Capitalism/financial crisis tutorial telecoms study

Capitalism/financial crisis tutorial

Here is another installment of my continuing series on this subject. This one is particularly important to understand because it is a gigantic case study of a large chunk of our economy where everybody of all economic philosophies made the incorrect decision. It is important to understand this example that I am giving you because I understand that people can be reading my tutorials and understanding the correctness of what I’m saying, but wonder “Is it too late?” and “How could people have avoided making mistakes in the implementation of our capitalism?” So if you’ve not read my previous posts on this subject, please do since I’ll now apply the principles I explained.

Just to reiterate my basic definition of capitalism as provided by the analogy of the “inventors” or “discoverers” or “first practitioners” of capitalism: Capitalism is where surplus of a good or service is produced in an amount beyond what is needed for subsistence, where the surplus is sold on the free market in order to obtain cash. I’ve explained that the fundamental error that specifically the USA has fallen into is to subject the population’s subsistence needs to free market surplus control, and that is the huge error of false capitalism masquerading as true capitalism. Subsistence goods and services (those required for life) should never have been placed in the free market “surplus” sector of the economy. True capitalism sprung from the basic foundation of humans who were able to provide their own subsistence (food, clothing, shelter) through the labor of their hands and who then developed free market capitalism as a way to sell and market (promote) their surplus (extra) goods and services.

So the case study I wish to present is the deregulation and break up of the telephone monopoly. For you youngsters reading this, until the past few decades there was only one Phone Company, called by the nickname “Ma Bell.” It came from Bell Laboratories (as in the famous inventor Edison). That is pretty much what happens when something is invented, and is the proper thing, really. Someone figures out how to do something, like the principles of having telephones and telephone lines, and they form a company to roll it out. The most recent century, the 1900’s, was the time when many “new inventions” and advances were developed or discovered, and then rolled out across the country. The most fundamental example of this was electricity itself. The electrification of the country was something that occupied much of the last century, finally reaching the more rural areas in the 1940’s. Congress guided the rolling out of electrical power provision to ensure that all areas received electricity even, as I said those sparsely populated rural areas. Thus the last century was a time of large public works projects that implemented new technology, such as electricity, as they were developed, such as telephones, by companies, usually the “inventors” of the technology enabling devices, which were usually the only provider, and thus started to be called “monopolies.” So “Ma Bell” became, over time, branded by some of a certain economic philosophy as a “monopoly.”

Here’s the problem with thinking of something as a “monopoly,” with the accompanying implication that there is something stifling and wrong with that. People usually start calling something a monopoly when they resent that the company is making a lot of money because they had the idea first, and they implemented it first. A complication is that the monopoly at some point comes under government control via legislation (in order to protect the consumer, for example), and that is a reasonable and correct thing to do. However, once a monopoly is regulated by the state or federal government, those who envy the business have leverage to charge that the government has somehow conferred “preference” to that monopoly so that only they make money off of, as in this example, the product of telephone lines and telephones. So far so good, the technology and roll out developed as it should, the government regulated where it should, and potential competitors are asking questions, as they should. But here is where it goes all wrong.

People do not recognize that telephone service has become a “subsistence” part of the economy, since people literally cannot live without telephones anymore. Old time farmers walked across the field and talked to their fellow laborers with their mouths, they rode horses to the market and talked with their mouths to customers, and they talked to bankers and other community members with their mouths in person. Now we have a society where that is impossible to do. One needs to have a telephone in order to “subsist” at all. Thus when the legitimate conversation that was initiated by potential competitors was first raised, the government should have recognized that only the “surplus” part of what came to be called telecommunications should be granted free market and competitive rights.

Here is how it should have worked. The national monopoly of providing basic telephone lines and phone hand sets should have remained with one company, and continued to be appropriately regulated by the government. The objective of the monopoly, let’s just call it Ma Bell, would allow for the earning of profit, certainly, but it would not have been a free for all “gouge the consumer for all they can make” since it is viewed as a subsistence service. And the monopoly executives would certainly understand that (not everyone was insanely greedy back then). So the theoretically continuing and ongoing Ma Bell monopoly could make money, but not by raising prices, and they would be happy with that. Why would they be happy? Because competitor rights would be granted to new telecommunications companies to develop all the new “value added” services, and they would “snap on” these services, which are true “surplus services” onto the monopoly’s subsistence service highway.

So the theoretical “Ma Bell” would continue to provide low or almost no cost subsistence basic phone service to all USA customers. They would invest in upgrades to the network, which would be their responsibility, to add bandwidth, locations and for technology advances, such when analog was converted to digital. New companies would have been formed to snap onto to the basic phone company new services, such as when advanced handsets were developed, capabilities such as computer access, texting, etc. In other words, we’d have seen the flourishing of free market “surplus” telecommunications in competitor companies as they marketed their products as “add on” to the basic monopoly backbone infrastructure, which continued to provide basic service at low cost, even no cost to the poorest. This is because as the population increased one could continue to charge a low rate for basic service simply because there were more subscribers, as we would have seen in the 1950’s through 1960’s. The free market competitors would pay the theoretical “Ma Bell” for access to the cheap network so their products would work and be carried on the network. So in theory, “Ma Bell” would provide the bandwidth, the basic handsets and the ability to be carried on the network. “Ma Bell” would make money from the very low basic service fee but would make the real profits via charging the free market competitors for access to the network of their products.

How would that have looked today? Like true capitalism that is also providing social justice in provision of cheap subsistence services too. Many people who really did not need all sorts of fancy services and opted for just basic phone would be paying something like $5.00 a month for phone service, period. Then those who have business needs where, for example, they wanted mobile phone service would have, just as they do today, have purchased them from among competitors without driving up the prices of those who remain with the basic service. Likewise the family with texting obsessed teenagers would buy those services from among competitors, just like today, and they would pay through the nose for it, just as they do now, but without messing it up for the subscribers who still want and need the basic service.

And here’s the bonus. Suppose all of a sudden every free market competitor telecommunications company went out of business all at once. The USA would still have basic phone service provided to every household. No one would have “gotten rid of” their basic home service (you know, that service that works even during power outages?) The poor would have that basic service already provided for them, wired into every apartment, rooming house, SRO and home, just like the middle class and rich. We’d have people paying the same amount or LESS for basic phone service decade after decade, not seeing inflated prices ever. The country is extremely foolish whenever it allowed a subsistence product or service, such as in this case basic telephone capacity, to be subject to free market “competition,” thus making prices rise to what the highest payer will pay, and therefore forcing people to fragment what is a basic need of our country. “If I had been in charge” when all this was being decided, I would have pointed that out, and today every single residence would have basic phone service included at extremely low and unchanging basic cost, including free for those at the bottom of the economic scale. When one buys a house or rents an apartment that service would already be there as it would be as basic as the walls and the roof. So in the way “I would have done it,” visionary competitors could have happily developed and marketed their expensive “value added” telecoms services and products, just as they do today, but they would not have deliberately or inadvertently destroyed what is a subsistence basic phone access that is crucial for every person in society today AND is crucial for the country.

Look at the 911 mess. One can no longer just dial 911 without thinking about if your phone will “come up” in the local 911 or where your phone is registered. That is insane. This is just a small example but in “the way I would have done it,” every residence would have a cheap or free phone that obviously when one dials 911 one gets the local 911, where they have all the information they need for an emergency. Who here thinks that 911 is a profit making “competitive” capability? We never would have had the snafus regarding 911 “if it had been done my way in the first place!” Further, with a basic monopoly service, we could have everyone obtain the same information in times of emergency, you know, that homeland security and weather disaster type of situation? We’d already have the entire country able through consistent cheap or free technology to receive all essential (“subsistence”) telecommunications services.

I could not believe it when I watched the “bad old evil monopoly” of Ma Bell being broken up without any of these so called economic or technology geniuses pointing out even once what I have just explained here. This is one of the most visible examples of the USA derailing all at once 1) true capitalism 2) support for the poor and 3) its own national security, all because people wanted to be greedy. That’s the kicker: they could have been greedy all they wanted and have had their free market for the surplus services all along. But they would have gained their profit by not destroying the very basis for provision of subsistence service and would, in contrary, have worked in partnership, allowing the basic theoretical “Ma Bell” to make profit and keep prices low. The theoretical “Ma Bell,” incidentally, would have continued to be one of the basic low cost but totally steady stocks on the stock market, regardless of what was going on in the nation or the world. In true capitalism one needs subsistence product and service stocks that never lose their value. They may blip up and down but their desirability and foundational role in a portfolio would never be at risk. And remember, that is how “utilities” used to be viewed, as highly reliable though boring stocks with modest returns. But the breakup of monopolies destroyed the strength of the theoretical core utility stock, since, for example, electric companies are regional and subject to good/bad decision making and market forces. If there had been a stock in a monopoly nation wide electrical grid, for example, and, as I posit in this case of the theoretical Ma Bell, a stock in the basic subsistence telecom service to every residence, those stocks would never lose their desirability or value, even if returns are modest, steady and boring.

So there you have it. I hope that you have found this case study useful.