Do You Trust Uncle Sam to Run the Cellular Network?

Do You Trust Uncle Sam to Run the Cellular Network?

By Mark Nestmann • February 20, 2018

Monopolies established by governments never work as intended. But that hasn’t stopped kings, presidents, prime ministers, and other authority figures from creating them.

One memorable effort was Josef Stalin’s decision in the late 1920s to “collectivize” agricultural production in the Soviet Union. Most Soviet farming plots at the time were tiny and tended by hand. Stalin believed he could boost production by combining these small plots into large “collective farms” owned by the state. Production on these larger holdings could be improved with tractors and other technological innovations.

Of course, it didn’t work out that way at all. Collectivization was simply a way to justify confiscating privately held land from millions of Soviet peasants. Without a personal stake in the success or failure of their crops, farmers had no incentive to produce food. Agricultural output fell dramatically, but the government still used a large portion of the crops to fund industrial development. With less food available locally, millions of Soviet citizens died from famine by the end of 1933.

A more recent example in the United Kingdom started just after World War II. In 1946, Parliament enacted the National Health Service Act, which provided all UK residents with the right to free health care. The government took over all hospitals, including those operated by charities and local governments, and organized them into a single-payer system.

Once you establish the principle that something desirable like health care is “free,” people demand more of it. Without a big increase medical professionals, facilities, etc., waiting times will increase. And that’s exactly what happened.

Today, more than four million people in the UK are on waiting lists for non-emergency surgery. The number of patients waiting four months or longer for such surgery doubled between 2012 and 2016. The situation will only get worse, because last year, the National Health Service announced it was ending efforts to reduce waiting times.

That brings us to the end of January 2018, when the Trump administration began reviewing a plan to partially nationalize the US communications system in the name of “national security.”

A similar event occurred almost exactly a century ago – and for the same reason. On July 22, 1918, President Wilson announced:

I, Woodrow Wilson, President of the United States, … do hereby take possession and assume control and supervision of each and every telegraph and telephone system, and every part thereof, within the jurisdiction of the United States, including all equipment thereof and appurtenances thereto whatsoever and all materials and supplies.

The US had just entered World War I. The government had seized America’s radio network and railroads to more efficiently pursue the war effort. Nationalizing the phone system was purportedly the next logical step to enhance national security.

In the months following the proclamation, the government took over more than 50,000 telephone companies. Like the family-owned farm plots Stalin collectivized, most of these companies served only a handful of customers. But they had provided telephone service to a huge number of Americans in the decades after the telephone was invented in 1876.

In the months following the government takeover of the telephone system, prices rose and service suffered. And on August 1, 1919, only a few months after World War I ended, the government wisely ceded control of the telephone system to the private sector.

Today’s proposal for a partially nationalized telephone system is for the government to build, own, and operate the newest wireless network, a technology known as fifth generation or 5G. Building a 5G network requires upgrading all of the current cellular network infrastructure, which is a major undertaking.

The security justification for this suggestion is to counter the purported threat of Chinese spying, fear of which is pervasive in America’s defense establishment.

One anonymous official told a reporter from Reuters:

We have to have a secure network that doesn’t allow bad actors to get in. We also have to ensure the Chinese don’t take over the market and put every non-5G network out of business.

Fortunately, cooler heads have prevailed in this turf battle. Ajit Pai, the chairman of the Federal Communications Commission, simply said: “[T]he market, not government, is best positioned to drive innovation and investment.” A nationalized 5G network would be ”a costly and counterproductive distraction.”

For the moment, it looks as if Uncle Sam will not be running America’s cellular network. And that will result in a network that’s less susceptible to hacking or malware.

The reason is easy to grasp. If you have a centralized network with a single point of penetration, all hackers (or a foreign intelligence agency) have to do is to focus their efforts on that network. But when multiple privately owned networks exist, hackers may not know which network to target to acquire the data they seek. What’s more, privately owned networks must compete not only on the basis of price but also on security.

In any event, I’m happy to see that the Trump administration understands this. Perhaps we really can learn from our past mistakes.

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About The Author

Since 1990, Mark Nestmann has helped thousands of clients seeking wealth preservation and international tax planning solutions. He is the author of highly acclaimed Lifeboat Strategy and other books & reports dealing with these subjects.

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