National Policy Would Be Bad for Broadband
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In the next few weeks, the Organization for Economic Cooperation and Development will issue its semiannual report on broadband penetration, and America is likely to have a middling ranking (it was 12th out of 30 countries in the most recent OECD numbers of a few months ago). Its standing is fodder for many politicians, including several candidates for president, who say we need a national broadband policy. They are wrong: Industrial policies, including for broadband, are bad ideas.
Rates of technological adoption vary by country, reflecting differences in income, relative prices, and the structure of society — not technological sophistication or long-term economic prospects. In the 20th century, economists frequently measured national rates of adoption of household technologies such as automobiles, electricity, telephones, washing machines, televisions, etc. Countries such as Argentina and Uruguay often fared well in these earlier comparisons; Korea and China often did not. Thus, long-term economic prospects cannot be captured by snapshots of technological adoption of consumer services.
Today, we still have a fascination with potentially irrelevant statistics. Consider the OECD rankings. No matter that the country at the top of the list, Denmark, was behind America just a few years ago. No matter that Japan, with arguably better broadband services, is ranked behind America. No matter that the vast majority of Americans already have choices of several broadband providers.
There is little if any meaningful relationship between broadband penetration and economic growth among the OECD countries, and much less among non-OECD countries. The most rapidly growing countries in the world tend to have lower levels of broadband penetration. Twenty years from now, all OECD countries will have roughly the same degree of broadband penetration but not necessarily the same economic growth rates, regardless of government programs today.
There is also a different perspective on broadband industrial policy, based on the idea that broadband may partially harm the American economy. This is the view of a Princeton University professor, Alan Blinder, a highranking official in the Clinton administration. According to Mr. Blinder, as highlighted in last week’s Wall Street Journal, broadband technologies expose many American service-sector jobs to competition from lower-wage workers around the world, and as many as 40 million such jobs could migrate offshore.
Many economists, including Columbia University’s Jagdish Bhagwhati, strongly disagree with Mr. Blinder’s pessimistic assessment of the effect of broadband services on American workers. Ubiquitous Internet access makes America more, not less, vital in the world economy, they say. Moreover, since the advent of widespread broadband services during the past five years, more, not fewer, Americans have been employed in the very job categories that Mr. Blinder identifies as being at risk.
Mr. Blinder is neither a neo-Luddite nor a neoisolationist. He merely wants a more rational educational system that trains Americans to compete in a more technologically advanced world. Fair enough, but many individuals seeking costly and ineffective isolationist programs are latching on to his research. Thus, we have the paradox of proponents of a new broadband industrial policy: Some individuals advocate costly and ineffective programs to promote further broadband deployment, while others advocate costly and harmful programs to limit international trade in response to broadband technologies.
Throughout the country’s history, Americans have embraced technological advances largely without the prodding of government programs. It is a land with an abundance of resources and a shortage of labor. Americans have always been the beneficiaries of new technologies chosen by rational consumers, and broadband should be no different.
Now, many politicians, including some running for president, alarmingly tell us to forget both logic and the past. They say broadband is a different form of technological change, one for which practically every other country in the world has adopted a unique and costly form of industrial policy: various combinations of subsidies, tax breaks, regulations, and political speeches.
Broadband is a wonderful new technology, but while it may have reinvented politics, the same is not true for economics. The economic factors that determine technological diffusion and employment — available technologies, relative prices, and income — are the same as ever. The soundest economic policies for America, or any country, are the same as ever: clear and enforceable property rights, simple tax structures, and confidence in the economic decisions of individuals.
A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He is organizing the seminar series at the Hudson Institute. He can be reached at hfr@furchtgott-roth.com.