Mero Moment: UTOPIA and Rent-Seeking

As I speak these words the Orem City Council is scheduled to debate and vote on a 50 percent increase in property taxes for its residents. The primary reason for this significant increase is to help pay for Orem’s portion of the government fiber optic pipeline called UTOPIA.

Ten years ago, more than a dozen Utah municipalities banded together to bond for a network pipeline that would provide high-speed Internet access to residents of their cities because, it was felt then, market providers of Internet services weren’t offering the fastest forms of Internet transmission possible – and, as a compelling benefit, those faster forms of Internet transmission would lure more tech businesses to those cities.

Ten years later, little of that is happening, and UTOPIA is around $120 million in the hole with only obligatory optimism on the part of its owners and bond obligations keeping the idea alive.

I tweeted the other day that “many techies are libertarian until it comes to UTOPIA,” meaning that for many limited government advocates, spending tax dollars on UTOPIA is OK because they like what it does for them. Economists call this behavior of seeking tax dollars to support a particular business “rent-seeking,” which for many libertarians is a fighting word.

So a libertarian friend and supporter of UTOPIA challenged me to defend my opposition against his defense, which rests primarily on the idea that government regulations created the market environment that prevents certain Internet companies from competing on a level playing field. He argues that a true free market in fiber optic service requires governments to subsidize UTOPIA to overcome inequities in the marketplace. Most other defenders of UTOPIA simply insist that fiber optic pipelines are “infrastructure” like roads and sewer systems.

While my friend’s argument is valiant, it nonetheless fails to impress me. First, though others make the infrastructure argument more strongly than my friend, UTOPIA is not infrastructure. UTOPIA isn’t a road or a park or a sewer system. UTOPIA is not a “public good” in economic terms. UTOPIA is a capital cost that permits unique sellers of Internet services to peddle their wares – a cost those Internet services don’t want to incur except at taxpayer expense.

My friend argues that getting rid of government regulations that both prop up conventional Internet providers, such as phone and cable companies, is only half the picture. In fact, it’s the whole picture. Deregulating the telecom-Internet market includes deregulating the transmission lines and points-of-service as much as it means a level playing field in an open market.

A subsidized open-access model, like UTOPIA, isn’t necessary to create a level playing field. All that’s necessary is deregulation and a competitive product desired by consumers. And there’s the real rub – there simply aren’t enough premium Internet consumers to make fiber optic service competitive right now. Some businesses like fiber optic service, for good reasons, but evidently not enough, because UTOPIA is running a $120 million deficit after 10 years of operation – one more proof it is indeed a government program. Most people like what they get for what they can afford. That’s the marketplace at work.

The rent-seekers for UTOPIA are little different than the rent-seekers for alternative energy. Advocates for wind and solar power claim that government regulations created a monopoly for oil companies, and that all that’s needed for wind and solar power to compete are government subsidies. Folks, that’s not the free market in action. There might be global and transcendent reasons to subsidize new industries to wreck existing ones in the name of progress. I just don’t think that fiber optic Internet service rises to that level.

For Sutherland Institute, I’m Paul Mero. Thanks for listening.