Staying regular

by Henry Farrell on July 31, 2003

“The Economist”: (subscription required) has a rather silly editorial this week, deploring Congress’s efforts to push back FCC deregulation of the media industry. If you believe the _Economist_, the FCC was a disinterested champion of economic stability, while its “interested opponents” were shouting nonsense “about “grave threats to diversity of opinion in America, and even democracy itself.” Worse, the decision is a symptom of a wider malaise; “political meddling in regulatory policy is on the rise,” and the real problem is that “regulators, far from being unduly immune to the business of politics, are not sufficiently independent of the politicians.”

Even by the _Economist’s_ bombastic standards, this is a fact-deficient piece of free-market puffery – its account of the politics behind the FCC battle is laughably inaccurate. But that’s by the way; what’s interesting is the broader lesson that the Economist wants to draw from the affair. It claims that politics and regulation shouldn’t ever mix. In making this argument, the _Economist_ demonstrates a profound incomprehension of the actual relationship between politics and regulation. In fact, Congress’s 400 to 21 vote to smack down the FCC is a perfect example of how politics _should_ work to correct regulators. But to see exactly why, it’s necessary to trudge through a little political science.

_The Economist_ makes a rather grand claim – politicians should have nothing to do with regulation, because they’re too prone to engage in porkbarrel politics. It asks, rhetorically,

bq. But why should regulators be political at all? Once the broad legislation is in place, the job of detailed day-to-day regulation, which is both highly complex and technically demanding, is best done wholly free of political interference. A good analogy is with central banking: within a broadly agreed political framework, it works best when the detailed decisions on monetary policy are taken independent of any outside political pressure.

This sounds quite convincing, because it’s half true. But the half that isn’t true is the important half. Roughly speaking, laws, which politicians draft, set out the important principles, while regulations, which regulators and bureaucrats draft, implement those laws in detail. Regulation involves things like quotas, quality standards, and very specific rules for very specific circumstances. As the _Economist_ says, these rules are complex and technical. They’re also exceedingly tedious – I learnt most of my French from spending months wading through European Commission regulations on phytosanitary standards and the like (don’t ask). But – and this is the crucial bit that the _Economist_ glosses over – these tedious details are often highly political. Millions and tens of millions of dollars can turn on technical-sounding and abstruse details of regulation. The levels of allowable pollutants in water may literally be a life-and-death matter. Regulation is politics – it’s just very _complex_ politics.

David Epstein and Sharyn O’Halloran “suggest”: that politicians will rely on specialized bureaucrats to draw up rules regarding matters that are too complex and technical for the politicians to decide on themselves. But politicians inevitably run a risk when they delegate authority to regulators. They don’t know that the regulators are going to implement politicians’ intentions faithfully; a regulating agency might have an agenda of its own. Indeed, regulatory agencies are often ‘captured’ by the constituencies that they’re supposed to be regulating, so that rather than, say, regulating the electricity industry in order to benefit consumers, they regulate the electricity industry in order to benefit the electricity industry. Sometimes, relationships between regulators and regulatees can get very cosy indeed. In order to mitigate this problem, politicians are likely to implement safeguards, and to reserve the right to make policy themselves if it appears that the regulatory agency in question has gone off the rails.

And, to return to the _Economist_ article on the FCC, this is exactly what happened last week. The FCC, under Michael Powell, took a decision that manifestly favoured large, well-connected corporations in the media industry over the public interest, despite tens of thousands of protests. A well-organized grassroots campaign convinced politicians that this was a lousy decision, which ought to be overturned. And so (it appears) it has been. The _Economist_ is quite simply wrong; not only does regulation involve politics by other means, but every once in a while, politicians need to interfere, to ensure that regulators do their job.



carl 07.31.03 at 8:27 am

Yeah good post. I was also somewhat baffled by this. I haven’t been reading the Economist for long, but they seem pretty level-headed and their free-market advocacy is generally even-handed and refreshingly non-rabid. This piece was a clear departure, as you point out. I really preferred the line that they took in the “Capitalism and Democracy” issue about a month ago. There they said that government should be pro-market, but not pro-business, which is something even most lefties can agree with. The FCC decision was clearly pro-business, with no apparent benefit to consumers. Doesn’t the Economist normally take a line against economic concentration? Whatever way you spin it, US media has gotten way more concentrated and the FCC decision would have aided that process.


Henry Shieh 07.31.03 at 1:31 pm

The ECONOMIST’s American coverage can get silly sometimes … sometimes they both the details and the tone so wrong that you just bust out laughing.

Perhaps because they use British-born reporters? Makes you wonder how badly our newspapers’ American writers misjudge other countries.


Harry 07.31.03 at 2:08 pm

I’ve been reading the Economist weekly for about 12 years. Contrary to Henry Shieh I tend to find their US coverage pretty good (good compared with what?, I suppose might be asked — good compared with any of the other drivel I read). But its also my impression that its quality has declined sharply in the last 3 years, simultaneously with a sharp change in the tone of their market-advocacy, which has become distinctly shriller and less reasoned. Am I alone in this perception? Could it be that their predictions of Indian nuclear tests and the burst of the bubble have made them lazy?


PG 07.31.03 at 2:41 pm

Thanks for the bitch-slap to the The Economist’s attempt to run a fast one on us. “You, the people, are too stupid to understand regulation. Let the regulatory elite determine the small details.”

However, I would like to see a good response to Michael Powell’s recent NYTimes op-ed.
As noted by Ramar, Powell fails to make a case for de-regulation, but de-regulation is the resting state of conservatives and The Economist; they see the burden of proof as being on the proponents of regulation.

(If a response has been posted already, would appreciate the URL, thanks!)


back40 07.31.03 at 3:53 pm

Harry: “Am I alone in this perception?”


It seems to me that they have been trying to be sharper, more engaged, and so more interesting, but the result seems a bit strained sometimes.


baron 07.31.03 at 4:21 pm

This is an excellent argument you make. I worked as intern in a democratic commissioner’s office when Powell was still a commissioner himself. Interestingly, I think Powell was doing what he thought the Republicans would want and probably didn’t forsee the backlash that has occured in Congress. That, or as some speculate, he will be running for office in Virginia and is setting the stage for his campaign fundraising thereby confirming much on which you commented. An old addage that I’ve heard is that an FCC Chairman can only make decisions that will anger communications companies so the best approach for future occupational propspects is simply to deregulate, which means “do-nothing” in Republican terms, and let the market handle itself. Powell’s op-ed seemed untruthful. He denotes the importance of the national debate all of which seems like political backpedaling on his part. He criticized Commissioners Copps and Adelstein for their insistence on making this issue a national debate by denouncing the fieldd hearings as “whistle-stop” tours that are better addressed in the online comment system of the record (where some 90+ percent commented that this was an anti-democratic approach). “Let’s have a national debate, but let’s keep it in focus.” This comment is superficial as Powell’s actions never prompted debate until Congress began its “shrill . . . rhetoric.”

As far as the Economist goes, I haven’t read the article yet, but I’m sure I’d agree with you all. I’ve sat in on the ex parte meetings between my former commissioner and industry and things are more than political. Lawyers like Dick Wiley of Wiley Rein are often sent in at the last minuted to dissuade votes and oftentimes have inside information as to how certain commissioners are going to vote. This is just a small anecote of what goes on at the FCC on a day-to-day basis

For the Economist to ask why do regulators need to be political at all is disingenuous to an agency that is built on political bloodletting.


Henry 07.31.03 at 4:49 pm

I’m probably a little harsh on the _Economist_ – it is the most serious international news source out there. But sometimes, their gung-ho pro-marketism leads them to make silly, overblown and rather arbitrary claims. By and large, I find their coverage of regulatory affairs to be pretty weak. The article I quoted, and another article in the same issue, both deplore FERC for considering the question of whether California’s power contracts should be torn up, rather than taking their usual pro-deregulation stance. This of course, ignores the disgracefully supine attitude that FERC took to its regulatory duties for years – it allowed power companies to get away with murder. And whenever the _Economist_ has an article on school choice in the US, I just move onto the next article without reading it – they’ve got a bee in their bonnet about pro-market educational reform, and it gets pretty boring pretty quickly.


robert west 07.31.03 at 6:00 pm

The thing that disturbed me the most about that article was that it was wrong even if you completely agreed with its premises; for such an overwhelming majority of the House to vote to overturn the decision suggests that either (a) there isn’t a broad agreement on principles, or (b) there is a broad agreement on principles and the regulators are ignoring it. So even if they’re right that the legislature should codify into law the broad principles upon which everyone agrees and then stay out of it, they’re drawing the wrong conclusions from this story.


Stuart Buck 07.31.03 at 6:33 pm

Regulatory capture is a real phenomenon, but the FCC’s action here has not been demonstrated to be anything of the sort. The real reason that the FCC acted as it did was 1) Congress itself mandated repeal of any and all ownership rules that no longer served the public interest; and 2) the FCC’s rules kept getting struck down in court precisely because it could never produce any genuine evidence that the old ownership rules accomplished any good. (Disclosure: I was a D.C. Circuit clerk last year and in that capacity advised a judge on a case that reversed another FCC ownership rule.)

Anyway, I’ve already discussed these issues on my blog. Well, archives don’t seem to be working. I’ll reproduce the posts for your convenience here:

First, a June 3 posting:

I find it amusing that so many congressmen are upset over the FCC’s decision to relax its rules on media consolidation.

Why do I find that amusing? Because the FCC’s decision was driven by the fact that its media consolidation rules keep getting struck down in court, as Michael Powell’s memo clearly stated and as anyone familiar with the issue already knows. And why do the rules keep getting struck down in court? Because Congress included a provision in the 1996 Telecommunications Act (Section 202(h)) that mandates two things: 1) The FCC must review its ownership rules every two years to determine whether the rules are “necessary” in the public interest, and 2) The FCC must repeal any rules that are no longer in the public interest.

In other words, the FCC has been taken to court several times over its ownership rules. The courts, relying on Congress’s mandated presumption in favor of repeal, keep striking down the rules because the FCC can’t come up with evidence that its rules actually accomplish anything.

So that’s why I find it amusing that Congress is getting mad over the FCC’s decision. The hyperbole emanating from some quarters can be chalked up to simple ignorance of the law, but, of all people, members of Congress should be aware of the pro-repeal law that they themselves passed.

And a May 30 posting:

Lots of people, including some whom I respect, are upset over the FCC’s plans to allow greater media consolidation. What seems to be lacking, however, are any empirical studies or hard facts that would confirm all the predictions of ill effects. Almost all of the articles and weblog postings written on the subject make predictions that seem to me to be far beyond what any factual evidence would support.

It reminds me of a case I worked on when clerking at the D.C. Circuit last year: Sinclair Broadcast Group v. FCC. The case involved a similar FCC rule that allowed common ownership of two television stations in the same local market only if one of the stations was not among the four highest ranked stations in the market and if eight independently owned, full-power, operational television stations remained in that market after the merger. (This was called the “eight voices” rule.)

What struck me about the case was that while the FCC’s purported justification for this rule was to increase viewpoint diversity in the presentation of local broadcast news, it had literally no genuine empirical evidence that would show whether the rule actually had any effect whatsoever on such diversity. (The main piece of “evidence” that the FCC had trotted out again and again was a 1997 survey by Roper that merely showed the percentages of people who watch news programming on television.) Given that Congress had directed the FCC expressly to repeal any rules that lacked sufficient justification, the court had little choice but to remand the rule to the FCC for further review.

So, what bothers me about the current debate over consolidation is that people are making all these dire predictions of woeful effects, but I just don’t see the empirical evidence for it. I suspect that the predictions have as little bearing in reality as did the FCC’s “eight voices” rule, although I would be happy to be informed of any empirical evidence that might exist.


Tom 07.31.03 at 6:48 pm

[on flaws with the economist’s US reporting]

“Perhaps because they use British-born reporters?”

There’s at least one well-known American libertarian blogatrice who’s just landed a gig with them.


brayden 07.31.03 at 7:28 pm

There is ample evidence that the FCC is anything but a disinterested, objective organization. The first, and most painfully obvious, piece of evidence is that the head of the FCC is appointed by the current president. Hence, we have Michael Powell (son of Colin) as the head today. It should be noted that potential replacements for Powell, should he resign and there have been some speculations that he will, are Rebecca Klein (former head of the Texas Public Utility Commission and a close friend of GWB) or Kevin Martin (another Busher who helped count votes in Florida).

Finally, the Center for Public Integrity reports that over the last eight years media companies spent $2.8 million transporting FCC staff to meetings in various tourist locations. Not surprisingly, media companies spent more on Powell than any other FCC commissioner.

The Wall Street Journal offered an interesting interpretation of why the FCC pursued deregulation. In an editorial, they argue that the new caps are “a proxy argument for politicians who believe broadcast news is politically biased.” In other words, Powell is trying to assuage conservative politicians who see the caps as a way to get even with liberal media outlets in their home states. The editorial (found in the July 28 WSJ) named Trent Lott in particular. Although I don’t agree with the Journal’s stance on FCC deregulation, it is interesting that they see the FCC as a political tool.

So, the argument that the FCC is a disinterested organization doesn’t seem to hold together. The opinion is naive at best and corrupted at worst.


Henry 07.31.03 at 8:52 pm

Stuart – interesting points. Going to your main point first – I doubt that this would count as evidence in court, but Berlusconi’s Italy is a poster-boy for the nasty political effects of media consolidation. I lived there for three years – and Italian TV is not only damn awful – but is demonstrably politically biased in favour of Berlusconi’s party. It’s worse now, of course, then when I lived there – he’s in power and has control over the state tv channels.

Your subsidiary points are well taken – especially the one about rules getting struck down in court. I’m far from being an expert in US administrative law, but would be interested to know the answer to two questions. First, given the lack of evidence that you cite – was Powell’s proposed rule any more defensible than the rule it replaced? Seems to me that the law could be read to imply that _any_ rule on media ownership whatsoever is liable to be overturned, even if it’s more ‘generous’ (probably this just demonstrates my ignorance). Second, if the current media ownership limits stay, and are challenged in court again, could Congress’s vote serve as evidence of Congress’s intent, and thus make the courts more inclined to accept the current rules as they stand? These are technical questions, but important ones, and this ignorant political scientist would be grateful for any answers you might have.

Tom – tell all – who’s the blogatrice in question??


Ikram Saeed 08.01.03 at 6:08 pm

I’ve noticed a huge change in The Economist in the past 2 years. I read fairly regularly from 1992 to about 2001, but haven’t picked up a copy in about a year. As other have said, their tone has changed a great deal, and is much less interesting (also feels less British and more American to this non-yank New Worlder).

As for their coverage, I’ve always found their Canadian coverage to be quite shallow, and occasionally misleading. Which makes me wonder if my perception that their mongolia or EU coverage is ‘excellent’ is due to the fact that I know little of Mongolia or the EU.


Marc 08.02.03 at 5:17 am

The rollback of the FCC rules cannot be understood unless you discuss the disastrous experience we’ve had in the USA with radio deregulation. There have been withering complaints from across the ideological spectrum, and the radio experience was prominently mentioned over and over in the criticism of the FCC.

When radio was deregulated, there was incredibly rapid consolidation. One company (Clear Channel) owns 10% of all of the stations in the country. The diversity of music has dropped like a rock (making lots of people unhappy regardless of politics). Sleaze sells, and the incessant potty talk and tackiness has antagonized religious conservatives. And the large companies are very politically conservative. Clear Channel DJs have censored music from artists who make liberal statements (e.g. the Dixie Chicks) and they sponsored numerous pro-war rallies, as well as wall-to-wall conservative radio shows. This has antagonized liberals. In addition, local programming has been almost eliminated; frequently the big companies don’t even bother to have local DJs on their stations. Instead they have a few DJs pushing buttons and sending their shows out to stations coast-to-coast. Public opinion was overwhelmingly against this change, and is accurately mirrored in the congressional vote.

There is a context, and it’s important.




Glenn Condell 08.06.03 at 8:28 am

Who owns the Economist?


hot topic 01.15.04 at 8:37 am

exactly.. who does own the Economist?


t. novak 02.09.04 at 7:59 pm

“Who owns The Economist? Since 1928, half the shares have been owned by the Financial Times, a subsidiary of Pearson, the other half by a group of independent shareholders, including many members of the staff.”,10,10,565

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