists of their day, let’s say.
Though I’m sure many who clapped felt coerced and suspicious and applauded begrudgingly1, the story still serves at a peek behind the curtain. Weather they clapped in ignorance or cowardice, for a moment it was obvious that these people are simply told what to do, clapping like trained seals for whoever is trotted out in front of them. They are not, in fact, real leaders.
Few would argue that the US congress is much better. Perhaps we should be concerned when we see wealth and power concentrating at the federal level at a time when both the domestic and international fabric appears to be tearing apart.
How to fix the system in one talk
Below is an analysis of the best talk I’ve ever seen on American government dysfunction. Only after you understand the source of this disfunction can you start to take steps to address it. The presentation is fluid and simple, and gets at the very root of America’s malfunction. It’s an explanation for why our prosperity is evaporating before our very eyes.
If you’re willing to watching a video, just skip my essay and watch the link below. But if you feel like reading, I’ll summarize some of the talk, give you some of my thoughts, and try to explain why resolving the issue of regulatory capture that Gurley illuminates, will unlock so much creativity, innovation, wealth and well-being in this country.
When Bill Gurley asked to talk to his congressmen, the congressmen gladly obliged. With the slight caveat, we learn, that he required >$100,000 in small donations (friends and family is fine) to show up. I know, you’re not surprised. And no, this essay is not about political corruption - at least not the small fry - six figure kind. No, this story is about how politicians and big business have figured out a way to work together for their mutual benefit, shielding big business from competition, plundering the US tax payer, snuffing out innovation and bringing our economy to the brink of insolvency in the process.
Colliding with Commercial Interests
Gurley’s fourth VC investment was a company called Tropos Network. It was a municipal broadband provider that bathed entire downtowns in wifi. They were close to a deal in Philadelphia when they started meeting extraordinary resistance - not from voters or citizens, but ‘commercial interests.’ Telecom companies, namely Verizon and Comcast had marshaled their significant lobbying resources to combat municipal broadband from passing. After a massive effort, they won and Tropos Network was sent packing..
It turns out Verizon had pushed through a bill limiting municipal broadband through the state legislature. Gurley was surprised to learn that a corporation even could push a bill through the state legislature!
“This is not what I learned on School House Rocks!” he burst out. The line got a lot of applause. It obviously had the audiences sympathy.
He went on to talk about the the chief lobbyist for Comcast, David Cohen, who had been described by the New York Times as the most important executive at the company.
In short order Comcast had its own city-wide wifi plans. You just needed to pay them a a monthly fee. No free lunches.
To put a final nail in the coffin of free municipal broadband, AT&T joined the fight and wrote bans on municipal broadband right onto the books in 20 states.
Bill’s friends and family and their one congressman never stood a chance. That’s what you get in modern America when you collide with commercial interests.
Legislate your Competition Away!
Gurley introduces us to the Telecommunications Act of 1996, which had two goals:
promote competition
encourage rapid development of new telecommunications technologies
“Let’s see how it went!” Gurley shouts in mock excitement to the crowd.
Somehow, in the five years after the legislation was passed, the top four telecom providers went from less than half of market share to 85%. Astonishing. It’s almost as if the legislation was designed to do the opposite of what it said.
Some call this capitalism, but they’re misinformed. Capitalism operates with a “free market.” This is the opposite - it’s closer to corporate-government collusion, sometimes known as fascism.
If you enjoy a spot of irony, notice what the same critics of capitalism call for. More regulation! As if they can just will it to be written by benevolent souls instead of industry insiders. Hilarious. But I digress.
Let’s check in on the second priority: promoting innovation.
VC investment in telecom equipment also cratered. Eventually it stopped even being tracked.
The bill didn’t just fail, Gurley points out. Failure is things staying the same and the legislators simply wasting everyones time and money. This created the opposite of what it was supposed to do. Do we even have a word for that? Legislation like this is to a healthy market what anti-matter is to matter. It obliterates it.
Most people don’t know that the federal government does this with regulation all the time. The step in to “fix” the industry (say healthcare, access to higher education, housing), then through either haplessness or corporate predation, make those things even less available to the American people than before the regulation ever existed while enriching the incumbents.
Say it with me: Regulation is the friend of the incumbent
Now about half way through his presentation, Gurley introduces us to Joseph Stigler, the father of ripping off the public in the corporate interest. The official term for this is “regulatory capture.”
If this doesn’t red pill on how regulation is viewed from the perspective of powerful business interests, maybe nothing will.
After introducing the concept, Gurley makes the audience repeat “regulation is the friend of the incumbent.” Say it under your breath a couple times to try it on for size. It’s a sage statement. This statement is the equivalent of a climate scientist pointing out that CO2 and Methane trap heat in the atmosphere. It’s axiomatic. And it’s the most important lesson you can learn about why the management of the economy gets worse as the government takes on more responsibility.
Morgan Stanley did a study on how this kind of legislation performed:
“Regulatory action has the tendency to improve returns for the largest players in the targeted industry… many attempts to increase competition or improve customer experience have failed to deliver on the promise.”
Final example: The Dodd-Frank bill that passed in 2010, designed to address the too-big-to-fail banks that caused the financial crisis, made it virtually impossible to start a new bank. How convenient for the too big to fail banks! How does that work out for the consumer? How does that work for financial resiliency and innovation? (if I’ve made you sufficiently furious, smash that subscribe button!)
This concludes Part 1. I’ll be back with a conclusion of the talk next week.
Matt Harder runs the civic engagement firm Civic Trust, where he helps cities strengthen their civic environment by helping residents, civic organizations, and local government work together to create public projects. Follow him on Twitter.
I don’t mean to be too harsh on Canadian parliament - I’ve also stood and clapped for someone I didn’t want to in an auditorium because to sit makes you look like you don’t share the values of the group. They were in a no-win situation.