Professor Thomas Hazlett poses a difficult question: spend billions on broadband expansion or spend billions on improving infant mortality rates? What's a poor country to do? If this is a (fair & balanced) Morton's Fork, so be it.
[x Commentary]
We're Number Two?
By Thomas W. Hazlett
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At a swanky American resort in the summer of 2008, an elite policy discussion was underway, and the message could not have been more stark. The U.S. has fallen behind in the global broadband race and is now falling further behind. We are sinking to Third World status. Surely, the government must act.
This frightening but familiar refrain was being warbled almost by rote when the room was startled by an interloper. A Brit, heretofore silent, broke in: “I am extraordinarily fascinated by this discussion, which mirrors what we say about our broadband in England.” In a flash, the Brit’s comment crystallized the fact that we in the developed democracies now live in a reverse Lake Wobegon. Instead of believing that all the children are above average, we now believe that we’re all falling behind.
Asserting the desperation of America’s international position has long been a useful tool in political debate. This kind of global-ranking panic works splendidly even when false, as it was when Senator John F. Kennedy warned about the supposed missile gap in his successful 1960 campaign for president. Kennedy chastised the Eisenhower-Nixon administration for “losing the satellite-missile race with the Soviet Union because of... complacent miscalculations, penny-pinching, budget cutbacks, incredibly confused mismanagement, and wasteful rivalries and jealousies.” The handy statistic—No. 2 in a two-superpower world—packs punch. It is today the rhetorical weapon of choice by proponents of health-care reform or broadband regulation.
When the U.S. can’t even boast the download speeds of Estonia or keep up with Hungary in (reducing) infant mortality, how can we look ourselves in the collective mirror? Our system is failing.
Perhaps it is. But accurate diagnosis is the key to treatment. In the policy world, such statistical flashes can generate more heat than light. Often, the proffered ranking is a spurious correlation, also known as lying with statistics.
In an October 2008 report, the Center for Disease Control placed the U.S. 29th in infant mortality, tied with Slovakia and Poland, and trailing Hungary and Cuba. That stunning outcome was quickly seized: the U.S. health-care system needs to be more like the government-run systems in those lands.
Proponents of that view often shift into one-on-one comparisons of Canada and America. Canada, with mandatory public health insurance, experiences 5.3 deaths per 1,000 births; the U.S., with private insurance for most, sees 6.9 deaths, a rate 30 percent higher. This outcome is then attributed to cross-country differences in the health-care systems. “Canadian Health Care, Even With Queues, Bests U.S.,” writes Pat Wechsler for Bloomberg.com, citing infant mortality as 34 percent higher in the United States.
But infant-mortality differences can and should be explained by the American proportion of teenage mothers, which runs here at three times the Canadian rate. These pregnancies are less healthy, producing more premature, low-birth-weight babies. Within each birth-mother age category, the U.S. has generally equal or better infant survival, as a 2007 National Bureau of Economic Research paper by economists June and David O’Neill details. The problem of infant mortality remains. It should surely be reduced in the U.S., and serious measures should be undertaken to accomplish this. But the factors that cause it—adolescent pregnancies, drug abuse, smoking, drinking, and obesity—are probably not going to be fixed by changes in health insurance, public or private.
Focusing on the healthcare system requires nuance that, for those happily touting summary statistics, is not worth the stress. Michael Moore’s documentary "Sicko" revels in rankings that place Cuba ahead of America in the infant-mortality race. Indeed, in 2008 Cuba claimed an infant-mortality rate of 5.8 deaths per 1,000 births against the U.S. rate of 6.9. Setting aside questions as to which deaths count in the infant-mortality statistic—U.S. medicine makes extraordinary attempts to save low-birth-weight babies that would otherwise be deemed miscarriages—and the far higher mortality of birthing mothers in Cuba, just one adjustment is provocative: the rate for Cubans living in the U.S. is 4.2. Holding culture constant, the U.S. outranks Cuba.
That may not be much of a boast, but political opportunists and newspaper headlines trumpet just the reverse story. Alas, our PowerPoint Generation gravitates to bullet points and two-dimensional bar charts, even as we stumble our way through this multidimensional universe. CliffsNotes science drives crises where none exist and misses those that truly loom.
Virtually any social sphere is ripe for exploitation. Take the Nobel Prize race, a highly visible global competition for supremacy in the sciences (and, if you like, literature and peace too). The U.S. is utterly dominant in this rivalry, amassing some 320 medals of the 768 awarded through 2008. No other country has 35 percent as many.
But that doesn’t mean that the rankings cannot be used to punish the U.S. For, you see, when one uses per capita totals as the benchmark, the U.S. lags badly. We’re barely holding on to the 10th spot, and, as George W. Bush said about our broadband ranking in 2004, “that’s 10 places too low.” Not even Barack Obama’s sensational rookie season playing for the Stockholm Peace Prizers will reverse that.
It would be absurd to posit an emergency here; the U.S. is a magnet for scholars from all over the planet, drawn to our excellent universities and research communities. (By my reckoning, we boast 10 of the top 12 universities in the world.) But rankings not dissimilar are bludgeoning the U.S. in the “global broadband race.”
The latest “we’re falling behind” hysteria involves high-speed access to the Internet. The essential argument seems to be that without universal access to its wonders, America’s schoolchildren will not receive the education they need and deserve—and therefore the United States in the 21st century will, yes, fall behind. The argument would be ludicrous if it weren’t for the fact that colossal amounts of public money are certain to be poured into it to solve a crisis that doesn’t exist.
The $787 billion “stimulus” package contains a $7.2 billion nugget to boost broadband (cable-modem, DSL, and 3G wireless) networks. As Obama said when unveiling the package:We will create millions of new jobs. . . . We will also renew our Information Superhighway. It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here in the country that invented the Internet, every child should have the chance to get online. And they’ll get that chance when I’m president, because that’s how we’ll strengthen America’s competitiveness in the world.
The “broadband stimulus” is an act of budgetary triage that ultimately supplies a mere placebo for a purported global-ranking emergency. The Paris-based Organization for Economic Cooperation and Development (OECD), placing the U.S. at 15th in the world, tolls the crisis bell. Activists and interests hear their call. America trails Iceland? Do something!
There is no lack of ready advice, most of it perverse. But start with this: the OECD rankings are dubious. Better evidence is easily found. Taking broadband subscriptions across countries supplied for the first quarter of 2009 by the respected UK consultancy firm Point Topic, population from the CIA World Factbook, and household size from a United Nations database, one places the five wealthy large economies in this order: 
The reasons for this rankings comeback? I focused on large economies similar to our own and on subscriptions per 100 households. This reflects the reality that the key issue is access to broadband and that members of a connected household all have access. Curiously, the OECD data focus on subscriptions per 100 persons. That means that if an 18-year-old college student leaves mom and dad at home to move alone into another broadband-connected apartment, the broadband penetration rate (among these three persons) then doubles from 33 percent to 67 percent. This gimmickry fails to reflect that there is zero change in broadband availability or usage.
More generally, this approach docks countries with larger family sizes (the U.S. and Japan, for example). That’s how the OECD knocks the U.S. to 15th, when its “household” rank is, according to Federal Communications Commission economist Scott Wallsten, between eighth and 10th using the very same data. And, among the five wealthy countries, it’s effectively tied for first with Japan.
Interested parties—from CEOs seeking special favors to political operatives seeking new government powers—howl in a cacophonous chorus each time the U.S. slips a notch. And when the U.S. actually held its ground (15th) in the OECD’s 2008 rankings, moving past Japan, nary a positive peep was heard. Indeed, President Obama simply switched surveys to obtain further slippage to justify his claim that America was falling further behind. In December 2008, the U.S. was an embarrassment at No. 15. By February 2009, the president, abandoning the OECD ranking for another from Point Topic, ominously noted that we had fallen to an appalling No. 19—behind Estonia, the Isle of Man, and first-place Monaco.
On sophisticated, multidimensional surveys, the U.S. tends to rank much higher. Hence, the America-is-failing thesis receives no succor from the Economist e-Readiness Index, which in 2008 ranked the U.S. market as tops. The U.S. also ranks at the top of the Business Software Alliance’s international IT ranking, highly in the World Economic Forum’s Networked Readiness Index (third in 2008-09, following Sweden and Denmark), and first in the University of Calgary’s Connectivity Index (2009).
What such rankings tend to miss, however, are the subtle deregulatory changes that help propel markets. It is simply forgotten that French and Japanese networks languished early in the WWW era, even as France’s government-owned telecom operator pushed its own top-down failure, Minitel. During this period, the U.S. chose to privatize government-held data networks and permit unregulated commercial exploitation, thus unleashing competitive Internet service providers, browserware, and the birth of the mass-market “network of networks.”
Unconstrained U.S. cable-TV operators then pioneered innovations in residential broadband. DSL growth in America surged next when it, too, was deregulated. In a December 2008 study, Anil Caliskan and I show that by year-end 2006, there were 25 million DSL households, some 10 million more than predicted by the regulated pre-2003 trend. Unregulation worked, and then deregulation worked even better. Properly interpreted, the international experience strongly supports this path.
South Korea has long impressed as a broadband leader. The OECD correctly explains the “Korean miracle” as the result not of government regulation but of “vigorous infrastructure competition with multiple independent DSL networks competing against cable networks.” This verdict—from the OECD’s first global-broadband ranking, issued in October 2001—noted that South Korea featured easily the highest use of broadband (in subscribers per 100 population). “The main factor that sets Korea apart,” said the report, “is the high level of competition between different infrastructure providers.” That this has been the approach of other countries, such as Canada, the U.S., and Sweden—all relatively successful in encouraging broadband build-outs—undermines the reflex regulatory call issued in response to more recent OECD rankings.
The U.S. has its share of policy blunders. Our affection for so-called “unbundling”—a policy to separate out the pricing of goods and services even if they are being provided through the same means by the same provider—which was pushed by regulators after the 1996 Telecommunications Act, was a boon to the communications bar but squandered competitive opportunities for everyone else. Unbundling was, mercifully, put out of its misery by a U.S. Circuit Court ruling in 2004. Following that decision, cable phone service popped up, with the result that more than 90 million households now have a choice between two fixed-line operators. With the mobile-phone-market take-off, new, competitive communications networks are rapidly making fixed lines themselves relics.
The federal government, focused on our allegedly slipping broadband rank, is now determined to do the opposite in relation to broadband. The policy of “net neutrality,” advocated by the new head of the Federal Communications Commission, Julius Genachowski, is designed to give the government the power to decide which forms of network management to allow and which to bar. This is hostile to investors’ interests and will reduce their capital outlays—which is to say, the rate at which bandwidth grows. This, in turn, is hostile to users’ interests. Somehow this is to protect the broadband Internet, where we are seen to be falling behind South Korea—a country without net-neutrality rules.
A well-crafted competition can yield great insight. Financial analysts compare company debt ratios and learn a lot about balance sheets. But an ill-crafted rivalry can obscure rather than illuminate.
Lyndon Johnson’s famous metaphor on affirmative action comes to mind: “You do not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race, and then say, ‘You are free to compete with all the others,’ and still justly believe that you have been completely fair.” The value of the metaphor is its kernel of truth: a profound injury inflicted does not heal the instant a balm is applied.
But life is not a race, and no Handicapper General can rig our lanes for an equidistant dash to the finish. Indeed, if there is a Start or a Finish, none of us (it is to be hoped) will be there to experience it. The government’s tools can only make ad hoc interventions into the most complicated social relations. These can easily do more harm than good, robbing its liberated citizens of the chance to decide their own fate while discriminating indiscriminately. Can there be any clearer proof of this than the sorry state of quotas four decades on, not to mention the realization that if the government had simply succeeded in generally improving public education, those whom President Johnson had intended to favor would have benefited far more?
But the race has power of its own. Earlier this month, the UK—which took an ax to British Telecom, severing its local phone lines so as to create a heavily regulated platform (OpenReach) to host rival Internet service providers—was found to be floundering. According to an international survey analyzing 24 million data downloads for speed and quality, Oxford University’s Said School of Business found England in 25th place of 66 countries evaluated, badly trailing the U.S. The grim conclusion: “Study finds UK broadband lagging behind.”
As we drown in Lake Wobegon, the rankings collide. What justification is there for throwing public money after a higher broadband penetration rate when these subsidies could be used to improve, say, America’s infant-mortality rate? The answer is supplied by New York University economist Michael Katz, a former Clinton FCC official who has sharply criticized the “broadband stimulus.” At a forum earlier this year, Katz observed: “There are a lot higher social value programs we could be doing.” All we need now is a global survey that proves U.S. policymakers are 56th in the world in choosing the right race to the bottom to use as justification that their country is sinking fast. Ω
[Thomas W. Hazlett is professor of law and economics at George Mason University School of Law and director of its Information Economy Project. In 1991-92, he served as chief economist of the Federal Communications Commission. Hazlett received his PhD in Economics from UCLA and has held faculty positions at the University of California-Davis, Columbia University, and the Wharton School of the University of Pennsylvania.]
Copyright © 2009 Commentary
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Copyright © 2009 Sapper's (Fair & Balanced) Rants & Raves
