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Regulatory Capture at the FCC

Corporate Corruption And The Special Interest State

by DAVID ROSEN

“I am in this race to tell the corporate lobbyists in Washington that their days of setting the agenda are over.” Guess who said these memorable words?

In November 2007, then-presidential candidate Barack Obama uttered this now all-but-forgotten campaign promise. Since his first election and more-so in the wake of his second victory, President Obama has extended a welcoming hand to corporate lobbyists and influence peddlers to oversee and run the federal “regulatory” agencies that ostensibly protect the public interest.

The President recently nominated Tom Wheeler, a true industry insider, to head of the Federal Communications Commission (FCC). Wheeler is a career water carrier for corporate interests, having previously served as head of the cable and the wireless associations and is now a venture capitalist. Along the way, he has been a longtime Obama fundraiser. He knows how to play the inside-the-Beltway game.

The fix is in. Wheeler is expected to continue the pro big-telecom policies of the current chairman, Julius Genachowski. He will likely move to end net neutrality, further industry consolidation, limit meaningful competition and increase user fees, among other policies. He can be expected to maintain the U.S.’s second-tier communications status. With his appointment, the big losers will be the over-charged and poorly served American public (especially in rural and smaller markets) and U.S. companies facing intensifying international competition.

* * *

Wheeler served as head of the National Cable Television Association (NCTA) from 1979 and 1984, and ran the Cellular Telecom and Internet Association (CTIA) from 1992 through 2004. He currently is a managing director at Core Capital Partners.

He has reported investment interests in some 78 companies, including Apple, AT&T, Cablevision, CBS, Clearwire, Comcast, Disney (which owns ABC), Google, Sprint, Time Warner Cable and Verizon. Wheeler promises to sell his stocks if confirmed.

As expected, AT&T, Comcast and the other giant telecom companies championed Wheeler’s nomination. He was their guy; he knows how to play the game. More troubling, Gigi Sohn, head of the “liberal” policy group, Public Knowledge, joined the chorus applauding Wheeler, rationalizing his past lobbying roles: “But his past positions should be seen in light of the times and in the context of his other important experiences and engagement with policy.” Those embracing an inside-the-Beltway mentality share a common perception that their respective “bread” is best buttered by a “liberal” corporatist regime.

Writing on his blog in 2009, Wheeler warned about the future of net neutrality. This is the governing policy that ensures that all data traveling over the Internet is equal, moving at the same speed. He raised doubt about data equality:

Rules that recognize the unique characteristics of a spectrum-based service and allow for reasonable network management would seem to be more important than the philosophical debate over whether there should be rules at all. …

The wireless industry’s initial reaction to net neutrality was to question its need and warn of “unintended consequences.” Accepting the inevitability of the concept, however, and working to maximize its positive effects – from appropriate network management, to flexible pricing and even new spectrum – could be the opportunity for a big win.

Say good-by to net neutrality and the equality of not only Internet data but, in a world of increasingly digitally-mediated communications, all Americans. Corporate interests demand a pay-to-play market and “regulators” do what they are told.

An interesting showdown over the confirmation may take place when Wheeler appears before Sen. Jay Rockefeller’s (D-WVA) Commerce Committee. He will surely be grilled over net neutrality, industry consolidation, the “f” word and limited nudity on ever-shrinking broadcast television. Likely unsaid, Rockefeller, along with 36 other senators, backed his former staffer and FCC commissioner, Jessica Rosenworcel, for the chairman’s position. Wheeler will likely be confirmed.

The revolving door at the core of regulatory capture is a two-way street. First, corporate lobbyists and influence peddlers ensure the private interests of specific industrial sectors through contributions of one or the other dominant political parties and by cozying up to agency employees with promises help grease the path to their future employment. Second, agencies craft rules that favor a specific sector.

Over the last few decades, there’s been an increasingly close relationship between the FCC and its corporate clients – to the detriment of the public. This was most graphically displayed in 2011 when Commissioner Meredith Attwell Baker, shortly following her approval of Comcast’s acquisition of NBC Universal, took a well-paying position with the cable giant.

This phenomenon is evident in the career paths of the three most recent FCC chairmen. Kevin Martin, a Bush-II appointee, is now with Patton Boggs, a leading Washington, DC, law firm and lobbyist. Michael Powell, Gen. Powell’s son and appointed by Clinton, now heads the cable industry trade association, NCTA; this is Wheeler’s former position. And William Kennard, also appointed by Clinton, had previously been an executive with the banking firm, Carlyle Group, where he specialized telecommunications and media in investments; he now serves as the U.S. Ambassador to the European Union. One can only wonder where the departing chairman, Genachowski, will end up.

The revolving-door syndrome of corporate-FCC collusion is evident with still other agency functionaries. In 2002, Dorothy Attwood, former head of the FCC’s Wireline Competition Bureau, took a position at SBC Communications as – don’t laugh — “senior vice president for federal regulatory strategy.” In 2008, Catherine Bohigian, a close associate of former-FCC chief Martin, signed on with Cablevision. Earlier this year, Edward Lazarus quit his post as the FCC Chairman’s Chief-of-Staff to become the Tribune’s executive vice president and general counsel. Open Secrets details the revolving door experiences of 158 former FCC employees. (It should be noted that former-Com. Michael Kopps is with Common Cause.) Regulatory capture is business as usual.

* * *

Concern over regulatory capture, in one form or another, is as old as the nation. Traditionally, capture was understood in starker, less whitewashed terms, as corruption or influence peddling. Scholars trace concern about it back to the Founding Fathers and James Madison’s famous 10th Federalist Papers.

In it, Madison warns about the influence of factions in “public councils” who pursed the interests of “a majority or a minority of the whole” can adversely affected “the public good,” “the permanent and aggregate interests of the community.” Madison and others warned that the people’s government could easily be taken over for private gain. Some scholars find capture at the root of Pres. Andrew Jackson’s battle over the 2nd Bank of America. Capture became a distinguishing feature of federal government policy and operations with the rise of the Progressives in the late 19th century.

Half-a-century ago leading government scholars, most notably Samuel Huntington and George Stigler, identified modern state-private corruption as regulatory capture, influence peddling within a system of crony capitalism. They and others point to the disastrous experience of the Interstate Commerce Commission (ICC) in the 1880s and how it was taken over by the powerful railroad interests, setting the stage for the birth of modern state-subsidized corporate capitalism.

Under postmodern capitalism, Americans – as citizens and consumers — are required to subsidize corporate gain as well as the private gluttony of the ruling class. As citizens, our taxes subsidize private capital in an increasing number of ways, including the rigged tax structure, government payments, right-offs and tax abatements. As consumers, we are over-charged at the cash register, are hit with exorbitant banking charges for loans and credit cards, and pay all-too-much for inferior telecom services.

The presidency, the Congress and the regulatory agencies – let alone state and local governments — are political marketplaces in which influence is bought and sold. Pres. Dwight Eisenhower identified one post-World War II manifestation of this phenomenon, the military-industrial-political complex. Most Americans know the game is rigged and they have almost no chance of influencing public policy or regulation.

Regulatory capture is most glaringly evident within the financial sector. Much influence peddling surrounded the 2010 Dodd-Frank law designed to police banks “too big to fail.” Similar cozy relations between a regulatory agency and the sector it oversees is business-as-usual at the SEC and the Nuclear Regulatory Commission. However, influence peddling operates within much more mundane aspects of state-corporate life. Randall Holcombe points out that in 2010 the sugar industry made about $5 million in political contributions and spent $7 million in lobbying. And the pay back? The Agriculture Department is expected to pay $862 million to cover government loans to sugar farmers who will likely default on some 400,000 tons of sugar.

The fix is in and little can be expected from Congress to contain — if not outlaw — influence peddling and the revolving-door syndrome. Efforts by progressive Senators Bernie Sanders, Elizabeth Warren and Sheldon Whitehouse should be supported. And for those wishing to raise their voices in opposition to Tom Wheeler’s likely appointment to head the FCC, check out the grassroots opposition within the public interest community and sign the petition opposing his nomination.

David Rosen writes the “Media Current” column for Filmmaker and regularly contributes to AlterNet, Huffington Post and the Brooklyn Rail.  Check out www.DavidRosenWrites.com; he can be reached at drosennyc@verizon.net.