A Cellular Network or a Jobs Program? Sprint/T-Mobile Critics Launch Misguided Attacks

The recently-approved Sprint/T-Mobile merger is already coming under fire after layoffs were announced. But even the harshest critics begrudgingly acknowledge that the jobs being eliminated are no longer necessary because of the efficiencies gained by the merger. One particularly critical opponent of the deal recently noted, “Such deals almost universally result in thousands of layoffs as redundant retail, support, and management positions are culled.” [Emphasis added]

Regardless, these layoffs are being used to smear the decision by the Federal Communications Commission and the Department of Justice to approve the merger in the first place. No one denies that having a job is a critical measure of overall well-being and that jobs are indeed very important. However, the seeming focus on jobs and jobs alone as a measure of policy efficacy poisons debates and neglects how economically sustainable jobs are created in the first place.

One of the key insights provided to us by public choice economics is that government officials are rationally self-interested actors who respond to incentives, just like the rest of us. Regulators and politicians are ultimately accountable to voters. The perennial top priority of voters is economic security in some way, shape or form, so politicians across the political spectrum default to promises of jobs, jobs, and more jobs.

There’s an old story about this exact problem that goes something like this, as recalled by Mark J. Perry of the American Enterprise Institute:

While traveling by car during one of his many overseas travels, Professor Milton Friedman spotted scores of road builders moving earth with shovels instead of modern machinery. When he asked why powerful equipment wasn’t used instead of so many laborers, his host told him it was to keep employment high in the construction industry. If they used tractors or modern road building equipment, fewer people would have jobs was his host’s logic.

“Then instead of shovels, why don’t you give them spoons and create even more jobs?” Friedman inquired.

The takeaway here is that it is easy to create jobs in the short term by shifting existing wealth around in inefficient ways. But the key to generating new wealth, and hence new jobs, is finding ways to more efficiently use resources. Prioritizing jobs doesn’t grow the economic pie, it just redistributes ever smaller pieces and crumbs. The above story may sound like silliness one would only encounter in some tin-pot dictatorship, but it happens regularly in advanced economies all around the world, including here in the United States. The debate surrounding Sprint/T-Mobile is a perfect example.

Mergers and acquisitions are about achieving efficiencies and thus generating new wealth. Resources being used to provide double the amount of overhead can be consolidated and redistributed to provide more than double the number of products and services for consumers, reduce prices, or both. Some specific jobs are lost short term, but jobs are generally gained on net in other parts of the business over the long run. Subsequently, the efficiencies gained by the business are passed on to customers who in turn have more of their resources liberated to generate wealth and new net jobs elsewhere in the economy, and so on and so forth.

The problem is that these new jobs, especially the ones created downstream by the new efficiencies enjoyed by consumers, are much harder to measure and come later than the ones immediately eliminated by consolidations. So, you can guess the ones with which politicians running for reelection every two to six years are most concerned. This leads to companies hoping to engage in all sorts of economic activities that are subject to government approval, including mergers, to overpromise on jobs in the hope of getting the green light.

In regards to Sprint and T-Mobile, the actual economic benefits of that merger are increased efficiency in deploying a new, nationwide fifth-generation or “5G” wireless broadband network as well a more robust competitor against the larger carriers AT&T and Verizon. The potential applications of 5G, which provides exceptionally fast wireless connections capable of transmitting huge amounts of data, are virtually endless and will enable literally millions of brand new, previously unimaginable jobs across the economy.

But of course, because the merger required regulatory approval at multiple levels of government, the companies were forced to make claims about the direct jobs the merger would create within the new single firm instead of focusing on the downstream employment impacts of an accelerated deployment of a 5G network. Hence the immediate criticism about the jobs being eliminated as a function of achieving the efficiencies necessary to shift resources to said network deployment.

But if opponents of the merger acknowledge that the jobs being eliminated are indeed “redundant,” then we have to ask ourselves what we’re really trying to accomplish here. Are we trying to enable the buildout of a brand-new network of cutting-edge technology or create a jobs program? If it’s the latter, then we ought to consider taking away the shovels and diggers of the workers laying cables for the new T-Mobile network and giving them spoons.