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Broadband Job Claims “Gross Overstatement”
Friday, 06 February 2009 16:01

Bob Crandall and Shane Greenstein put the lie to the claims broadband spending will have a huge effect on the economy. Nearly all the claims about jobs are based on studies Bob did. Kim Dixon’s Reuters article presents a crucial refutation of the lobbyist claims far too many have been parroting.

bob_crandallYou shouldn't "take the experience of Manhattan, Chicago, San Francisco, etc and uses it to predict the experience in West Texas, Appalachia, Eastern Colorado and the Mississippi Delta" in 2010, Elinor and H. Wendell Hobbs Professor Shane Greenstein added at the Technology Policy Institute event. “Most of the data on jobs and broadband is not relevant because it doesn't apply to underserved, mostly rural and high cost areas targeted in the stimulus package,” Dixon reports.

It's a wonderful dream that connecting more people to the Internet will change most of their lives. That's not realistic, especially now that the most of those economically active are already connected.  They're disproportionately older, poorer or disabled, as Peter Phillips of OFCOM notes.  There's every reason for society to help those least able, but we shouldn't pretend doing so creates large numbers of jobs.

Greenstein clarifies, "The predictions for broadband have three layers, predictions about direct set of jobs created/saved, predictions about multiplier effects (any business generates additional business, which generates more jobs), and indirect employment growth (which I prefer to call growth externalities). ... this quote arose in the context of the discussion about growth externalities, about which I am comparatively skeptical -- particularly local ones."

Translation:
Direct: Broadband creates job direct jobs in ditch digging, modem manufacture, engineering design and so forth. That's the one everyone accepts, although Raul Katz has some interesting calculations of whether broadband creates as many direct jobs as construction, for example.

Multiplier: Any spending, whether wireless towers, a McDonald restaurant, or marijuana growing, has an indirect  "multiplier effect." The workers go out and spend some money in the local restaurants, etc.  Some calculations suggest adding spending in an area creates 86% more local spending. Advocates often include the multiplier effects as a benefit of giving them the money, but that's totally inappropriate here. Any other spending would also have a multiplier, so that doesn't help you choose.

Externalities: The controversy is over whether spending on broadband will produce "indirect employment growth (which Shane prefers to call growth externalities)." Others call this "network effects."  Do many of the new users learn an advanced trade, and thus earn more?  Will call centers move in because broadband has been installed?  

Some folks claim this effect is enormous - $134B according to one figure the House report included that is absolutely unsupportable. If you look more closely at the data, the study shows little if any effect. My take, and apparently Greenfield's is that these effects are modest. Most of the people without broadband are poor and elderly, so the economic impact is slight unless their lives are dramatically changed.

Absolutely it is a good thing to bring the fast Internet to everyone. But why would that have a huge effect on jobs and the economy? Getting 68 year old Eleanor Burstein on broadband would allow her to instantly see pictures of her grandchildren, but that doesn't make a huge difference to the economy. Nor would changing her TV viewing habits from cable to over the net have any large effect within a few years.

19 out of 20 U.S. homes can already connect via cable or DSL, most at 10 meg or better. Virtually every business large enough to have an office has a connection. Even the 4-7% “unserved” have connections to every school, library and large businesses, with T-1 lines available almost everywhere. Satellite is inferior but still workable at a cost not that much higher than a cable modem.
I'd put things even more bluntly.  The jobs directly created will be fewer than many other choices, because much of the equipment is imported.

The “network effect” jobs are “unproven."  For example, if broadband would create a boom in telemedicine, as widely predicted six years ago, we'd expect strong measurable results by now, since most of the country has been able to get broadband for several years.
In fact, telemedicine growth has been very limited. Most remains facility to facility, e.g. a local clinic and a university specialist. In the U.S. medical facilities are all connected already, with a government program that will pay for a T-1 if nothing else is available. Telemedicine experts tell me most of what they need in the home really doesn't require a fast connection; they are checking weight or the reading from a blood sugar device and talking with the patients, not doing realtime examinations. http://www.fastnetnews.com/dslprime/42-dsl-us-canada/265-impact-of-broadband-on-telemedicine

Absolutely it is a good thing to bring the fast Internet to everyone. But why would that have a huge effect on jobs and the economy?  Getting 68 year old Eleanor Burstein on broadband would allow her to instantly see pictures of her grandchildren, but that doesn't make a huge difference to the economy. Nor would changing her TV viewing habits from cable to over the net have any large effect within a few years.

I remember a program in the NY housing projects that helped a curious teenager acquire the skills that a few years later led him to a job doing systems analysis at Merrill Lynch. I also know how rare that was despite enormous effort, as demonstrated by the unexciting results of the community technology work of a decade ago.  Today, the kid we might connect at home already has a computer in every classroom. Most of those with the interest and initiative have good access.

I'm passionate because the claims about broadband are resulting in major waste of public money. The result, as Saul Hansell in the New York Times revealed last week, is a Senate bill designed to give Verizon about $1B in public money even if they don't add a single incremental line to FIOS and or a single job. There’s a good chance Saul’s reporting will reduce government waste.

There's some sensible broadband stimulus spending. The Obama/House proposal plans 3G/4G towers bringing megabits to 98-99% of U.S. homes. Fiber or high speed cable overbuilds in underserved rural areas make sense. Any connection for the handful unserved except by satellite is a good thing. I’ve advocated for a ?25% subsidy for any increased spending by Verizon and similar, because the economy needs the jobs.

Spending on broadband is not a remarkably good way to create jobs. The direct job creation and multiplier is less than many others, because much of the equipment is imported. There is no evidence of “network effects” of the magnitude claimed by ITIF, IIA, Connected Nation and similar. These are “GUMMies” organizations advocating on behalf of huge corporations to “Give Us More Money,” Two of those groups know they have profound errors and should soon either correct or withdraw their work.

I'd love to be proven wrong and that a little more broadband deployment has large effects on the economy. It's just not in the data.