Net Neutrality – Economic Inequality by Another Name

The Oatmeal took apart a politician’s understanding of net neutrality. The Oatmeal did it the author’s way, I’ll be taking a much more sober approach to the topic.

US Sen. Ted Cruz referred to “more regulation” of the Internet as “Obamacare for the Internet”. This isn’t “more regulation” of the Internet. It is the government’s response to a new market action. The world saw what happens when the US government pushes through legislation before the industry begins to act; goaded on by lobbyists and companies, the Financial Services Modernization Act was passed to overthrow the prohibition of mixing investment and retail banking by the same firm (the Glass-Steagall Act). The lifting of the prohibition of using depositor funds for the purpose of speculative investment brought a nightmare scenario to reality, that “investments” will result in losses and the credit markets will freeze up due to “unavailability of credit” (strictly speaking, the government could have declared most of the contracts illegal and simply forced the parties to return to their initial positions).

The new market action is the ISPs making parties pay for getting access to bandwidth, something that the contract for bandwidth between the two should already have covered. This is similar to other actions that sought to make all aspects of “living”, from eating to schooling, market based.

The problem with allowing all allocation to be decided by a market is that those unable to “pay” their way through will be blocked, in life or from conducting their business. An example may help to clear this up.

Take the case of a person who drives to work and has to face morning traffic. Tardiness is not excusable at the workplace and the person tries to leave early so as to get to the office on time. Imagine the local city council introduces “fast lanes”, people who pay a certain amount can travel on these lanes that are relatively free of traffic. Now imagine this person has his/her ill parent to care for and a lot of the monthly income goes that way and is hence unable to afford the “fast lane”. Sometimes, due to the heavy traffic, this employee runs a little late, blemishing an otherwise perfect record. When judged against a similar employee who has a perfect attendance because s/he could afford the fast lane, who is going to come out on top?

The employee who is judged to be better is already at an advantage when compared to the employee who has to spend caring for an ill parent. That advantage is further widened when they are both judged by the company based on their performance. In economic terms, inequality is worsened. Similarly, turning everything over to the market will result in worsening inequality.

I will present a second example now, a rather (in)famous one in Dhaka.

A large number of people travel to neighboring India for various reasons and apply to the embassy here for a visa. I have heard of a ring operating there that makes the visa process “hassle free” and “simpler”.

Those considering that there is nothing wrong in the first example and everything wrong in the second is why economics is being argued to be a theology, blind faith in the legal concept of an “allowed market”. The ISPs are promising a “hassle free” service if they are paid extra (it is not an industry practice yet).

There is a difference in the price of the product itself and the price of access to the product. In the case of the internet, it’s simply the bandwidth sold by the ISPs that is the product. Now the bandwidth can carry any data because the technology in use converts all data to 0s and 1s. Hence, the binary bits from YouTube or from a PDF document will be the same, except for some identifying pieces of information.

Yet ISPs are demanding that they get paid more if the content providers want normal access. I say normal because by putting content providers (any server distributing any material to end users) on a relatively “slower lane”, ISPs are forcing content providers to pay twice for the privilege to distribute their content.

This will put startups at a major disadvantage. They face the added cost that will result from the ISPs charging for content distribution. This will stifle innovation and also cause the market to become further consolidated as only those who are able to pay (the big players) will be able to survive.

The social equivalent of market consolidation is inequality, specifically, wealth inequality. And if the recent unrest caused by the recession (Occupy, Greece, Spain) contains a lesson for us – it’s that inequality is not a good thing for social stability. It is unlikely that it will be good for market stability either.

Further reading: A different understanding of the ComCast vs. Netflix dispute, the inequality argument still remains valid.

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