Bad economic policy can be summed up fairly simply. If businesses are making political decisions, and politicians are making business decisions, little good can come from the ultimate policy. This isn’t a blanket indictment of either lobbying or economic regulation, both of which are essential for a functioning modern democracy and economy. But throughout our history, regulations work when they are clear, simple, and designed to protect consumers. Regulations do not work – at least beyond the immediate short term – when government actively selects winners and losers in otherwise functioning markets. Such will be the case if Senator Leahy’s Performance Rights Act is passed through Congress.
First, political intervention in the economy always carries with it unintended consequences. When policy affects all companies in an industry equally, the consequences may not be predictable, but at least they are equitable. When regulations hit some companies more severely than others, for no discernable reason, the policy inevitably causes more problems than it solves.
And second, inequitable regulation distorts business decisions. Rather than focusing their energy and attention on innovation, customer service, and efficiency, businesses turn their attention to lobbying and political activity.
For example, increasing transparency, in things like derivatives trading or ratings agencies on Wall Street, empowers consumers and clarifies decision-making for people from the top down to the bottom of our economy. These are things government can accomplish with a relatively light touch, clarifying markets and making them fairer and more efficient without stifling competition or innovation.
On the other hand, there are arbitrary interventions like the proposed federal Performance Rights Act (PRA), which has passed out of the respective House and Senate committees and awaits votes in the full House and Senate. The bill would add another layer of royalties paid by radio stations for the rights to play music. The existing royalty structure has been in place for many years and represents a good balance between broadcasters and the recording industry.
Songwriters, who do not directly profit from radio airplay the way performing artists do, receive royalties from radio stations. Musicians and singers do not, because they indirectly and overwhelmingly benefit from radio airplay, in the sales of records, concert tickets, merchandise, etc. The Performance Rights Act ignores this fact, and indeed turns it on its head.
It would require broadcasters to pay performance royalty fees for recording artists who already benefit from the radio stations’ businesses. To compel this through government action would represent a transfer of profits from one industry to another that would result in economic hardships for the broadcasting industry.
Sensible economic policy – a hallmark of the Democratic Party’s agenda, especially in Virginia – helps the economy work more efficiently. It guides businesses toward innovation, toward identifiable goals, and especially toward consumer-friendliness. Yet the PRA does none of the above. It’s just corporate welfare, a sort bank-shot tax increase, whereby one industry subsidizes another, for no reason other than brute and arbitrary political power.
Especially against the backdrop of a radio industry that is already struggling to survive this economic downturn, this kind of misguided regulatory step will disrupt an already weakened economy. In particular, the radio industry is already losing jobs. Some stations have gone dark, and others have gone bankrupt. Smaller, local stations without the resources of large networks will not be able to afford the new fee structure. These stations with rural or specialized urban programming will be among the hardest hit.
These are the kinds of smaller companies Congress should endeavor to help, not hurt. If the PRA were to pass, the unintended consequences to the broadcasters would be significant. And if the last ten years has taught us anything about policy making, it is that unintended consequences can do much harm to our economy.
Australia, which passed similar legislation over the past few years, has already witnessed the silencing of scores of radio stations and now are implementing a quota-based system that terrestrial stations are required to adhere to in order to force the promotion of local music. Not only are radio stations being robbed of a way of living – they are losing their autonomy as a consequence of misguided policy being pushed by the recording industry in Australia.
In the final analysis, picking a winner in this battle is not the ideal outcome. Regulation here is undue and unnecessary by definition of what the government should and should not be doing. Inhibiting the health of one industry at the favor of another, without any show of cause for embarking on that course of action, is inexcusable and further shakes apart the foundation on which our legislature is meant to function. Government is not a business tool by which a corporation can capture profits from other industries in order to survive. Congress is at its best making focused and necessary re-calibrations of economic policy. The Performance Rights Act is none of the above, and should therefore remain permanently tabled in Congress.