Last week, the Federal Communication Commission’s “Open Internet Order” went into effect, assigning new rules to Internet Service Providers’ operations. Don’t be fooled by the seemingly benign title, the regulation’s suggested positive benefits on the open and free operation of the Internet will be outweighed by a reduction in private employment and economic opportunity, including an especially deleterious consequence for Hispanic and African-American economic opportunities, at a time when future growth is an increasing concern.
As Hispanics, and especially Latinos, have become the most active igniters of startup ventures recently, the implication is one that runs contrary to the goals of many regulators and legislators who were originally in favor of “Open Internet” regulation.
Designed to keep the power of larger Internet providers in check, the FCC’s rules were enacted based on the belief that a few telecom companies had undue power over its consumers and other businesses offering content. Although few complaints were filed regarding these concerns, regulators acted quickly, seemingly discounting the potential harm to businesses (both large and small) and employment across the tech industry.
The FCC itself pointed out the unequal impact on small businesses, noting that 20,000 will be directly affected by the new rules (not including the millions more that we all know will be harmed). Recent testimony noted how some of these businesses are already pulling back on their investments – one local St. Louis Internet provider has chosen to delay plans to triple its infrastructure, for example – because they just don’t know whether the regulations will be upheld by the courts, nor do many understand how business costs will change.
Before the new regulations even took effect, companies around the country noted how they had to hire attorneys specializing in telecommunications just to understand the additional compliance costs and how business operations may need to evolve. Those who choose not to employ specialty legal services, risk heavy fines for non-compliance from the newly empowered FCC who is already flexing its muscles on companies that have fallen out of its good graces (just ask AT&T, who was recently fined $100 million).
Some economists estimate job losses to be in the tens of thousands from investment reductions alone. Based on the implementation of similar, previously enacted regulations, industry firms will likely draw back capital expenditures to the tune of $4-10 billion per year, leading to systematic hiring freezes or an increase in layoffs.
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What does this mean to Hispanic and African-American economics? The sector that will be hurt the most is the one that also has the greatest potential for non-Asian minorities, according to a new study. Although many hold the common misperception that tech jobs don’t offer the same opportunities for Hispanics and African-Americans as for whites and Asians, the reality is that tech sector job growth has created an incomparable opportunity for these minorities in recent years. In fact, between 2009 and 2014, the tech industry was responsible for 80,000 new jobs for college-educated African-Americans and even more for Hispanics. What is so impressive about these numbers is that they are nearly on par with the booming healthcare industry, have increased at a faster rate, and are expected to easily surpass healthcare new hires, if they haven't already.
Despite the stereotype suggesting the opposite, tech offers a tremendous opportunity for Hispanics and African-Americans, which regulators have failed to take into consideration.
For the two demographic groups with the highest unemployment (Hispanic unemployment is 40 percent higher than the national unemployment rate, while African-American rates are double), policies that promote growth in the industries that provide the most benefit to these groups should be a high priority for legislators and regulators. However, some regulators are more concerned about politics than they are economics, using their power to inflict pain upon those who disagree with their agenda, and have failed to consider the disparate impact on those who need as much help as they can get.
In addition to employment concerns, additional compliance costs and bureaucratic hurdles make it easier for larger firms to enter and compete in the industry, shifting the competitive advantage away from entrepreneurial firms, which account for the greatest percentage of new jobs over the last 15 years. Since the Great Recession, there has been a market consolidation in favor of larger firms with the resources to weather major contractions, while new regulations in this industry will only accelerate this snowballing advantage. As Hispanics, and especially Latinas, have become the most active igniters of startup ventures recently, the implication is one that runs contrary to the goals of many regulators and legislators who were originally in favor of “Open Internet” regulation.
Aside from a miraculous, immediate end to the expected years of litigation and eventual defeat of the FCC’s new regulations, there is a more appropriate, permanent route that D.C. can take. Momentum has already developed for bipartisan legislation to address the concerns I’ve mentioned, but to date, no one in Congress has capitalized on the growing apprehensions of legislators from both sides of the aisle.
If Congress doesn’t act, the withdrawal in investment, market consolidation, and compliance and litigation costs will only end in a net negative for our long-term economy, one that is especially damaging to minority groups already suffering more than the rest of the country.