Unleash telecommunications to boost growth

Jack Kemp
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Posted: Jul 31, 2006 12:01 PM

What do the United States and China have most in common these days? An increasingly pressing need to grow our respective economies faster. How? By one of the few practical means available: unleashing the information technology and telecommunications sector.

China faces a dilemma. Double-digit growth in China over the last 20 years has spawned tens of millions of entrepreneurs. Chinese government leaders understand that it is easier to maintain "control" over all of this through autocratic and at times repressive political processes, when general living standards and personal household wealth are rising quickly. However, rising oil prices pose a need to keep real growth in China high enough to pay for the escalating cost of importing ever-larger volumes of oil without sacrificing improvements in living standards.

America faces similar economic challenges. The rising price of oil is doing to many oil-producing countries what opium did to China 100 years ago. Windfall revenue from oil exports is creating the illusion among far too many increasingly corrupt autocracies in oil-producing states, like Iran, that they do not need to modernize or abide by globally accepted commercial and political norms to survive. Instead, those newfound riches are too often squandered on weapons, terrorists or whatever else it takes to keep bankrupt regimes in power.

Predictably, it falls to America to do what is needed to keep global oil supplies flowing and the global economy growing. Dealing with fanatic regimes in Iran, North Korea, Syria and elsewhere is one thing with the U.S. economy humming along at full employment. An economic slowdown could undermine the public's willingness to foot the bill for being the world's guardian of democracy and freedom.

All of which brings us to the growing strategic importance of America's information technology sector. Research recently conducted by noted Harvard economist Dale Jorgenson concluded that since 1995, the four information technology producing industries - computers, semiconductors, software and communications - have accounted for one-third of real economic growth in the United States, even though these industries combined account for less than 3 percent of gross domestic product.

China understands this equation as well as the United States and is targeting its own information technology sector for preferential treatment and rapid growth. It is also investing considerably more in its domestic communications networks than the United States and has been since 2003.

It is in this context that the U.S. Congress needs to rethink national communications policy. When formerly regulated competitive network industries were completely deregulated, as was done with railroad, airlines, trucking and natural gas during the 1970s and 1980s, each of those industries immediately went through a period of accelerated innovation, productivity gains and lower consumer prices. This is precisely what needs to happen to the U.S. telecom industry.

The telecommunications sector is no longer limited by state borders. That's why the trend in communications policy has moved toward uniform rules and a national deregulatory framework to encourage competition and innovation. Telecom reform legislation recently adopted by the House and now being considered by the Senate would reduce the overregulation and overtaxation of telecommunications. Both bills promote more competition among video service providers by allowing them to obtain a national franchise instead of enduring the burdensome process of obtaining thousands of local government franchises.

Similarly, the Senate bill creates a national policy for wireless telecommunications by freeing both consumers and wireless companies from the current patchwork of 50 different sets of state regulations, which has the effect of limiting innovation and consumer choices. The Senate bill also calls for a three-year freeze on new discriminatory state and local wireless taxes, which have increased 10 times faster than taxes on other goods and services between 2003 and 2005.

Rather than let free competitive telecom markets work their magic, some Senate Democrats want to subject the Internet to so-called "net neutrality" rules - the same types of economic regulations that have cost consumers and investors billions in unnecessary costs and losses since the industry went bust in 2001. Given what's at stake, that clearly is a disservice to the economy and the country. It's also a primary reason why the fortunes of the U.S.

telecommunications industry need to be decided in the marketplace, not by the government.

Jack Kemp is the founder and chairman of Kemp Partners. Cesar Conda, a former domestic policy adviser to Vice President Dick Cheney, is a consultant to several telecommunications firms and co-author of this article.