Old Snake Oil in New Bottles: Ideological Attacks on Local Public Enterprises

John Kelly, Director of Economics and Research, American Public Power Association

We are engaged in a rare event - we are moving offices. The Institute for Local Self-Reliance pre-dates our initiative and has been in this location for over 20 years. During the packing and sorting, we have encountered a curious collection of treasures. 

In keeping with this air of nostalgia, we want to present a report from 2001 by John Kelly, who was Director of Economics and Research at the American Public Power Association at the time he wrote the piece. The title caught our attention but the content kept our interest. We want to pass it on as recommended reading.

"Old Snake Oil in New Bottles: Ideological Attacks on Local Public Enterprises in the Telecommunications Industry" (PDF format) is a critique of a Progress and Freedom Foundation (PFF) report titled "Does Government belong in the Telecommunications Business?" (PDF) Kelly confirms that the arguments and fallacies advanced by the private telecommunications industry and its lobbyists have not changed in 11 years. The past 11 years have also seen the same slanted arguments and the same shaded research that, even after repeatedly being discredited, arise again and again.

The arguments truly are "snake oil." From the report:

One dictionary definition of "snake oil" describes it as "a liquid substance with no real medicinal value sold as a cure-all or nostrum...." This definition aptly describes the content of the PFF report. Its claims are not solid ones and can be easily refuted. Essentially, it views the elimination of government enterprises from the telecommunications industry as a cure-all, or nearly one, for the competitive problems that exist in the industry. This solution has no real value, and is counterproductive; it would exacerbate the problem of a lack of effective competition in the industry. The problem is a lack of effective competition, not public enterprises.

As a refresher, PFF was a non-profit founded by Newt Gingrich with backing from some of the telecommunications industry's biggest guns along with a long list of gigantic corporate sponsors. Before closing in 2010, the organization was viewed as a diversionary tool to avoid campaign finance limits. The organization described itself as a "think tank" but Kelly debunks that claim in his report.

Kelly repeatedly tears holes in the paper and its methodology. Contradiction, tiny and selective samples, and misapplied economic theory riddle the paper, giving Kelly so many opportunities to criticize, he has to pick and choose the best ones.

In the end, Kelly comes to the same conclusion we find to be true:

This simple but central economic notion is played out in the decisions cities make in choosing between public or private telecommunications services. Consequently, the cost to consumers is not, essentially, a function of the income or operating efficiency of the utilities serving them but of the prices they are paying and of the prices they would likely pay under the best practical alternative. This might seem to make the correct calculation of the true economic costs especially difficult. But it is much less so when done by the actual decision makers, the customers themselves. This fact argues strongly for laws, regulations and institutions that put the power of decision making into the hands of those who can best ascertain the relevant economic costs -- consumers. And the societal institutions best equipped to do this are local communities and their local governments.

In the critique, Kelly reviews the situation in Hawarden, Iowa, the first community in the state to create their own network. The private sector had practically abandoned the rural community. What little interaction residents had with telecommunications companies left them dissatsfied. The communty voted to build an "all-purpose network," which serves them today and has contributed to its quality of life and economic development. Hawarden is another example of how local decisions shape the success of local communities.