The Lesson Steve Jobs Taught – How A Smaller Government Made The iPhone Possible

iPhone

October 9, 2012

Allan Stevo

I wrote this a year back, inspired by a lecture delivered by Economist Tim Evans delivered in Bratislava a year earlier and my realization that the American phone monopoly so closely resembled the Slovak phone monopoly. Written originally in celebration of the life of an impressive entrepreneur – Steve Jobs – I’m posting it today just after the one year anniversary of his passing.

From the inglorious year 1913 until 1984 the United States had a government sanctioned telephone monopoly, in some form or another, with very heavy government involvement in the industry. During that time many homes in America even had the same telephone.  It was the Western Electric model 500 rotary phone.  The U.S. Government limited what telephone company could be used and the Bell System (AT&T) limited what telephones could be used.

That anti-competitive system created by government likely slowed development in residential telecommunications.  In 1984 those Model 500 rotary phones, very similar to the model that had first been developed in the late 1940s was still in use. It was said that telephone service was a “natural monopoly” so many people considered all of this an appropriate relationship between government and business.

1984 – Lots of Telephones Looked the Same

That old phone was in our house when I was a child.  I remember that on the bottom of my family’s telephone was a sticker that said our phone was property of Illinois Bell.  I had imagined that our telephone had somehow been accidentally stolen the first time I saw that sticker.  “Why would something in our house belong to someone else?” I wondered.  It was because government made the Bell System the official monopoly and the Bell System was able to make policies that consumers couldn’t really question, including the fact that millions of American households would rent their telephones from the phone company.

As I’ve traveled former communist Czecho-Slovakia over the years, and have so often seen the old model of phone that was used in communist times, I think about how similar the two countries (Czecho-Slovakia and the U.S.) were at times.  Some Slovak houses, even today, have the same sleek, communist model of telephone.  I assume that’s because that was the one phone that was available.  I can’t help but look back on how very similar our monopoly telephone laws in America (along with a host of other laws) were to the communist countries.

While government didn’t own the telephone company in America , it’s foolish to pretend that there’s much difference among the options of 1. outright government ownership, 2. heavy-handed control, and 3. government doing exactly what the board of directors wants.  All three relationships end up blurring the lines beyond recognition between what’s government and what’s corporate.  Today, things look very different, and it’s almost impossible to imagine that the United States of America once had a telephone monopoly.

1998 – “Natural Monopolies Are a Fact of Life”

Almost fifteen years later, in 1998, an economics professor at the University of Illinois taught me that natural monopolies exist and are a fact of life.  He cited telephone services and cable television as two examples. He professed this theory even as everyone on campus was slowly beginning to dial numbers like 10-10-220 or 10-10-321 in order to use cheaper long distance companies to call home.

That professor probably kept saying it the following year when cell phones finally became the rage on our campus, just five years after the U.S. Government in 1994 finally allowed phone manufacturers enough room in the radio spectrum for widespread mobile phone use.

Within two years, mobile phones went from being minimally used to being used by practically everyone on that campus and within the next decade, the iPhone would appear.

Government Enforced Monopolies – Stalwarts to Innovation

Who could possibly have imagined that in 23 years time America would go from having the same old AT&T 1940s style phones in so many homes to having iPhones in so many pockets?  The Western Electric 500s were put there by a company both heavily regulated and heavily favored by government, a company that was largely disinterested in innovating.  Heck, a company AND a government that were both largely disinterested in innovating.

The iPhone in contrast was made popular by companies, engineers, consumers, who moved too darn quickly for government to even be able to understand what was happening, let alone to have enough time to try regulating it.

As brilliant as everyone for the next few days and perhaps for the rest of the year will say Steve Jobs was, my guess is that not even Steve Jobs had any idea in 1984 that 23 years later something like an iPhone would exist.  My guess is that almost no one anywhere in the world was able to predict that with much accuracy.  When government took the power to make decisions out of the hands of entrepreneurs and consumers, there was a different group of people that they left the decision making authority in the hands of – the federal regulators and the members of the board of directors at AT&T.

In all likelihood, no one who sat in on AT&T board meetings 23 years ago was able to predict that an iPhone might one day appear.  No one who regulated the telecommunications industry would be able to predict that.  That probably didn’t matter to them though.  The U.S. Government ensured that what was good for AT&T and what was good for the regulators would be what the rest of the US would abide by – even if that meant everyone would use the same rotary telephone for thirty-five years. Had residential telecommunications been left in the hands of government and AT&T it’s unlikely that anything like an iPhone would today exist.

We Don’t Need to Rely on One “Know-it-all” In a Free Market

If one person makes a mistake in a free market, it’s not that big of a deal the way it is in a controlled economy. The brilliance of allowing competition and a free market is that no one person needs to know everything. No one person needs to know the future.   No one person needs to understand the desires of every other person.  This is all quite convenient for us, since no one person can know the desires of every other person.

Had you asked someone in 1984 “What innovations will a more competitive marketplace in telecommunications bring over the next 23 years?” that person probably couldn’t have told you with any certainty.  Twenty three years is a long time when technology is allowed to develop freely.  But they would have been able to at least have told you that something better could come out of a freer system of competition.

That’s how the mechanism of competition works.  You don’t need to be all-knowing to be able to believe that competition works.  You don’t need to prove that competition is better by explaining specifically how competition will make health care better, will make automotive consumers happier, will make users of money better off. It’s enough to know that such happiness is part of the nature of competition.

While I don’t know what benefits competition will bring to industries that are heavily controlled by government, I do know that experience shows free competition will advance technology and respond to the needs and wants of the consumer in a way that protectionism in its many forms can’t. You may call it mercantilism, communism, cronyism or whatever other name you’d like to put on the law being used to protect a producer and to limit the choice of consumers and to limit the ability of competitors to enter a market freely.

By opposing government protectionism, you support a belief that better solutions can be had for any problem out there when a spirit of competition is allowed to drive innovation. By opening up the discussion and letting the profit-motive work its magic, better solutions can be found by a variety of enterprising people and not just whoever happens to be in the AT&T boardroom or in the office of a federal regulator at the time.

Steve Jobs was a brilliant, charismatic man in the right place at the right time and my life is enriched because someone was there to do what Steve Jobs did.  I don’t even use an iPhone, but I know that everything from my old Nokia to my sleek new Motorola has the imprint of Steve Jobs and dozens of other people like him.  My time on the internet is influenced by him.  My time on any computer today is influenced by him.  The word-processing program I’m using to write this was influenced by him. Tomorrow when I go on the internet to read this essay and others like it, I will be reading from a Jobs influenced font.  I wonder how much less pleasant my work as a writer would be if in the year 2013, the U.S. was celebrating the 100thanniversary of the Ma Bell monopoly alongside the anniversary of another government enforced monopoly – the Federal Reserve Bank.

Free Markets Makes It Easier to Help

I think competition is good for us.  Freedom allows that competition to take place.  I don’t know specifically how our lives will be made better through free markets in the future.  I just know from past experience that it can and will.  The existence of the iPhone today and not just the continued use of the Western Bell model 500 is an example of the victory of freer markets.  I know over and over that when government allows people to get together and to freely help one another out, people are left better off than when government intervenes and slows that process.

By “helping each other out” I mean being kind and charitable, but I also mean things like – selling a product, selling a service, selling time, selling labor, selling advice.  Those are all helping people out.

When I buy a book on Amazon, I go through the realization that my money is worth less to me than that book, and I have the entire team of people who have cooperated in getting me that product to thank for their help.  They in turn consider my money to be more valuable to them than that book.  We have helped each other out in that situation.

If we push government aside, people like Steve Jobs – brilliant, charismatic people – will step forward and lead the way.  There will be dozens, maybe even hundreds of options that present themselves as solutions to every minute problem.  There will be open dialogue and competition.  There will be lots of failure for daring entrepreneurs and investors.  There will also be much success for all of us.  We will be left with more than just the broken one-size-fits-all systems that are heavy and clunky like the “property of Illinois Bell” phone that I grew up calling my aunts and uncles on.

We will end up with some carrying around the newest and best iPhones and even with some of the poorest people in society being able to carry around second and third generation models of fantastic phones.  No one is forced to use that old Western Bell clunker today. The Western Bell 500 and the iPhone are metaphors for what can happen in all spheres of life if government will just step aside.

Where there is only one manufacturer and where there is a market closed to competition, the improvements come slowly.  A government sanctioned monopoly simply has such limited desire to innovate.  It’s part of the natural corruption that comes from the state protecting manufacturers. The easier it is for a potential competitor to enter a market, the better it can be for us all.  Standing in the way of easy barriers to entry, however, is the U.S. Government that puts into place a host of prohibitions (often called “regulations”) that ultimately make life more difficult and more expensive for consumers. Instead of letting consumers regulate their own buying, instead of letting markets regulate themselves through the decisions of consumers, we are left with government interference sapping vital energy and resources from industries.

Not for a moment will I pretend that the competition created by a free market is flawless.  But it does a pretty good job, allows for a great deal of personal freedom, and allows society to have more iPhone quality developments and fewer Western Bell 500 quality stagnations.  The later stagnated for about 35 years.  The former had five new “generations” in its first five years of existence.  The later we were beholden to.  The former we buy because we choose to have it.

Imagine this – if government steps aside today from health care, from medicine, from research, from education, from retirement funding, from charity, from banking, from agriculture, the automotive industry, and a host of other industries – if the government steps away from virtually any area of life it regulates, it is entirely reasonable to assume that in 20 years we will have seen our service and products in other industries go from the equivalent of “AT&T – standard issue and clunky” to iPhones, and maybe in 30 years you and I will be meeting on this website celebrating the life and mourning the death of some energized entrepreneur like Steve Jobs who was there to make that change happen.

Thank you, Steve Jobs, for having been one of those people who demonstrated how much can happen when government just steps aside.

Leave a comment!  Start an argument!  Ask a question! Share an experience! A very small percentage of my life was spent living during the AT&T telephone monopoly and I did not live in Slovakia during a genuine telephone monopoly (though I would argue that the Eurotel/Orange era of mobile phones had a very monopolistic feel to it). If any Slovaks or Americans can tell me more about telephones, phone service, or just about anything regarding utilities during that time, I would be very interested in hearing more. Or if you have anything on your mind after reading this article, feel free to spout off. Whatever you do, please don’t try to accuse me of supporting either of those guys running for president in the U.S.  This article is an accounting of beliefs based on my observations in Slovakia, the U.S., and other countries and is certainly not meant to show support for either party or any politician running for president.  I realize accusations of partisanship are a danger associated with writing about the topic of economics anytime during the two year presidential election cycle.  Maybe I’m wrong – maybe the U.S. or Czecho-Slovak governments would have been able to get the iPhone (or maybe an even better product) to market within those same 23 years (or less) – I would love to hear someone argue that point as eloquently as possible.

Allan Stevo writes on Slovak culture at www.52inSk.com.  He is from Chicago and spends most of his time travelling Europe and writing.  You can find more of his writing at www.AllanStevo.com.  If you enjoyed this post, please use the buttons below to like it on Facebook or to share it with your friends by email.  You can sign up for emails on Slovak culture from 52 Weeks in Slovakia by clicking here.

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Comments

  • You may like to know,that through the distribution / donation /government write, of free phones to the peoples, in “third world nations”, at the cost of service of $1 a month. Large corporations still have monopolies, but world-wide now. These same phones are used as triggers for “IEDS” that kill soldiers in the war zones.

  • I would say that while telephone service is not a natural monopoly, telephone lines are. The only reason you can choose your provider now is because government regulations force the ILEC wire owners to allow the CLEC providers to use their lines. Were it not for this regulation, then the only way that deregulation would have an effect on landline service is if companies strung their own new lines.

  • You’ve been getting frustrated with the new establishment, eh?

  • Edward Knuckles

    Oct 11th, 2012

    You should be allowed some leeway considering the limitations of space and holding the reader’s interest but your wildly enthusiastic viewpoint on the technological benefits of competition lacks perspective because it limits itself solely to technological aspects without considering the possibility of a wider view. I’m not sure whether your statement, “The Western Bell 500 and the iPhone are metaphors for what can happen in all spheres of life if government will just step aside,” is actually a metaphor or more an of analogy but it does call into question your belief that the implications in one sphere can be extrapolated to others, e.g. health care. You seem to give no consideration to unintended social consequences of technology and implicitly assume that the innovator has the best interests of the consumer and environment in mind while they proliferate their new technology solely for financial gain. In my own sphere of experience I can well imagine the consequences of electric utilities being allowed unfettered reign on how best to make power available to customers without those bothersome issues of safety and impact on the environment. Electricity and clean water are commodities that have become a necessity of a properly functioning society today and cell phones don’t fall into the same class.
    Government does have a proper role in protecting the economic interests and safety of the public. Corporations left to their own devices will monopolize to squeeze out competition as a matter of survival and consequently hold the customer hostage to whatever the market will bear. A better question that you might want to elaborate on is what is the proper balance between governments and markets because I don’t seem to see any consideration for such concerns in your article. Nonetheless, your viewpoint is greatly appreciated because it encourages thinking and dialogue.

  • Juro Misina

    Oct 18th, 2012

    Allan, if you told me you’re on that picture, I’d believe you 😉

  • It seems this article has a lot of controversial aspects. What some see as ‘monopolies’ I see as ‘standardization.’ Populations couldn’t communicate effectively with different types of telephone services and technologies. There has to be one or two main technologies so that they can be maintained efficiently and easily so the users of the technology will get fast benefits and results. Government is needed to achieve this kind of working system. Government can support the best technology and enforce its use over the lesser technologies so that the major population of people will use the same technology and thus be able to communicate easier with one another.

    I also agree with Ed that just because something is new and efficient and also very popular doesn’t mean it’s good for society and the environment. So the role of government is to regulate technology so it doesn’t harm society and the environment. Sometimes government has to stamp out bad innovations to order to protect us.

  • franchise daycare

    Oct 31st, 2012

    the role of government is to regulate science so it doesn’t harm society and the environment. sometimes government has to stamp out bad innovations to order to protect us.and implicitly assume that the innovator has the most desireble interests of the consumer and environment in mind while they proliferate their new science solely for financial gain. In my own sphere of savvy

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