“The
winners…will be those who…insist on being number one or number two in every
business they are in. Don’t play with businesses that can’t win. Businesses
that are number three, number five in their market—Christ couldn’t fix those
businesses. They’re going to lose anyway.”
-- John
“Jack” Welch, CEO, General Electric
Last week,
Comcast announced its intention to buy Time Warner Cable in a $45.2 billion
deal that will unite the nation’s two largest cable providers. According to the
New
York Times, the resulting company will operate in 43 of the 50 largest metropolitan markets,
and will serve nearly 30 percent of paid television subscribers and about
one-third of all broadband Internet subscribers.
Outcry about the
anticompetitive effects of the merger has been strong—not only from consumer
groups, but from politicians
on both sides of the aisle—an unsurprising result given that Americans pay more for worse
service than most countries in the developed world.
A 2011 study
by Pando
Networks found that U.S. Internet speed was 26th in the world and a 2012 study by the New
America Foundation found that Tokyo residents enjoy speeds that are
eight times faster than New York’s for a lower price. And Hong Kong
residents enjoy speeds that are 20 times faster, for the equivalent price.
Many cities—from Lafayette, Louisiana to Chattanooga, Tennessee—have have launched municipal fiber networks in an effort to thwart the monopolistic
behavior of the telecommunications industry.
As Susan Crawford, visiting professor at Harvard Law School [my alma mater]
and author of “Captive Audience: The Telecom Industry and Monopoly Power in the
New Gilded Age,” wrote in the Boston
Globe this week:
The way to do this is to install
a new wholesale fiber network controlled by the city…Cities do not have to be
in the business of competing with private providers, but their control of the
basic infrastructure is essential to make sure that competition emerges.
We’ll talk more about the nation’s
connectivity problems in another post, but today, I want to use the struggle to
find a solution for sluggish Internet to examine how we should outline the
scope of government in the 21st century.
For
guidance, let’s go back 30 years to one of the seminal philosophies in American
corporate history: Jack Welch’s effort to streamline General Electric into a
capitalist juggernaut.
Welch—a
native of Peabody, Mass. who grew up in Salem and later graduated from the
University of Massachusetts—famously scribbled his philosophy on a napkin
during an interview with Forbes Magazine in
1984 (see picture, left).
The picture
shows GE’s three “core” businesses, from Welch’s perspective, as well as other
non-core businesses that were either number one or number two in their
respective fields. For businesses that failed to fall into one of those two
buckets, the solution was brutal and short, "Anything outside the circles we
will fix, close, or sell," Welch said.
This
philosophy was anything but charitable. In his
first five years as CEO (1981-1986), Welch slashed
130,000 jobs – 1 of every 4 workers at GE. However, those who
remained were the beneficiaries of a more directed, stable, profitable company,
which grew shareholder (and worker) value.
Welch’s leadership of one of America’s flagship companies provides meaningful guidance on how we should go about determining the size and scope of government in America, his misguided statements about the growing chasm between
executive and worker pay notwithstanding.
Government,
unlike private business, does not always have a legion of natural competitors
(national defense, for instance). However, government does compete with the private
sector in a variety of ways (public universities and the Postal Service just to
name a few). I believe that defining the role of government starts by examining
what you want government to do and placing it into one of the four boxes of the
two by two matrix below:
I. Things
government does well that private industry also does well
II. Things
government does well that private industry does poorly
III. Things
government does poorly that private industry does well
IV. Things
government does poorly that private industry also does poorly
Like Welch’s
three circles, we should examine everything that government does through this
matrix to determine where to “fix,” where to “close,” and where to “double
down.”
Let’s start
with the easy stuff in boxes II and III.
We should be doubling down on government
investment in functions falling into box II, not only because government
excels, but also because there is no logical alternative. Many of these
functions are so-called “natural monopolies” such as water and national defense
(though there is admittedly some question as to whether government does well in
these categories—more on that later).
We should completely eliminate functions in
box III, where government is a woeful failure and private industry does
fairly well. Venture capital (“picking winners and losers”) is perhaps the most
obvious example of this, though others surely exist.
Now things
get tricky. What do we do with box I? I
believe that we should neither buy or sell, but “hold” our investments in these
areas and take advantage of the private sector mechanism where feasible.
For instance, few government investments are as beneficial as higher education
and research and development. However, private universities (here’s looking at
you, MIT) are incredibly successful at putting these dollars to work. Thus, government
should continue to provide public higher education (particularly to provide
low-cost alternatives to students of lesser means), while also pumping billions
of dollars into R&D at America’s private colleges and universities.
Lastly, we
come upon the bane of our existence: box IV. The first question to ask is
whether the function need occur at all. Assuming that the answer is yes—and
that someone has to do it—government has
no choice but to fill the gap. However, given government’s terrible track
record, legislators must be even more willing than usual to (a) experiment with
innovative approaches to service delivery and (b) exercise unusually probing
oversight.
A good
example of this is the operation of commuter railroads. In Massachusetts, both
the government (MBTA) and private enterprise (MBCR) have proven ineffective at
keeping the trains on time and on budget. Thus even though optimism abounds
that a new private carrier, Keolis,
will succeed where others have failed, legislators should be on the lookout for
waste, fraud, and failure.
In the end,
like Welch’s circles, the matrix I’ve outlined won’t hold all functions demanded
of government or the private sector. However, it is an effort to get at one of
the first principles of American democracy: how to determine the shape and
scope of our government.
No comments:
Post a Comment