Warren and Graham Emulate History’s Failed Regulators

To the envy of the world, American companies dominate technology, especially the Big Five: Alphabet, Amazon, Apple, Meta and Microsoft. Since the federal government played some role in the development of the underlying technologies—semiconductors, computers, software and the internet—these world-beating high-tech firms might be counted as a success of U.S. “industrial policy.”

So why has a bipartisan movement risen to hobble the American national champions? Senators Lindsey Graham (R., S.C.) and Elizabeth Warren (D., Mass.) have proposed a Digital Consumer Protection Commission to license and regulate high-tech firms. Their model is such independent bodies as the Interstate Commerce Commission and the Federal Communications Commission.

Mr. Graham and Ms. Warren assure us that their new commission would “preserve innovation while minimizing harm presented by emerging industries,” but a careful look at history suggests otherwise. The ICC, the FCC and other agencies frequently hindered innovation, sometimes drastically. They were generally politicized and opaque. And they often worked against the long-term interests of consumers.

Railroads were the first great irruption of American industrial policy, as (usually corrupt) land grants and subsidies fueled overbuilding and the misallocation of resources. By the late 19th century, the railroads had come to play a role like the one high-tech companies play today: They lowered transportation and transaction costs, dramatically altering the country’s economic geography and opening up a vast array of economic possibilities.

The railroads harmed small merchants who were tied to the older system of roads and canals. But even those who benefited from railroads—notably farmers and producers of raw materials—feared the power of the enterprises that provided them with large new markets. The anxieties of innumerable small players generated powerful political energy, culminating in the Interstate Commerce Act of 1887, which created the ICC—and with it the template of the independent regulatory commission.

The historian Gabriel Kolko famously argued that the ICC was created by and for the railroads themselves, as a solution to a problem of intense competition. But more-recent research has shown that the interests of shippers were also at play, and by the early 20th century the ICC had essentially been captured by the shippers. The result for the railroads was absurdly low rates of return and an inability to raise capital. The ICC also became a bottleneck through which virtually all railroad business decisions had to pass.

Thus began the long and steady decline of the American railroad industry, which wasn’t arrested until surface freight was deregulated (and the ICC ultimately abolished) in the 1970s. Throughout its life, the ICC repeatedly stood in the way of innovation, including containerized shipping.

Radio, the high-tech industry of the 1920s, offers similar lessons. Broadcasting calls for regulation, since stations can interfere with one another if they transmit on nearby frequencies at the same time and place. But this can be dealt with by creating property rights in electromagnetic spectrum, something toward which the common law was already groping. (Such a system would eventually be put in place during the Clinton administration.) Instead, Congress created the Federal Radio Commission, which became the FCC when television arrived.

Spectrum allocation immediately became intensely politicized. The fastest route to a station license required a detour through Capitol Hill. Like the ICC, the FCC became an information bottleneck, and this favored the well-capitalized major networks. The FCC also held back innovation, including famously delaying the advent of cellular telephony for decades by refusing to grant it spectrum.

Even for radio, where spectrum was abundant, the FCC made content a central criterion for receiving a license. This meant wholesome, mainstream, nondissident fare. The commission demanded that all stations give equal time to alternative viewpoints, effectively a tax on speech. Many on both sides of the political spectrum today look back with nostalgia on the days when everyone heard exactly the same news in the comforting voice of Walter Cronkite. But they forget the severe limitations that heavy-handed commission regulation placed on the volume of content—and the way it silenced dissenting voices of all kinds.

The problems of regulation weren’t limited to the ICC and the FCC. They were structural problems of independent commissions. Mr. Graham and Ms. Warren complain that the leaders of the big-tech firms weren’t elected by voters. But they were elected by millions of consumers and shareholders voting with their dollars. Regulatory commissions are elected neither by voters nor by consumers, and they have shown themselves opaque even to Congress, whose oversight committees inevitably came to share the views and values of the regulated industries.

It is fashionable nowadays to dismiss the Great Deregulation of the late 20th century as an unfortunate if fleeting episode of “neoliberalism.” In fact, dismantling some of America’s rigid and retrogressive regulatory institutions unleashed powerful forces of innovation and consumer benefit. Before we attempt to rebuild those structures, we need to examine the lessons of history.

Mr. Langlois is an economics professor at the University of Connecticut and author of “The Corporation and the Twentieth Century: The History of American Business Enterprise.”