Sep 15

Hollering At Hollings!

Today’s Democratic party is supposed to have made peace with the market. Modern Democrats favor free trade and technological development. They are friendly to Silicon Valley. High-tech executives, in turn, look kindly on the Democrats. In 2000, according to the Center for Responsive Politics, individuals associated with computer recovery and Internet firms gave $40 million to politicians. Slightly more than half went to Democrats.

Unfortunately for the techies, some Democrats are not following the new program. Even more unfortunately, one of these Democrats is the chairman of the Senate Commerce Committee. South Carolina’s Ernest “Fritz” Hollings is a proud protectionist, an eager regulator, and a steadfast ally of the trial lawyers. To the extent that the high-tech industry supported Democrats, it helped Hollings get his chairmanship. He is now returning the favor by stiffing the industry’s agenda. When the Information Technology Industry Council gave out its most recent ratings, most senators scored above 80 percent. Hollings came in dead last, at 45 percent.

hahThe 80-year-old senator is generally indulged, seen as a colorful character at best or a harmless joke at worst. When he gets in the news, it is often because of some outrageous remark. In 1993 Hollings explained why African “potentates” went to international conferences: “Rather than eating each other, they’d just come up and get a good square meal in Geneva.” His candor, or maybe just his nastiness, lets him say things that his colleagues do not — such as that Strom Thurmond, the man who has made Hollings the longest-serving junior senator in history, is “not mentally keen” and is using the Senate as a “nursing home.” Hollings dispenses with a lot of the contemporary politician’s cant. In his last campaign, he said his Republican opponent was “a goddamned skunk” who could “kiss my fanny.”

But Hollings is not merely a character. He is a tough and persistent fighter for his positions, and he is in a position to do real damage to the economy.

Hollings has elevated his dedication to protectionism, pork, and the tort bar to high principle. He has voted against almost every free- trade deal that has come before Congress: against NAFTA in 1993, against the global free-trade bill in 1994, against free trade with Africa and the Caribbean in 1999, against normal trade relations with China in 2000. He has not yet announced a position on the pending legislation to let the president negotiate future trade deals, but his website describes similar laws as “not only unwise but unconstitutional.” His position on trade reflects that of his state’s textile lobby, but he is also clearly a protectionist by conviction. Whatever his motives, Hollings is a chairman of the Senate Commerce Committee who is hostile to international commerce.

Hollings also backs every bill that would generate more work for the trial lawyers, from the “patient’s bill of rights” to a new “passenger’s bill of rights” that would, for example, create an actionable right for passengers with allergies not to be in the presence of peanuts. In 1999, he opposed even the bill to protect the high-tech industry from liability for Y2K-related problems.

In addition to voting against the interests of the tech sector, Hollings has denigrated its importance. He considers manufacturing far more vital to the economy and worries about the alleged erosion of our manufacturing base. During the debate over trade with China, he said that he would rather have BMW employing people in South Carolina than Oracle or Microsoft.

Hollings’s chairmanship comes at the worst possible time for techies. They are still struggling to get out from a sectoral depression that has entailed widespread layoffs and bankruptcies. The political climate in Washington has also turned decidedly pro-regulation. From force of habit, the government is applying to new technologies regulatory models that were initially developed for other industries. Internet taxes are a good example. The old sales-tax system, in which states tried to tax consumers, has proven unenforceable for e-commerce. But the states are unwilling to rethink their tax structures. So Congress is likely to respond to their predicament by giving them greater powers to enforce their current tax codes. Hollings, of course, supports the expansion of state tax authority.

He is also playing a key role on two bills that affect technology companies. The senator is blocking a bill that would make it possible for more people and businesses to enjoy high-speed Internet (“broadband”) connections. And he is the sponsor of another bill that would impose draconian regulations on digital devices in order to protect copyrights.

The first bill, sponsored in the House by Louisiana Republican Billy Tauzin and Michigan Democrat John Dingell, is designed to correct a flaw in the Telecommunications Act that Hollings got passed in 1996. That act was an attempt to have government-managed competition. It allowed local telephone companies, also called the “baby Bells,” to build lines for high-speed Internet connections — but only if they let competitors use the lines, and at a discounted rate.

The rationale was that the baby Bells had a monopoly over local telephone service and should not be allowed to use that established monopoly to gain market share in the new broadband market. The practical result is that the baby Bells have had no incentive to build the new lines and have therefore largely declined to do so. Cable companies have been active in the broadband market, but lack of competition has stunted that market’s development.

The Tauzin-Dingell bill would loosen the restrictions on the Bells so that they would have an incentive to build broadband lines. Many techies have maintained that the bill is key to a sectoral recovery. Whether or not that’s true, the potential benefits of letting this market develop are credibly estimated to be in the hundreds of billions of dollars. Tauzin-Dingell passed the House comfortably.

But Hollings says it’s “dead on arrival” in the Senate. He’s still worried about the Bells’ market power — even though they have not had legally protected monopolies for almost 20 years, and even though the cable companies would be competitors if the Bells got in. Hollings is so concerned about imagined Bell monopolies, he wants to break up these companies — an idea two analysts at the libertarian Cato Institute say “would set back telecommunications policy 20 years and constitute possibly the most radical, proregulatory measure to come along for any American industry in decades.”

While Hollings’s position is unreasonable, he may succeed in blocking reform. So far, nobody in the Senate is taking him on. The ranking Republican on the Commerce Committee, John McCain, used to be the Senate’s leading advocate of telecom deregulation. He fought Hollings on the 1996 act, and in 1999 he sponsored legislation that went much further than Tauzin-Dingell. Now McCain has switched sides, echoing Hollings’s concerns about monopolies.

Concerned as they are about Hollings’s position on broadband, high-tech companies are likely to be even more upset by his copyright-protection bill. That bill is a favor to the entertainment industry, which is Hollings’s second largest source of campaign cash (after lawyers). What it would do is mandate that computers, CD players, and DVD players — and any other device that can play or record digital information — be unable to duplicate copyrighted material. The manufacture, import, or sale of machines that can perform such duplication would be illegal.

The bill is backed by Disney, the Recording Industry Association of America, the Motion Picture Association of America, and Rupert Murdoch’s News Corporation. Their worry that the work they produce will be pirated is understandable. But Hollywood had similar worries about the VCR when it was invented, and the response was not to prohibit VCRs or to impose federal technology mandates on them. Eventually, Hollywood figured out how to make money from the new technology by adjusting their business model — which is what they should do now, too.

The Hollings bill is sweeping: It would make it illegal for the owner of a CD to copy it for his own use. It is a break with precedent, since we have not heretofore insisted that consumer technology be government- approved. It imposes costs on technology manufacturers unfairly. (It’s not their fault that the music industry makes CDs that are easy to copy.) It’s also insulting: The entertainment industry is treating its customers as presumptive criminals.

In sum, Hollings is beholden to anti-technology interests. He fears new technologies that threaten those interests. He opposes legislation that would allow for technological development. And he sets back free trade more effectively than all the rioters in Seattle put together.

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