America’s ISPs: Leeches

Why America’s Internet is so shitty and slow, by Adam Clark Estes

For anyone wanting to understand the true nature of the U.S. economy, a useful concept is “rent seeking.” It’s a term from economics, and honestly, one that might have been invented to make a “leech” into an attractive worm. If you were point your finger at an executive from CIGNA or UnitedHealth or Verizon or AT&T and yell “Rent seeker! Rent seeker!,” they would not care. However, “Leech! Leech!” might get their attention.

Here’s the concept roughed out in economic terms, and please bear with me as I want to keep it simple so I can understand it too. I won’t be too tedious.

Rent-seeking is expending resources on political activity to increase one’s share of existing wealth without creating wealth. The effects of rent-seeking are reduced economic efficiency through poor allocation of resources, reduced wealth creation, lost government revenue, increased income inequality, and, potentially, national decline.

America’s health insurance industry is a pure rent-seeking, or leech industry. They built a fence around the health care system, charge rent for access, and do nothing to make the system better. Quite the opposite, their primary function is to limit access to the system while sucking dollars out of it. They are highly inefficient by design.

This can only happen in a monopoly or oligopoly environment. Competition naturally minimizes rent seeking. New entrants into the market seek to gain advantage by offering better service and products. Consequently, most large American corporations are in the business of buying up and avoiding competition rather than making themselves into better companies.

Internet Service: If you currently get your Internet service from a company that sends it to you via a coaxial cable or phone line, you are a victim of leeches, excuse me, rent seekers. Most likely they are charging $50-70 a month, an outrageous price. Comcast, Time Warner Cable, and Verizon currently control that “last mile,” the place in the transmission network where signals grind to a halt, where everything slows down. They need to fix that, they need to replace copper with fiber optic, which removes upper limits on speed. But they won’t. It’s expensive, they don’t want to, and they don’t have to. They have you where they want you.

Technology will prevail, and we’ll slowly work around the slow-footed giants. But they will fight progress by use of the revolving door to control regulatory agencies and the private campaign finance system.

The recent ruling on “net neutrality” was a small victory, largely due to Netflix, but the ultimate answer is to break up the monopolies. We need an assertive government to interfere in the marketplace (big time) to make it more efficient. We need to have service from many small competing companies while at the same time encouraging cities and towns to build their own infrastructure, as Chattanooga has done.

But the mega-corporations can write their own ticket and make their own rules right now. So for the time being, local governments are the best option for a powerful Internet, as no private sector company is able to budge the giants off their pedestal.

44 thoughts on “America’s ISPs: Leeches”

  1. The most dangerous rent seekers are the political ones.

    “Any attempt to compete with those protected by such privilege is a challenge to the power of the state. As a matter of fact, because political rent-seekers rely on the government’s authority to initiate aggression and fraud their gains essentially come from robbery at gunpoint.”-Sandy Ikeda

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        1. Since you don’t even expose yourself to evidence (“I stopped reading when you said…” as you so often say), there is no point in having this discussion. I could write something out, you would refuse to read it, and that would end the discussion. So let’s just end it now without all of that.

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        2. Actually, Swede, private insurance has deteriorated the relationship between doctor and patient more than the government ever could. Ever have to get a procedure pre-approved that a doctor advises be done? Nothing like an insurance company auditor having the final say on whether or not a procedure is necessary, or if they’re going to pay for it.

          The health insurance industry bureaucracy far outweighs the government’s heavy hand when it comes to dictating the doctor-patient relationship.

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          2. Yeah, but our legislators could pass laws to lessen that deterioration rather than increase it.

            But they didn’t did they? They went in the opposite direction.

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            1. Pass anti-capitalist laws to remove the incentive to profit off of health insurance? How un-American of you to suggest that out congress be a bit more socialist.

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              1. True capitalism is the free flowing of goods and services without the interference of government.

                Frankly, the demise of the health industry started when hospitals were forced into no charge emergency care.

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              2. In true capitalism companies merge and buy each other up to avoid competition, and then when powerful enough take over the governmetn apparatus so that they can protect themselves from innovation.

                Your words following the word “frankly” are utter cockamamie.

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                1. Dr. Ron Paul bullet points.

                  No one has a right to medical care. If one assumes such a right, it endorses the notion that some individuals have a right to someone else’s life and property. This totally contradicts the principles of liberty.
                  If medical care is provided by government, this can only be achieved by an authoritarian government unconcerned about the rights of the individual.
                  Economic fallacies accepted for more than 100 years in the United States has deceived policy makers into believing that quality medical care can only be achieved by government force, taxation, regulations, and bowing to a system of special interests that creates a system of corporatism.
                  More dollars into any monopoly run by government never increases quality but it always results in higher costs and prices.

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    1. If you get a moment and haven’t already, the Adam Estes article had some good information on how the system is constructed and why the US is so bad at it.

      Looking at his map of connectivity around the world, it was easy to see why Internet in New Zealand was slow and expensive. There is no high-speed optic fiber running to those islands.

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    2. Wow! Opening paragraphs on your link:

      In recent years, the citizens of Lafayette have been asking for speedier Internet access.

      In 2004, the Lafayette utilities system decided to provide a fiber-to-the-home service. The new network, called LUS Fiber, would give everyone in Lafayette a very fast Internet connection, enabling them to lower their electricity costs by monitoring and adjusting their usage.

      Push-back from the local telephone company, BellSouth Corp., and the local cable company, Cox Communications Inc., was immediate. They tried to get laws passed to stop the network, sued the city, even forced the town to hold a referendum on the project — in which the people voted 62 percent in favor. Finally, in February 2007, after five civil lawsuits, the Louisiana Supreme Court voted, 7-0, to allow the network.

      From 2007 to mid-2011, people living in Lafayette saved $5.7 million on telecommunications services.

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  3. I believe the Netflix CFO expressed buyers remorse over the net “W.” As the saying goes, “Becareful what you wish for, you just might get it.”

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    1. You’re a little short on detail. There is huge infighting between Netflix and the big providers, and net neutrality was a fallout victory for consumers, but neither Netflix or the providers have consumer benefits high on their list. It’s all bottom line wrangling.

      Would you mind explaining why you think net neutrality is a net negative?

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        1. WTF innovation are you talking about? ISP’s refuse to even think about replacing copper with fiber optic cable. That would be just a start in the innovation highway.

          Innovation as always will come from below, little startups and private inventions. You obviously did not read the Estes link in my article.

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                    1. Hear no evil, see no evil. Mark and company logic is incongruous. On on hand he says the health ins providers are “highly inefficient” and yet he wants the least efficient (Gov.) to run it.

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                    2. Let’s see: Gotta do this in one sentence before you stop reading:

                      Works all over world. No country anywhere has ever copied the American system.

                      Shit! Two sentences. Lost you.

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                    3. By the way, I read the article, Craig. I assume it’s a synopsis of his thoughts. The very idea that net neutrality stifles innovation, when monopoly capitalism has already done so, is ludicrous.

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                2. Craig, please focus: If the big ISP’s refuse to invest in fiber optic delivery to their customers, how can you possibly think they care about innovation? That’s jarheaded.

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                  1. Your revealed concept of ‘innovation’ is rather one dimensional. I gather you are stuck with copper coming into your house? Too bad. Perhaps you should move if that’s your problem.

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                  2. You’re difficult to deal with, so opaque. Everything bounces off you without affecting you. You obviously have not read my post or the link provided to the Estes article. You came with your own notions and looked for an opening to insert them without being burdened but the information offered. Then you said “Read Cubin, read Cubin,” as you apparently cannot formulate your own thoughts and so need others to do it for you.

                    The whole idea behind the “last mile” and copper is that we cannot move because the big ISP’s formed a monopoly and give us no choice. It’s copper wherever we go. Some communities, like Chattanooga, are using local government options to overcome the corporate giants, installing their own fiber optic systems. They had to fight lawsuits by the ISP’s and years to do it. The ISP’s are anti-progress, and anti-innovation.

                    Chattanooga, due to its local government, now has the best Internet service in the country, and employers are drawn there and its economy is flourishing.

                    Please, now, read a little bit before you answer. Your droppings are predictable and thoughtless.

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                3. Nothing more than net neutrality propaganda. Crovitz, the author of the story, is nothing but a telecom whore. He’s the dude expressing “American exceptionalism” in all things internet:

                  ” In July 2012, he argued that Xerox-Parc’s development of the Ethernet protocol meant that the private sector, not the government, created the Internet.”

                  Hilarious!

                  “Now it is time to embrace the American exceptionalism that made today’s Internet possible…

                  Washington should instead embrace the American exceptionalism that created the Internet as a haven for free speech and permissionless innovation…

                  The U.S. oversees an Internet built in its own image…”

                  The guy is totally whack. Tim Berners-Lee, a Brit, is the man who concocted HTTP, the first web server and client, and is the director of W3C. Anybody who knows anything about the internet realizes that the Brits beat the U.S. to conceptualizing and building the WWW (World Wide Web).

                  Yes, the thing that most people conflate with the internet — the web — is not an American invention. And Crovitz’s propaganda about private companies building the internet belies the fact that Zerox-Parc was operating under Darpa money, mandates and oversight to build what would become the internet for the Dept. of Defense. Read John Markoff’s “What the Dormouse Said” to get the real story.

                  But WSJ readers believe morons like Crovitz because… well because they write for the WSJ.

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                  1. The point is, JC, that Craig refused to look at anything written here before commenting, and then brought that piece in as a throw down, read this, discuss this, and nothing else. He’s hard to deal with.

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  4. Another nugget from Ikeda.

    “Here it’s important to realize that production in economics has nothing necessarily to do with the physical transformation or movement of things, but rather with the creation of value, which is subjective in nature. For instance, if John and Mary, without either one using force or fraud, trade ownership of an apple and an orange, both necessarily expect to feel subjectively better off as a result (or else at least one of them wouldn’t agree to the trade) because each will be giving up something he or she values less for something he or she values more. The net gain in subjective value that each one feels constitutes newly created wealth. In developed societies this is how most wealth is produced, by free trade.”

    Governments and Ins. cos. and the combination of the two distort free trade.

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  5. By the way, I urge commenters to look at the examples of Lafayette and Chattanooga, two cities that took on the mega corp ISP’s, fought the corporate lawsuits (LaFayette had to overcome five lawsuits by private ISP’s) and installed their own fiber optic systems for their citizens, delivering a far faster service at a fraction of the cost, saving them millions.

    Verizon, AT&T, Time Warner, Cox, BellSouth and CenturyLink and the others are impediments to progress because, and you might try reading the original post for the definition, they are nothing but rent seekers, or leeches.

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    1. Cities can fight lawsuits and win. What is hardest is winning against corporate lobbyists with the power to corrupt elected officials who write laws to protect distorted markets. The monopoly/oligopoly environment lobbyists create blocks competition, innovation and new technology. No “free market” here, but nobody defends corporate lobbyists quite like a free-marketeer.

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  6. No one has a right to medical care. If one assumes such a right, it endorses the notion that some individuals have a right to someone else’s life and property. This totally contradicts the principles of liberty.

    False. Rights are defined by majority portion of society. If most of us want health care to be a right, then it is a right. There’s give and take, ebb and flow about that, as when plantation owners defended their “right” to own property in the form of slaves. It’s an ongoing dialogue, and Dr. Paul by no means has the last word.

    If medical care is provided by government, this can only be achieved by an authoritarian government unconcerned about the rights of the individual.

    False, both in theory and practice. If you are swayed by the notion that all government is bad, you’ll not see the logic in this, but large utility-like functions like health care are are best managed by large not-for-profit organizations, as the profit motive works against the public good. In this case, government is a benign tool. No one anywhere on earth has lost their freedoms due to government-run or single payer health care. You guys make this shit up.

    Economic fallacies accepted for more than 100 years in the United States has deceived policy makers into believing that quality medical care can only be achieved by government force, taxation, regulations, and bowing to a system of special interests that creates a system of corporatism.

    False. It is the example of others that is the biggest selling point for single payer and government-owned and run health care. People don’t ignore good ideas. They steal them. For that reason, no country anywhere on the planet has stolen the American health care system. On the other hand, when Taiwan was looking for a new system to replace its private health insurance-run system, they modeled it on … Canada. Success breeds success.

    More dollars into any monopoly run by government never increases quality but it always results in higher costs and prices.

    False. Quite the opposite in fact. There are functions of society that are best run by the private sector, such as production of most goods and services, but a few large utility-like functions, like infrastructure and utilities and heath care, where government does the best job.

    Please ask Mr. Paul to check his doctorate at the door. He failed this test, scoring -0-.

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    1. Robert Parry, today:

      Thus, in today’s U.S. parlance, “democracy” has come to mean almost the opposite of what it classically meant. Rather than rule by a majority of the people, you have rule by “the market,” which usually translates into rule by local oligarchs, rich foreigners and global banks.

      If there was one overriding theme during Occupy, it was that democracy and capitalism could not co-exist. They were mutually exclusive. You can have a true free market. But then democracy takes a back seat to an anarchic economic state.

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      1. “Free market” is such a perverse term. Essentially it means that if a person has more power in the marketplace than another, nothing should be done to interfere with that power. Consequently, manufacturers have more power than impoverished workers, who then have to work in sweatshops, and nothing can be done for them, as it is the free market at work. If companies form monopolies, nothing should interfere.

        Workers in a free market can maximize their power by forming unions, but as we all know, unions are a bad thing, a sign of weakness, as workers are manly men when they face powerful corporations without any assistance. Unions are evil.

        Free trade among equals is beneficial, as the USA and Germany, but among developed nations and undeveloped ones, ends up in cononial status for the weaker nation. The US right now is trying to bring Venezuela back to colonial status, as it has been exercising too much independence. In modern parlance, this makes it a “terrorist” state. If it were 1970, it would be a “communist” country. In either case, it has to be attacked.

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  7. “We both vividly remember Lilo’s first visit to my apartment in New York City,”
    Gerry says. Patrick killing druids to go by even in this allegorical sense.
    A point worthy of being mentioned is that snow and ice make it difficult for brakes
    to come into play.

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