The telecommunications economy and regulation as coevolving complex adaptive systems: implications for federalism.

• Author: Cherry, Barbara A.

1. INTRODUCTION II. LIMITS OF THE PRESENT POLICY PARADIGM FOR SUSTAINABLE POLICIES III. TOWARD A NEW PARADIGM FOR SUSTAINABLE POLICIES A. General Constraints and Properties of Sustainable Policies B. Relations of Telecommunications Policy to Complexity Theory 1. Complexity Theory 2. Economic Sectors and Policymaking Systems as Coevolving Complex Adaptive Systems C. General Implications for Sustainable Telecommunications Policies from a Complex Systems Perspective IV. FEDERALISM AS AN INNOVATIVE AND DYNAMIC POLICYMAKING SYSTEM V. HISTORICAL EVOLUTION OF FEDERALISM IN THE U.S. VI. PRESSURES FOR A NEW FEDERALISM MODEL IN THE U.S. VII. USING COMPLEXITY THEORY FOR EVOLUTION OF A NEW FEDERALISM MODEL A. Recognizing Federalism as a Patching Algorithm B. Modifying Federalism for Environmental Regulation C. Comparing Models of Policy Reform D. Using Adaptive Decision-Making Tools for Policymaking in General VIII. TOWARD A REVISION OF FEDERALISM FOR SUSTAINABLE TELECOMMUNICATIONS POLICY I. INTRODUCTION

   In numerous articles and papers, I have stressed in varying ways that sustainable regulatory telecommunications policies require simultaneous satisfaction of economic viability and political feasibility constraints, and that satisfaction of these constraints is becoming more challenging for regulatory regimes based on competition rather than monopoly. Some articles have examined the sustainability of specific regulatory policies, such as universal service, (1) rate rebalancing, (2) and the effects of detariffing on liability rules. (3) Others have broadened the scope of inquiry, looking at sustainability problems arising from fundamental attributes of the U.S. governance structure, (4) including efforts to retrench from public utility regulation (5) and to resist extension of common carriage obligations to broadband access services. (6) Throughout this research, I have sought to provide the foundation for a more general analytical framework for designing sustainable telecommunications policies based primarily on legal and economic analyses and incorporation of models and insights from the political science literature.

   Most recently, I have sought to further enhance this framework by incorporating insights from complexity theory. Within the general academic community, there is a growing recognition that complexity theory, originally developed in the physical sciences, may also be applicable to the social sciences. Complexity theory is based on the distinctive properties of complex systems and provides a different paradigm for understanding and interacting with complex systems. Complexity theory is already influencing research concerning sustainable environmental policies, (7) and recent research is examining its potential application to communications policies. (8)

   In research foundational to this Article, Bauer and I assert that complexity theory should be used to improve our understanding of the requirements for sustainable telecommunications policies. (9) More specifically, Bauer and I assert that if the telecommunications sector and the legal/policymaking institutions are viewed as coevolving and complex adaptive systems, then there are important implications for regulatory policy. One implication is that law and regulation will have a diminishing capacity to achieve specifically desired outcomes but will retain influence over possible, usually unpredictable, trajectories of sector performance. Instead, greater focus must be placed on how to design policies and policymaking processes that are more suitable for interacting with, interpreting, and responding to the telecommunications sector over time. In other words, greater attention must be paid to the adaptability of policies and the policymaking processes themselves as they evolve with the telecommunications sector.

   This Article reviews the analysis in my previous work with Bauer (10) and then examines its implications for federalism, a distinctive characteristic of policymaking processes, in the U.S. More specifically, this Article shows that, from the perspective of complexity theory, federalism is a patching algorithm that confers system advantages for adaptability through diversity and coupling of policymaking jurisdictions. Such diversity and coupling is important for adaptability of the policymaking process itself by providing mechanisms for both experimentation and stability that are essential for development of sustainable policies. In addition, as a coevolving complex adaptive system, a federalism regime needs to evolve over time. For telecommunications regulation in the U.S., other scholars have already noted a shift from dual federalism towards cooperative federalism. This Article asserts that, as for sustainable environmental policies, further evolution in the federalism regime is required to improve the adaptive properties of the U.S. policymaking processes to provide sustainable telecommunications policies. Such evolution will require greater flexibility in the sharing of jurisdictional powers as well as the utilization of new tools to enhance development of robust and adaptive policies. An important implication of the complexity theory perspective is that policies of complete federal preemption, and particularly full deregulation, must be approached with great caution. This is because such policies eliminate the adaptive properties of a more highly patched and coupled policymaking system.

   This Article is organized as follows. The next Part briefly discusses the shortcomings of the traditional paradigm implicit in most policy research for developing sustainable telecommunications policies in the present environment. Part III provides an overview of the analysis in Adaptive Regulation: Contours of a Policy Model for the Internet Economy (11) for creating a new paradigm based on insights from complexity theory, upon which the present Article relies and expands to examine the implications for federalism. (12) Parts IV and V describe the origins of federalism and its historical evolution in the U.S. Part VI describes recent pressures for further evolution of federalism in the U.S. Part VII then examines federalism from the perspective of complexity theory. It shows that federalism is a patching algorithm that provides mechanisms of both innovation and stability that can improve the ability of the policymaking system to develop sustainable policy. This Part also reviews research analyzing cooperative federalism and adaptive decision-making tools in the context of environmental policy, with particular emphasis on the implications for policies of federal preemption and deregulation. The Article concludes with Part VIII, which discusses preliminary conclusions for revising federalism in the pursuit of sustainable telecommunications policy.

2. LIMITS OF THE PRESENT POLICY PARADIGM FOR SUSTAINABLE POLICIES

   For over a century, nations' telecommunications networks--whether privately or publicly owned--were established and maintained under monopoly regulatory regimes. Notwithstanding losses in some forms of economic efficiency, monopoly telecommunication regimes have been sustainable and relatively stable over long periods of time. Given the then prevailing technological characteristics of supply, the economic conditions created by legal barriers to entry also permitted the pursuit of numerous social goals, such as universal service. Furthermore, once established, the institutions that developed to oversee and enforce the regime--which, in the U.S. consisted of federal and state regulatory administrative agencies--have persisted with only modest modifications.

   In recent years, many nations have been transitioning from monopoly to competitive regimes and their telecommunications sectors are experiencing rapid rates of technological change. The attempts to transition to competitive regimes in an environment of dynamic technological change have unleashed tremendous forces for change not only on the providers of telecommunications services but on the governmental, legal, and policymaking institutions. These changing circumstances are challenging nations' abilities to design and implement sustainable telecommunications policies. (13) This is evident in the recent policy experience in the United States, for example, where important policies such as interconnection or universal service are undergoing continuous challenges and modification.

   Bauer and I argue that these challenges are not just aberrations but reflect a fundamental shift in the governability of the increasingly complex system of communications technologies and services. (14) This reality undermines the efficacy and appropriateness of the traditional policy analysis paradigm. Under the traditional paradigm, policy recommendations are developed based on optimization of some measure of societal preferences reflected in an objective function, often a form of efficiency, using models that are essentially mechanic and deterministic. (15) Bauer and I assert that a new paradigm of policy analysis is needed that explicitly recognizes the evolutionary dynamic inherent in policymaking systems and the systems they endeavor to influence. Complexity theory provides critical insights for such a new paradigm.

3. TOWARD A NEW PARADIGM FOR SUSTAINABLE POLICIES

   Bauer and I assert that constructive evaluation of a new paradigm for policy analysis should start with a clear articulation of the meaning of sustainable policy. (16) Although often referenced, debates concerning sustainable policies usually leave the term "sustainable" undefined. In prior research, I have examined various dimensions of policy sustainability (and unsustainability). Therefore, Bauer and I define the term sustainable policy to reflect the insights and conclusions of this research. "More specifically, sustainable policies are defined as rules that are politically adoptable and for which the desired policy goals are reasonably likely to be...