The Political Spectrum: The Tumultuous Liberation of Wireless Technology from Herbert Hoover to the Smartphone by Prof Thomas Winslow Hazlett. Yale University Press
Prof Thomas W. Hazlett, who recently spoke at the ASI, has accomplished something remarkable with The Political Spectrum. He's written a history of electromagnetic spectrum regulation that’s entertaining, inspiring, and has massive implications for the technologies of the future like driverless cars and drone delivery.
Hazlett, who served as the Federal Communications Commission’s chief economist in the early 90s, traces the history of the electromagnetic spectrum from AM Radio to the iPhone.
He starts by busting the founding myth of spectrum regulation, that without strict regulatory management was necessary to save radio from itself. Contrary to the established view, before the Federal Radio Commission (the FCC’s predecessor) existed the radio spectrum was not in chaos with a cacophony of radio stations blasting signals that drowned out rival broadcasts. In fact, there was a burgeoning market for AM Radio with hundreds of stations in operation resolving disputes and interference with nothing more than the principle of priority-in-use and the common law. It was Herbert Hoover, one of the book’s many villains, who put an end to that. Refusing to enforce property rights in order to create a justification for political control of the airwaves.
In place of a competitive, innovative market that served consumers and where government's sole role was to enforce and define property rights came the Federal Radio Commission and ‘Mother May I’. Innovators could no longer enter the market and many stations were booted off the air.
Rather than a system of tradable property rights, broadcasters instead had to get a license from the regulator and were forced to serve the ‘public interest’. Political broadcasters could get kicked off the air for offending the wrong politician, indeed the book notes that Nixon sought to use license renewals to punish the Washington Post’s parent company during the Watergate scandal.
Frequently the public’s interest was betrayed by regulators and lobbyists uniting to block innovations. The most tragic case is FM Radio. Developed in the 1930s by Prof. Edwin Howard Armstrong it delivered unprecedented sound quality. After eventually being granted permission to use the 42-50 mhz band, the FM radio became a must-have gadget. But Armstrong was hamstrung by nefarious lobbying by NBC and CBS.
They advanced the absurd view that FM Radio ought to be booted off its assigned frequency and relocated higher up the dial in order to prevent ‘ionospheric interference’ from sunspots. Leading radio frequency scientists rejected this proposal citing thin technical evidence. If anyone should have been concerned about sunspot interference, it would have been Armstrong – after all he had a substantial fortune riding on FM radio being a better product. The FCC however didn’t see it that way and pushed FM up the dial.
As a result, existing FM equipment from transmitters owned by stations to receivers owned by listeners was made obsolete overnight. It took Armstrong two years to develop receivers for the new bands, by the time he was finished few consumers wanted to invest in an expensive FM radio that could be made useless.
Only when the FCC approved stereo broadcasting for FM in 1960 (26 years after Armstrong had demonstrated it was technically feasible) did FM win out attracting audiophiles for high-fidelity listening. Tragically Armstrong didn’t make it that far. The failure of his technology and an acrimonious lawsuit lead to him walking out of the 13th floor apartment window. Overbearing regulators and greedy lobbyists denied the world one of its greatest inventors.
Hazlett’s book is full of similar stories where innovators are blocked by the FCC’s onerous approvals process. It wasn’t until 1959 when the book’s hero, Ronald Coase, wrote a paper on the FCC did things slowly change. At the time, his paper was ridiculed and editors criticised him for failing to address the problem of externalities (his 1960 paper addressing the problem is the most cited law review paper in history).
Coase thought the solution was simple. Rather than relying on bureaucrats to approve technologies and broadcasters, simply let the market work. Coase proposed that the FCC should auction off the spectrum to the highest bidder. It would incentivise the spectrum to be used in the most productive way possible. Innovators would no longer have to rely on lengthy approval processes, they simply had to purchase the rights to use spectrum on the secondary market. Mocked at the time, Hazlett's book tells the story of how one British economist changed overhauled the way spectrum was managed and allowing consumers to benefit from new innovations as soon as they were discovered (unlike the 26 year wait for FM Radio).
While many legacy uses still rely on strict regulatory oversight, today most countries have auctioned off swathes of the spectrum enabling the rapid adoption of smartphones. It’s a true victory for free market economics, but the fight’s not over. The public-sector still hoards large sections of spectrum that they’re too slow to clear and legacy users still benefit from overgenerous allocations of spectrum.
Prof. Hazlett’s book offers lessons that have clear implications for the future beyond spectrum. Brent Skorup and Melody Calkins have taken the insights of The Political Spectrum and applied it to the issue of drones and flying cars, two technologies that could revolutionise modern life. The open access standard where anyone can use low-altitude airspace will be under threat when new uses multiply.
Skorup and Calkins fear that the open-access standard will be replaced with the FCC style regulation that Hazlett conclusively demonstrates retards innovation:
1. First movers and the politically powerful acquire de facto control of low-altitude
2. Incumbents and regulators exclude and inhibit newcomers and innovators
3. The rent-seeking and resource waste becomes unendurable for lawmakers,
4. Market-based reforms are slowly and haphazardly introduced
They suggest a Coasean alternative - auction off airspace and then allow a secondary market to develop. Parcels of airspace could be combined, split-up, subleased and sold off allowing innovators to enter and leave the market with the best uses winning out.
Today, Skorup and Calkins idea might be ridiculed – but then again so was Coase. It wasn’t until he was well within old age that Coase’s market in spectrum was vindicated (he received the Nobel Memorial Prize aged 81). Let’s hope that that we don’t have to wait so long for a market in airspace.