Relationship Between Broadband and Economic Growth Not Simple, Say Economists

“Broadband is not just a Band-Aid that you can slap on to an alien sector, an alien market or an alien economy,” said Pepperdine University Prof. James Prieger. “It has to be used intelligently and in conjunction with other things.” Deployment must be coupled with education and other efforts to spur adoption, Goldfarb said. How broadband affects wages may depend on the income and education levels of the specific area, said Georgia Institute of Technology Prof. Chris Forman. From 1995 to 2000, wages tended to grow most from high-speed Internet in counties that were already “well off” and highly educated, he said.

Deploying broadband in some high-cost areas may be too expensive in comparison to likely economic benefits, said Ryan McDevitt, a Ph.D. candidate in economics at Northwestern University. Broadband provides only “incremental benefits” from dial-up Internet, and if the Internet was going to have a huge effect on the economy, “we probably would have seen it already with dial up,” he said. Consumers “didn’t increase their use of the Internet drastically once they got broadband,” he noted. Broadband offers a better experience, but there will be “diminishing gains” as the service is rolled out, he said.

In addition, while broadband boosts revenue for some companies, it can simultaneously reduce it for others, McDevitt said. About 59 percent of people who buy broadband are replacing their dial-up connection and second phone line, he noted. And while more broadband adoption may boost business for companies like Amazon and Netflix, brick-and- mortar stores like Barnes & Noble and Blockbuster may lose business as a result, he said.

“To enable economic growth, broadband needs to enable experimentation,” Goldfarb said. That means “making sure there are no barriers to entry in the provision of broadband and its use,” he said. However, experimentation generates “big winners and big losers,” he said. For example, P2P file sharing has hurt the recording industry, while Google and Craigslist are killing newspaper ad models, he said.

Broadband availability “most assuredly” influences investment decisions by venture capitalists, said Tom Wheeler, managing director of Core Capital Partners. Core Capital invests in Internet Protocol-based companies because it believes “IP is the growth engine for … the technology economy,” and “the ability to move data is integral to innovation,” he said. Broadband is an “iterative and compounding technology,” he said. It’s iterative because “it spawns additional ideas, additional visions [and] additional companies that improve on and refine the status quo.” It’s compounding “because every time something is built, it creates the opportunity for something else to be built on top of it.”

Spurring broadband “demand is more important than supply,” Wheeler said. The FCC should consider a program like “Cash for Clunkers” to encourage broadband adoption, he said. Without appropriating funds, the government could use public policy to create demand by tying other initiatives to broadband, he said. For example, policymakers could stipulate that electronic medical records have to be tied into broadband, he said.

“Broadband means jobs, and communities need jobs,” said Ralph Everett, president of the Joint Center for Political and Economic Studies. The FCC’s plan must tackle high unemployment rates in minority communities, he said. Access to broadband will spur the establishment of more companies -- and therefore jobs -- in minority areas, he said.

The FCC has a history of “refereeing among various economic interests for the public benefit,” but the commission can become “an economic growth agency” with its broadband plan, Wheeler said. “There’s billions of dollars from venture capitalists out there that are ready to follow that kind of encouragement of innovation and investment.”

The FCC also held a workshop Wednesday on job training and workforce development, one of the policy priorities Congress directed the agency to examine as it formulates a national broadband strategy. Each of the those who spoke argued “really compelling in different ways for the government to really focus on access and access at high speeds,” said Kristen Kane, FCC director of national purposes. “We hear that loud and clear.”

But Kane asked what steps should the government take and what should the government recommend to Congress. Universal service and other federal policies pushed telephone access in the U.S. to penetration rates above 90 percent, replied Yvette Herrera, senior director of education and communications at the Communications Workers of America: “What we would like to see is the same type of policy” for broadband. She also asked the FCC to reexamine the definition of high-speed access. “It’s an economic necessity,” she said.

Tim Hill, president of Blackboard Professional Education, said the FCC should ensure that local and state regulation don’t keep multiple competitors from offering broadband. Hill said the FCC should define high speed Internet as service above 5 Mbps. “If I look across the e-learning industry, the various tools that are out there, what people are trying to utilize, that’s just kind of a given,” he said.

Online learning is here to stay, predicted Kermit Kaleba, senior policy analyst at the Workforce Alliance. For low and middle income workers, online learning provides education at lower costs, the ability to self pace and the ability to work at home that many find helpful.

“About a third of private sector learning is taking place as e-learning nowadays,” Kaleba said. “There’s a report from the Sloan Consortium that found that 3.9 million college students were taking at least one online course in the fall of 2007, which is up from 1.6 million in 2002. I think you're starting to see that federal policy is sort of starting to move to accept online learning.”

Richard Horne, supervisory research analyst with the Labor Department’s Office of Disability Employment Policy, said the Internet poses a new set of hurdles for the handicapped. “Accessibility matters,” Horne said. “For people with disabilities, the Internet is a blessing and a curse. I have two blind employees who I supervise. We do not have on a piece of software in the Department of Labor that is accessible that they can use. They can’t even complete their own timesheets. They can’t complete their own travel forms.” Making such forms and other materials accessible to the handicapped is often one of the last things considered, he said.