The New York Times
July 23, 2007
The French Connections
By PAUL KRUGMAN
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 with samurai warriors on their covers, 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. Jacques Chirac complained that the Internet was an “Anglo-Saxon network,” and he had a point — France, like most 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 over the last few years the situation has totally reversed. As the Internet has evolved — in particular, as dial-up has given way to broadband connections using DSL, cable and other 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. According to the Information Technology and Innovation Foundation, French broadband connections are, on average, more than three times as fast as ours. Japanese connections are a dozen times faster. Oh, and access is much cheaper in both countries than it is here.
As a result, we’re lagging in new applications of the Internet that depend on high speed. France leads the world in the number of subscribers to Internet TV; the United States isn’t even in the top 10.
What happened to America’s Internet lead? Bad policy. Specifically, the United States made the same mistake in Internet policy that California made in energy policy: it forgot — or was persuaded by special interests to ignore — the reality that sometimes you can’t have effective market competition without effective regulation.
You see, the world may look flat once you’re in cyberspace — but to get there 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 didn’t let that happen — they forced local phone companies to act as common carriers, allowing competing service providers to use their lines. Clinton administration officials, including Al Gore and Reed Hundt, the chairman of the Federal Communications Commission, 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 services offered by 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 a recent article in 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.
Paul Dorell, Highland Park, Ill.: I find it ironic that U.S. conservatives and libertarians support so-called free market policies that often result in oligopolies that limit consumer choices in much the same way that the central governments of communist nations used to dole out limited varieties of goods and services. At this point in time, Americans have been so brainwashed about the evils of big "guvament," as Reagan used to call it, that they don't see how lobbyists for large corporations would love to make our business environment about as entrepreneurial as Cuba. Chairman Mao would surely be impressed with the success of these latest techniques in thought control. Thankfully, there are a few writers like you around to enlighten the entranced flock.
Paul Krugman: But don't forget — the antitrust people were really, really concerned about Whole Foods getting too much power!
Darren Staley, Millers Creek, N.C.: Your article hit me like a ton of bricks. To make a long story short, I was laid off, became disabled, and now spend my time taking online classes at St. John's University in Queens, N.Y., from my home in North Carolina.
Last month, at the beginning of the first summer session, my cable Internet access went out for over a week. As a person who depends on financial aid, I could not afford to drop the five-week course or get behind and suffer a poor grade.
My only other broadband option was, as you said, DSL from the only local phone company. They worked for over a week to get me intermittent access, but now it doesn't work at all.
Somehow, I bounced between the cable and phone services and aced the class. I am now in the second summer session using cable access that works okay, but afraid to turn my DSL modem that doesn't work back in because I fear another mishap, at which time I can have the phone company back out again.
The irony of it all is, the course I am now taking is Cybercrime, where I learn that rogue online criminals are the biggest threat to my Internet existence. I feel pretty comfortable on that end though, as my current level of access would annoy the cyber-criminals into submission!
Paul Krugman: I didn't mention what happens to service here when it rains heavily — let's hope I don't get cut off in the middle of this session.
Charles Pearson, Detroit: I have written previously, and truly find your column to be a source of inspiration. Many in my generation — I'm 32 — believe that broadband internet access is equivalent to access to roads, waterways etc. There should be a state oriented movement to make this an essential aspect of government, but there is overtly, at least in my region, not the case. This matter is crucial. What can people do, on a state-by-state level, to integrate and regard this matter essential infrastructure and not a governmentally sanctioned monopoly?
Paul Krugman: Get a new FCC ... and fix the 1996 law.
Jason Warren, New Paltz, N.Y.: I'm a captive Verizon broadband subscriber. My DSL connection is reliable — such is TPC — but going nowhere until Verizon gets around to installing FIOS here, and there's no hint about when that might happen. Verizon ignores queries about their plans. Time Warner offers a somewhat faster Internet service, but its reliability, judging from my cable TV experience, is suspect.
A few months ago, a former colleague at I.B.M. — I'm retired — sent me some Verizon PowerPoint presentations about its FIOS fiber optic offering, evidently aimed at potential business partners. The most interesting point was a bullet on about the 29th of 30 slides. It stated that Verizon FIOS, which includes VOIP, was a data service, and was therefore exempt from Common Carrier regulation. Common Carrier law predates Verizon by a few hundred years, so simply abandoning it seems significant, but that has gone without notice anywhere as far as I can tell. I think Internet neutrality may hinge on this interpretation.
Michael Powell's F.C.C. simply abandoned the concept of regulation and handed The Commons to the Telcos. It may be that these issues are too complex — or boring — for most people, but that doesn't mean that they're not crucially important.
Paul Krugman: I wrote about this in that 2002 article. The FCC pulled a linguistic trick, declaring that internet access is an "information service" rather than a common carrier, thus exempting the telcos from the regulation that made the dialup revolution possible.
Cal French, Paso Robles, Calif.: You are right on the mark on U.S. internet service. We live too far from town to get DSL over the phone lines. The fastest connection we can get on dial up is 26.4 kbps. Satellite service will cost $600 to install and $70 a month, and I hear from neighbors that it's not all that reliable.
What you do not mention is that electric utility companies could provide service over power lines that could be better and cheaper than phone lines. Those of us in U.S. rural areas look with envy not at Europe and Japan, but at our suburban and urban distant neighbors.
Paul Krugman: Believe it or not, when I moved into my house in 2003 — we're about 2 miles from the Princeton campus — I had the same problem, and we actually did get a satellite dish. It wasn't all that reliable or fast. In 2004, I think, Verizon made DSL available to my neighborhood — although it's much slower than the broadband friends in Manhattan have. We only got cable available last year. I think that's the U.S. story: even here in central New Jersey, an hour from the world's financial capital, broadband availability has been slow in coming and poor in quality.
Paul Box, Alice Springs, Australia: Great column. People seem to have fallen for the line that free-market capitalism just means letting private business do whatever it wants whenever it wants, without bothering to question what are the essential ingredients e.g., genuine competition in free markets that allow for an economy to flourish. Fortunately for the U.S. telecoms, they have boxes and boxes of anti-French propaganda that they can pull out to distract their users from the fact that they have a mediocre product. I can't help but wonder if, whenever this gets out, it will spawn more outrage than the health care issue? Mess with people's health care or retirement and they get fatalistic. Mess with their entertainment or Internet access, and you've got war!
Paul Krugman: Actually, I think health care matters more. But in a peculiar way they may be mutually supporting issues.