Oh Boyg—The Rise and Fall of RCA

In a previous blog entry I advocated use of government regulated micro-payments for the suppression of spam e-mail. In the comments, Jim asked why I assume that the government has to step in. Why can’t free market forces manage the problem of spam? In this blog entry I intend to show that the government is unavoidably involved in the consumer electronics business to a larger extent than most people realize. My assumption that it will take government action to suppress spam is based in part on past history. I’ll do this by way of example—the story of RCA.

Once upon a time there was a company that meant as much to the business of selling radios and televisions as Microsoft means to the business of selling computer software and hardware today. That company was the Radio Corporation of America. which later changed its official name to its initialism, RCA.

With the onset of World War I the use of radio for war-time communication was an obvious necessity in order to maintain military superiority in command and control. With that goal in mind, the US government passed laws which in effect gave the government free access to all wireless and radio-related patents. These rights were purchased and turned over to a new publicly held corporation, the Radio Corporation of America (RCA). With the U.S. patent rights of all earlier radio companies at its disposal, including such famous (at the time) names as Marconi, Westinghouse, and General Electric, RCA got a financial boost that it played out for more than 50 years.

With the near monopoly power that RCA had, it developed new standards with practically absolute veto power over the proposals of others. For example Edwin Armstrong developed an FM radio system prior to RCA’s effort. After World War II RCA proposed new standards for FM broadcasting, managed to get them approved by the FCC, and ran Armstrong out of the business. (Armstrong committed suicide, probably in despair over the usurpation of his FM work by RCA.) For another example, the Columbia Broadcasting System developed a color TV standard and had it fully approved by the FCC. Just a short time later, RCA came up with a new standard, had the old standard retracted by the FCC and asserted its new standard through a quasi governmental agency which it supported called the National Television Standards Committee (NTSC).

I see a huge parallel between the development of the radio business, especially early AM radio (1920 through 1950) and the development of the internet. Early AM radio broadcasting was poorly regulated. Business models for radio broadcasting were based on older technologies of wired telegraph and telephone service. These early ways of doing business did not take advantage of what broadcasting could offer and suffered from the technical differences between radio and wired services. The same thing is happening on the internet. E-mail is modeled somewhat after postal mail, but the extremely low cost of sending bits is very different from the real costs of paper, printing, and transportation involved in snail-mail. Ultimately the regulation of radio broadcasting became centered in a new government bureaucracy—now the FCC. I expect a similar outcome will have to happen with regard to regulating the internet.

RCA is not a unique case. AT&T once enjoyed not a near monopoly (as did RCA) but an actual monopoly, again possible only because of government action. Both of these companies are gone now, swept away possibly by mismanagement, but also by the increasing spirit of deregulation that followed the Reagan years in the 1980’s. Some of my readers may think this deregulation is all to the good. To them I say that deregulation is also why you have failures of perfectly good technology. For example, the FCC approved several AM stereo formats and intended to let the invisible hand of the market ferret out the best one. Today, not only is AM stereo practically a total market failure in every format, so is the AM band itself since it has not been able to keep up technologically with FM. In any case, government action or inaction has profound marketplace results.

On the positive side, durable and long lasting standards have come out of RCA’s near monopoly. Today’s FM stereo and analog color TV standards are marvels of sophistication considering the era in which they were invented. Although new standards are now entering the market (HD Radio, HDTV), the whole world avoided the chaos of the many possible incompatible standards. Although such regulation is a mixed blessing, it always can be directed for various purposes. It is the direction that counts—regulation itself will exist in some form.

The internet came about in its present form because of government sponsored research (just as in the case of RCA, government was instrumental) and FCC regulations regarding public access to the telephone system. (The backbone of the internet in the U.S. is operated by telephone companies.) That spam can exist in this situation is also due to positive legislation and rule making on the part of the U.S. Congress and the FCC to deregulate and provide open access to long-distance telephone lines. Present laws are allowing spam. Maybe the free market can get its act together and suppress the spam—but there would have to be some economic incentive. Spam filtering services and filtering software seem to be the hallmark of the free market approach. I say we should reconsider the laws which are allowing spam and modify them appropriately. Some e-mail, like certain messages “from Nigeria” are simply evil. Government action is appropriate and probably necessary for truly effective results against evil. The exponential growth of spam e-mail will eventually force the issue.

(P.S. A “boyg” is a problem that can’t be defined and is therefore insurmountable.)

About Douglas De Boer

Please see my Dordt College homepage for more information about me. http://homepages.dordt.edu/~ddeboer/ Also be sure to see my "Curriculum Vita" for my personal testimony http://homepages.dordt.edu/~ddeboer/ddb/sum_cv.htm
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