I’m delighted that Jerry Brito has written a thoughtful response to my recent posts about spectrum and property rights. I want to start by reiterating what I have said before: Jerry’s paper on the subject of spectrum commons is a must-read and ably lays out what might be called the standard libertarian view on spectrum policy.
Reading Jerry’s post, I got the sense that we were largely talking past each other. Jerry’s an awfully smart guy, so I’m going to take this as evidence that I didn’t make my argument very well in my last post. So let me see if I can make my argument in a different, and hopefully clearer, way.
Here’s a simplistic and stylized schematic of the current spectrum regime:
The columns represent real property owners, and the rows represent spectrum blocks. Jerry, Tom, and Mary are representative property owners in the Washington DC area, while Susan and Tim own property in the Philadelphia metro area. Each color represents a distinct spectrum licensee. So in this case, we see a 700 MHz spectrum block and a PCI spectrum block, each of which is held by a single owner across all the properties in the chart (these would probably be big companies like AT&T or Verizon). Then we have two different TV channels, which are held by different parties in different metropolitan areas. One of the channels isn’t being used at all in the DC metro area (which is one reason we need spectrum reform!). Finally, we have the WiFi band. I’ve colored these separately to illustrate the fact that, in effect, each of these property owners has a license to transmit within the boundaries of his or her own property.
Now here are two possible changes to the spectrum regime. The first is what I take to be Jerry and Tom’s ideal spectrum policy regime. In this picture, we’ve auctioned all frequencies so that each has been licensed to a distinct private party, with regulations to prevent spectrum users from interfering with users on adjacent frequencies:
And here’s another allocation that we might call the “WiFization” of the electromagnetic spectrum. Here the entire electromagnetic spectrum is allocated for unlicensed use on the WiFi model, with regulations to prevent spectrum users from interfering with geographically adjacent users:
If I’m reading Jerry right, he thinks one of these depicts a free-market system based on property rights, while the other is “command and control” regulation. This strikes me as kind of silly. From a philosophical perspective, these two situations are almost perfectly symmetrical. The only difference is how we’re drawing the property boundaries.
In particular, the difference is not that in one picture the government sets the rules and in the other picture private parties set the rules. In both cases, the government delegates authority to private parties along with some general rules designed to prevent parties from interfering with one another. It’s not obvious that one regime requires significantly more onerous or complex rules than the other.
Indeed, you could imagine implementing the “WiFi” regime using a common-law based non-interference rule rather than a specific power level mandated by the FCC. We could even do away with the FCC altogether! Neighbors would negotiate among themselves about power levels (and cut deals for permission to transmit across each others’ property), with the courts hearing disputes and gradually developing a body of caselaw about reasonable power levels. I don’t know how practical such a regime would be, but it’s certainly not a “command and control” regime.
But let’s get back to the real world, where we do have an FCC and it’s not about bring about either of the sweeping reforms I depict above. I think the heart of Jerry’s argument is this:
I think we have to ask ourselves, why do we (both on the left and the right) dislike command-and-control? The main reason, it seems to me, is what Hayek called the local knowledge problem. A central authority like the FCC can’t possibly have all the information it needs to allocate scarce resources efficiently…
If the resource is controlled by the state, and it is setting the rules, then the only means available to it for setting the rules is a command-and-control process subject to the knowledge problem noted above. On the other hand, a property rights approach to rule setting is dynamic and bottom-up, something I know Tim will appreciate. So, I don’t think that Tom and I are conflating the first order question with the second order question. I think we are conflating a state-governed commons with command-and-control regulation, because that is in effect how the state creates commons.
This is precisely the kind of argument I was critiquing in my pizzaright post. The basic argument is that if the government controls a resource, that’s “command and control,” and it’s subject to Hayek’s knowledge problem. But if a private party controls the resource, we’ll get bottom-up solutions. To see what’s wrong with this, imagine if we implement a “property rights” regime in which we clear out the entire electromagnetic spectrum and auction it off to a single owner. You could call that a “property rights” system, but most people would just call it a monopoly. And this monopoly would be subject to precisely the same knowledge problem as the FCC. Central planning is hard regardless of whether you’re a private company or a government agency.
This problem gets less severe as you auction off more licenses. But it never goes away completely. Granting exclusive nationwide (or even regional) licenses necessarily privileges large-scale, capital-intensive, centralized business models, while hobbling small-scale, bottom-up business models. Unlicensed bands distort the market in the opposite direction.
Of course, clever market participants may discover ways to allow decentralized experimentation using centrally-controlled spectrum blocks. But the point of my pizzaright analogy was that markets never fully overcome these costs. Pizzarights will always skew the pizza market and disadvantage smaller pizzarias. And in exactly the same way, a system of exclusive national spectrum licenses will always be more friendly to top-down technologies like cellular than bottom-up ones like WiFi.
Just to reiterate: that doesn’t mean exclusive licenses are a bad idea. There are some extremely useful applications that can only be accomplished in top-down fashion, and I’d like to see more exclusive licenses auctioned off for those applications. But I would also like to see more spectrum made available for unlicensed use. And I don’t think that makes me an enthusiast for central planning.