As The Wall Street Journal noted this week, the tech sector has helped lift the markets from their recent troughs.  Contrary to historical norms, no stock market sector has outperformed technology this year, including traditional consumer staples and health care, which typically withstand economic recessions better than other sectors. If You Like How Big Government Runs the Post Office, You’ll Love How It Runs the Tech Industry

America’s telecommunications sector has withstood the economic downturn remarkably well. 

In spite of this, or perhaps precisely because of this, it might be the next target of government overreach. 

As The Wall Street Journal noted this week, the tech sector has helped lift the markets from their recent troughs.  Contrary to historical norms, no stock market sector has outperformed technology this year, including traditional consumer staples and health care, which typically withstand economic recessions better than other sectors.  Bucking those patterns, tech stocks have climbed some 17% within the Standard & Poor’s 500 Index, 18% within the Dow Jones United States Technology Index and 9% in the Nasdaq. 

And amazingly, the tech industry continues to hire even during this otherwise difficult economic period.  According to a survey this month of 122 senior tech executives by Polachi, Inc., more than half of them responded that they are either currently hiring or planning on hiring within the next three months. 

Of course, the tech sector’s comparative health largely reflects the rule that technological innovations play a critical role in improving companies’ efficiency during difficult economic times.  In other words, technology becomes even more important during slowdowns because it helps stretch companies’ productivity.  More fundamentally, however, the tech industry’s strength stems from the fact that it represents the future of American innovation, growth and prosperity.  Whereas agriculture and manufacturing once ruled the American economy, technology now represents its potentially optimistic future, and markets know it. 

Accordingly, the critical issue right now is preserving tech’s staying power. 

With that in mind, why in the world would we want government to commandeer portions of the tech industry?  Unfortunately, that’s exactly what the Obama Administration appears poised to do. 

Susan Crawford, who serves as National Economic Council advisor and special assistant to President Obama, told a Media Access Project briefing last week that $7.2 billion in “stimulus” spending will be directed toward some very dubious initiatives. 

Attempting to couch this effort in terms of broadband “investment,” Ms. Crawford focused on the need for “backhaul networks,” which serve as the connector links between network cores and outlying peripheral locations.  To illustrate, imagine a rural cellular telephone tower connected to the telephone company’s network core. 

This certainly sounds innocuous enough, and we can all agree that investment in backhaul networks is critical in the effort to bring broadband access to those rural areas that remain isolated. 

But deeper questions remain unanswered. 

First and foremost, Ms. Crawford’s comments suggest a greater government role in commanding this sector.  Shouldn’t private enterprise, which has brought Internet and profound tech innovation precisely because government bureaucrats have largely kept their noses out, be allowed and encouraged to continue building out networks?  Or should the bloated federal government, which presumably has its hands full taking over every other conceivable portion of the American economy, be the one to create the “wholesale networks” of which Ms. Crawford spoke?  Under the latter scenario, destructive price controls and regulations such as stifling “Net Neutrality” mandates (which dictate to service providers how to run their businesses) are sure to follow. 

Currently, private enterprises invest over $60 billion annually in efforts to build and upgrade networks, and employ hundreds of thousands of people to carry out this effort.  As one commentator noted, “the broadband industry is not the light at the end of the tunnel for our economic situation – it is just about the only light in the tunnel.” 

If government is allowed to intrude into this industry in the manner suggested by Ms. Crawford, price controls and destructive “Net Neutrality” mandates will kneecap private innovation and investments in infrastructure. 

This is the last thing that the American tech industry needs right now.  Regardless of one’s feelings toward the Obama Administration, this effort to co-opt network buildout constitutes bald overreach. 

Government incentives for private-sector service providers would be very helpful, and building these networks would be beneficial and welcome progress.  But beyond providing private incentives, the best thing that the federal government can do to preserve broadband extension, tech innovation and prosperity is to simply get out of the way. 

May 7, 2009
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