Now that Brexit is underway, maybe we can ask the Brits to help us with some of our own independence problems. In particular, could we get some guidance on how to make the Federal Communications Commission (FCC) more independent and substantive?
A politically driven FCC
The political problems at the FCC are well documented. Its 2015 decision to regulate internet service providers (ISPs) was an “economics-free zone (0)” driven largely from the White House (1). In 2016, Chairman Tom Wheeler delayed a vote on Lifeline so that Democratic congressmen could lobby Commissioner Mignon Clyburn to change her vote. In its drive to regulate cable television set-top boxes, the FCC cited as its economic authority the website of Senator Edward Markey (D-MA), whose published analysis is replete with math errors and flawed logic (2).
Under Chairman Wheeler, the percentage of agency votes split along party lines (3) (26 percent) is more than triple that under other Democratic chairmen (8 percent) and more than five times the rate under Republican chairmen (4 percent) since 1994. In January 2016, Multichannel News (4) observed that the FCC has had “more party line votes in the last 14 months than in the previous 43 years.”
To facilitate the FCC’s subjugation to political forces, Chairman Wheeler has effectively silenced the agency’s economists. These professionals produced 46 cutting-edge economics papers (5) on deregulation, radio spectrum management, and the like since 1980 — a pace of about 1.5 per year — but have produced none since 2012.
Why do ‘independent’ agencies give in to politics?
The problem at the FCC, and perhaps at other independent regulatory agencies (6) that have given in to politics, appears to be systemic. The growing political divide (7) in the US increases the payoff to a political party that captures and uses a regulatory agency. The rise of crony capitalism (8) also increases the value of the political control of regulation. Our independent regulatory agencies were not designed to withstand this kind of pressure.
The crucial feature of the FCC that facilitates political takeover is the latitude the president has in making commissioner appointments. In the current system, the president can effectively choose whomever he or she wants, subject only to Senate approval and requirements that no more than three be from the same political party. This makes it easy to fill a commission with people who are largely politically oriented. Also, the commissioners run the agency, meaning that they can quash research papers and edit technical reports for political reasons.
The British method of governance
Britain has been careful to not repeat what it sees as mistakes in the US regulatory system. One significant difference between their approach and ours is how they govern regulatory agencies. Their communications, energy, and water regulatory agencies are governed by boards that operate like corporate boards of directors, whose members are selected by the boards themselves working with ministry heads. Executive teams run each agency, while the boards establish strategies, review executive performance, and vote on major issues. Most board members are non-executive, meaning that they are part time and represent economic, business, finance, science, and social policy perspectives. (Numerous other countries require that regulatory decision-making bodies have representatives from engineering, law, business, and academia, for example.)
This difference in governance appears to have a substantive effect. The Regulatory Policy Institute (9) at Oxford University held a conference in September on regulation and competition in the UK. Most of the presenters were former directors and board members of regulatory agencies. These leaders engaged in deep debates on economic lessons from opening markets to competition, how regulation adapted as markets matured, the European and American influences on UK competition policies, how lessons from the past influence today’s policy debates, and how regulatory cultures evolve. These were not always gentle discussions: There were intense and analytically rigorous debates on how regulations affect competition and on whether regulators understand the complexities of business and customer decision making.
Should we disband the commission?
Can we reform the FCC without losing its world-class talents? Yes. The problem appears to be largely governance. Taking lessons from the Brits (and others), a new governance model would have a small executive team that is responsible for carrying out the work of the agency, subject to a board made up of economists, accountants, engineers, social scientists, and business persons whose professional loyalties are to their professions, not politics.
As with today’s commission, the board would be held accountable by courts, administrative procedures, and congressional oversight, and members would serve staggered terms and could not be removed without cause. A key difference would be selection: Appointments would be made by a joint committee consisting of equal numbers of Republican and Democratic members of Congress, board members, and representatives of academia and business.
It appears that regulation by president-appointed commissions is an idea whose time has passed in the US. If we make effective reforms, maybe the US can once again become a world leader in effective regulation.