| Broadband economic impact: Probably good |
| Written by Dave Burstein |
 Jed Kolko has just finished the most thoughtful paper on the economic benefits of broadband I've read. He's presenting it at NAF in D.C. on Wednesday 13 January. Kolko finds a "positive empirical relationship" between availability of broadband in the U.S. early this century and economic growth. He goes on to point out that doesn't imply "broadband expansion causes economic growth." "The reverse might actually be true," he points out, "if broadband providers choose to offer or expand service in areas that are growing faster." During that period Bellsouth emphasized a "smart build" that looked at factors like the local economy. That might be a substantial confounding variable, although Kolko looked for effects like that and sees little evidence they are the explanation."The overall relationship between broadband expansion and employment growth, as measured by the NETS, is positive." That's good news, and corresponds to my belief that broadband is a good thing. However, "both the average wage and the employment rate—the share of working-age adults that is employed—are unaffected by broadband expansion. The economic benefits to residents appear to be limited. ... Broadband expansion is associated with no change in average pay per employee and a decrease in median household income. Broadband expansion has no statistically significant relationship with the employment rate. ... the economic development benefits of broadband are ambiguous."
Much of D.C. thinks broadband by itself will promote some socially desireable goals. Kolko points to some data it doesn't necessarily work that way. "Switching to broadband increases the likelihood and intensity of several activities that do not fall under goals promoted by broadband policy: downloading music, purchasing products online, and visiting adult entertainment sites. Among “socially desirable” online activities that do fall under these goals, the only activity that increases is researching health information. There is no change in visits to job or career websites or government websites, including civic participation activities such as getting information about public hearings or contacting elected officials. Changing online behaviors will not necessarily lead to better social outcomes. For example, researching health information online will not necessarily enable people to live longer or healthier lives. But it is difficult to see how broadband will come to affect policy goals such as civic participation without changing online"
Kolko's conclusion "we still know very little about the economic effects of these technologies" corresponds to Shane Greenstein's comment "We really don't know the economic effect of broadband." Shane, the Elinor and Wendell Hobbs Professor of Management and Strategy at the Kellogg School of Management, Northwestern University, made that comment at an NTIA seminar attended by Larry Strickling, the head of NTIA, and Danny Weitzner, the brilliant NTIA policy lead. They haven't communicated that insight to their peers at the FCC or Congress, who continue to make claims for broadband that have no support. Columbia Professor Raul Katz also reports uncertainty. His analysis of the impact of the stimulus on job creation ranged from 126,000 to 400,000 depending on assumptions. Spending $7.2B digging holes in the ground and then filling them in might produce 126,000 jobs, so his low estimate is a dismal result from broadband. Raul notes their are negative job effects likely from broadband as well. Competition from Amazon can force local bookstores out of business. There is no definite and clear answer, although like Katz, like Kolko, thinks it most likely the result is modestly positive. http://www.elinoam.com/raulkatz/Dr_Raul_Katz_-_BB_Stimulus_Working_Paper.pdf
There's also an important reason to queation the use of data from three and ten years ago when estimating the effect of more broadband investment. Bob Crandall, who did much of the early work on economic impact, points out the results of more broadband today are likely very different than investments in the past. Ten years ago, nearly no one had fast connections; today, 60-80% of homes in many countries are connected. There's every reason to think the folks likely to benefit most are among those who signed up first. While there are important social reasons to get everyone connected, there's little reason to think broadband will be as useful to the remaining population as it was to the first three quarters. My takeaway: anyone who claims certainty about the economic effects of broadband should not be trusted. Those who make grand claims are probably fooling themselves or flattering their sponsor. But there's every reason to believe sensible improvements will bring results that justify the investment. The report is scheduled to be posted Tuesday at http://www.ppic.org/main/
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Kolko compared economic results in areas with different broadband availability. He introduced an interesting instrumental variable, the slope of the local terrain. That might affect deployment but not other aspects of the local economy. His findings "generally point in the direction of a causal relationship." and suggest that broadband expansion leads to large increase in local employment growth. One surprising trend in the data was "no relationship between broadband expansion and all three types of home-based work." I would have guessed that broadband led to more telecommuting.
