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Universal Service?

May 6, 1999

Al Gore may be dull-witted, and his speech slow and stiff. But despite this
pathetic demeanor, Gore is a formidable defender of government. His program
to "reinvent" government was a brilliant maneuver to hide a massive increase
in government size and power in a guise of phony cuts in government
employees and improved government efficiency.

Gore can also take credit for the new government prohibition on market
transactions in human organs and body parts. Medical knowledge and
technology advanced to the point of creating a new treatment that could help
millions and Gore made sure that government would be in "control" and make a
mess out of it.

Now, Gore has a plan to deal with Internet, and it is based on universal
service criterion that made such a mess of telephone communications. At the
heart of the monopoly is the concept of universal service in which
government ostensibly keeps the price of phone service affordable by keeping
your monthly local phone bill low.

Government and its phone monopoly are not giving anything away for free.
Long distance and business customers are forced to subsidize the monthly
local bill. Urban residential customers subsidize rural residential
customers by paying the same bill for a much lower cost system.

All of these taxes and subsidies create an interesting political dynamic,
but the real reason for universal service is for government to maintain its
stranglehold and monopoly on the phone system. Universal service and set
phone rates are the raison d'etre of monopoly.

Almost 95% of American homes have a phone; many have numerous phones and
multiple lines. Many of the rest do not what or do not need a phone. Even
the majority of those in poverty have a phone. We no longer need government
interventions, including at least 40 different government programs, and
their inevitable distortions to prices, to achieve universal service.

These policies have done nothing to improve access to telephone service
because they do not lower the overall phone bill. Economic growth and
higher incomes is the real reason why phone service is so widespread in the
States. In fact, if politicians were serious about reducing our phone bills
and making telephone service more affordable, they could kill the telephone
tax, a relic of the Spanish American war!

The government's system of taxes and subsidies worked fine with the AT&T
monolith and it has proved workable during restructuring because long
distant companies and local phone service companies remained separate. Now,
however, locals are entering long-distance service and long distance
companies are entering the local market and the system is breaking down.

If we only would allow the system to die, the price of phone services would
seek their normal levels and would become competitive. We would have
competing local phone companies and the competitive pressures would spread
to related products like cable television and Internet service.

Naturally, however, Washington is going to save universal service and
attempt to maintain the monopoly longer.

But it is Al Gore that has extended the concept of universal service to
providing Internet and advanced telecommunication services to hospitals,
schools, and libraries. Gore has breathed new life into the concept of
universal service, created a new entitlement, and guaranteed the
government's control over the new and emerging forms in the
telecommunications industry. Government budgets are already growing and
more interest groups are lobbying to be included in the program.

The next time someone makes fun of how stupid Al Gore is, remind them of his
dangerous accomplishments in maintaining and extending government in our
lives. Stupid is, as stupid does.

* * * * *
Mark Thornton is the O.P. Alford III Resident
Scholar at the Ludwig von Mises Institute.


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