Paul Krugman: The French Connections

Paul Krugman discusses how lack of competition among providers of high-speed internet service has caused the U.S. to fall behind other countries:

The French Connections, by Paul Krugman, Commentary, NY Times: There was a time when everyone thought that the Europeans and the Japanese were better at business than we were. In the early 1990s airport bookstores were full of volumes ... promising to teach you the secrets of Japanese business success. Lester Thurow’s 1992 book, “Head to Head: The Coming Economic Battle Among Japan, Europe and America,” which spent more than six months on the Times best-seller list, predicted that Europe would win.

Then it all changed, and American despondency turned into triumphalism. Partly this was because the Clinton boom contrasted so sharply with Europe’s slow growth and Japan’s decade-long slump. Above all, however, our new confidence reflected the rise of the Internet. ...[M]ost of Europe except Scandinavia lagged far behind the U.S. when it came to getting online.

What most Americans probably don’t know is that ... as dial-up has given way to ... high-speed links — it’s the United States that has fallen behind.

The numbers are startling. As recently as 2001, the percentage of the population with high-speed access in Japan and Germany was only half that in the United States. In France it was less than a quarter. By the end of 2006, however, all three countries had more broadband subscribers per 100 people than we did.

Even more striking is the fact that our “high speed” connections are painfully slow by other countries’ standards. ... Oh, and access is much cheaper...

What happened to America’s Internet lead? Bad policy. Specifically, the United States ... forgot — or was persuaded by special interests to ignore — ...that sometimes you can’t have effective market competition without effective regulation.

You see, ... to get [to the internet] you need to go through a narrow passageway, down your phone line or down your TV cable. And if the companies controlling these passageways can behave like the robber barons of yore, levying whatever tolls they like on those who pass by, commerce suffers.

America’s Internet flourished in the dial-up era because federal regulators ... forced local phone companies to act as common carriers, allowing competing service providers to use their lines. Clinton administration officials ... tried to ensure that this open competition would continue — but the telecommunications giants sabotaged their efforts, while The Wall Street Journal’s editorial page ridiculed them as people with the minds of French bureaucrats.

And when the Bush administration put Michael Powell in charge of the F.C.C., the digital robber barons were basically set free to do whatever they liked. As a result, there’s little competition in U.S. broadband — if you’re lucky, you have a choice between ... the local cable monopoly and the local phone monopoly. The price is high and the service is poor, but there’s nowhere else to go.

Meanwhile, as ... Business Week explains, the real French bureaucrats used judicious regulation to promote competition. As a result, French consumers get to choose from a variety of service providers who offer reasonably priced Internet access that’s much faster than anything I can get, and comes with free voice calls, TV and Wi-Fi.

It’s too early to say how much harm the broadband lag will do to the U.S. economy as a whole. But it’s interesting to learn that health care isn’t the only area in which the French, who can take a pragmatic approach because they aren’t prisoners of free-market ideology, simply do things better.

_________________________
Previous (7/20) column: Paul Krugman: All the President’s Enablers
Next (7/27) column: Paul Krugman: The Sum of Some Fears

Update: Paul Krugman emails:

I wrote a piece on this, "Digital Robber Barons?", back in 2002 - unfortunately, it looks my worries were justified. Also, Matthew Yglesias had a piece 2 years ago (which I somehow missed).

The broadband penetration statistics are at http://www.oecd.org/document/7/0,3343,en
_2649_34223_38446855_1_1_1_1,00.html

Connection speeds are at http://www.websiteoptimization.com/bw/0705/

 And he adds his personal experience:

When Robin and I moved into our current house, which is in Princeton Township a few minutes' drive from the university, we had NO broadband available. We actually got a satellite dish - which provided lousy access, but better than dialup. Eventually Verizon offered DSL - pretty slow DSL. And last year Patriot Media, our cable monopoly, finally came up with its own offering. But that's it.