Telecom Investment Obstacles Must Come Down, Armey Tells Forum

Telecom Investment Obstacles Must Come Down, Armey Tells Forum
July 1, 2005

Former U.S. House Majority Leader Dick Armey issued an unambiguous warning to Michigan and other states with punishing tax rates and regulations: Until such barriers to technology investment are eliminated, unemployment and economic stagnation will continue to worsen.

Armey addressed tax and regulatory issues at a policy forum on May 24 hosted by the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan. In addition to having been House majority leader, Armey is a Ph.D. economist and co-chairman of FreedomWorks, a grassroots organization that promotes principles of limited government.



State Telecom Reform Essential

Reducing obstacles to telecom investment is essential to economic growth, Armey said, "because telecommunications is the aorta for all of the electronic marvels that are driving the world economy. If you study economic history, the first economic revolution was the agricultural revolution, and from that followed the industrial revolution. And just like during the agricultural and the industrial revolutions, there are massive transformations in the structures of economies."

States that deter telecom investment by over-regulating the market will suffer severe consequences, Armey said. It is no coincidence, for example, that Michigan, with its reputation for heavy-handed telecom regulations, is plagued by steep declines in per-capita gross state product as well as high rates of unemployment--the nation's highest in February, March, and April of this year.

"If you're going to have the same telecommunications regulations that you had after World War II, you are not going to be competitive with the rest of the world in the 21st century," Armey said.

Armey also reminded the audience that businesses typically make site selections by measuring the relative costs of potential locations.



High Costs Depress Investment

"What those regulations do is basically say to providers, 'Stand back. Don't put your time and money and capital and discovery into this, because you can't recover your investment,'" Armey said. "So a business is going to go elsewhere."

Proposals to deregulate a variety of telecommunications services are now pending in at least a dozen states, according to Warren Communications' State Telephone Regulation Report. State control of basic telecom services has been eased in several other states, including Alabama, Idaho, Iowa, North Carolina, and Utah.



South Carolina Leads the Way

Among the most comprehensive of pending reform proposals is a South Carolina measure to end state control of all retail and wholesale telecom rates and many other aspects of service--precisely the approach advocated by Armey and other telecom experts.

"The fundamental principle should be deregulation--maximizing the incentives to discover, create, invest, and build," Armey said.



Regulators Resisting Reform

Despite the benefits of a freer telecom market, some state regulators still express reservations about easing their grip. For example, Robert Nelson, a public service commissioner in Michigan and chairman of the telecom committee of the National Association of Regulatory Utility Commissioners, recently characterized current deregulation efforts as "an odd turn of events," according to the Warren Communications report.

But among economists, industry experts, and millions of consumers, there's nothing odd at all about eliminating decades' worth of obsolete regulations that have undermined technological innovation and investment.

As Armey said, "How much regulation do we need in an era of creativity, when people are providing service all over the place, in new ways, with new devices? We don't need those kinds of regulations now."



Governments Preserve the Past

Resistance to reform from regulators is predictable, Armey added, because government tends to "look backwards, trying to preserve the past because the past is where the existing special interests are vested. Governments are inherently dumb in terms of the rationality of choice.

"I don't mean to say these are not good people. They are good people. But it is a systemic avarice."

To the extent regulators abuse their authority, legislators are largely to blame, according to Armey.

"Legislators leave a lot of loose ends in the law and, therefore, leave a lot of latitude for public service commissions," Armey said. "Do you think these commissioners aren't going to build their empire? So, the legislative body has got to define the limited jurisdictional range of the commission."



Economic Future at Stake

That is precisely the challenge in states such as Michigan, where lawmakers are undertaking a rewrite of the state's principal telecom statute. And nothing less than the economic future of the state is at stake, said Armey.

"As legislators review telecommunications law, they have the opportunity to bring the state's legal structure up to the promise of the electronic revolution in the 21st century.

"I am reminded of something my father always used to say. My father was an old-fashioned guy who believed in such things as practical American genius. His point was, if you don't keep up with progress, you get left behind. And his point was significant: If you do get left behind, it is your own fault."


Diane Katz (katz@mackinac.org) is director of science, environment, and technology at the Mackinac Center for Public Policy.


For more information ...

An edited version of Armey's remarks is available at the Mackinac Center Web site at http://www.mackinac.org/article.asp?ID=7135.