A Broadband Stimulus Plan


Can government investments in Internet and wireless communications technology ignite a new wave of job growth?

As Barack Obama heads toward the Oval Office, demand is collapsing across most of the economy, and the job market is following. Manufacturers and stores are laying off workers as consumers cut back. Meanwhile, construction jobs are in the doldrums as fewer homes and offices are built.

But there's at least one sector where demand has continued to increase. Despite the financial crisis, the number of text messages, wireless phones, and Internet users still seems to be rising. More than ever, this is the Age of Communications, where people demand more and better connections to the global network.

Oddly, this rise in demand does not seem to have translated into jobs. The telecommunications industry—phone and cable companies—is still cutting workers. Makers of communications equipment are barely expanding. Internet companies—a category that includes Google (GOOG) and Yahoo! (YHOO)—employ fewer than 100,000 workers, microscopic in terms of the U.S. economy.

All told, the share of communications-related jobs has actually shrunk over the past decade, from 1.7% of private-sector jobs in 1998 to 1.3% today. If we include broadcasting and publishing as part of communications, the decline in job share is even bigger (2.6% in 1998 vs. 2.1% today).

Emphasis on New Products

This shortfall in communications jobs, however, need not be permanent. A new report from the Information Technology & Innovation Foundation, to be released on Jan. 7, suggests that government fiscal stimulus, directed toward improving the broadband infrastructure, can go a long way toward boosting communications-related jobs. According to the report from the ITIF, a nonpartisan think tank, "a stimulus package that spurs or supports $10 billion of investment in one year in broadband networks will support approximately 510,000 new U.S. jobs for a year."

These jobs start with the people needed to install the fiber-optic cable. But the largest number of added employment comes from businesses that create new products and services using the improved capabilities of the communications network—what the ITIF calls "network effects." These might include, for example, new online education and training services that require high-capacity broadband.

Is it reasonable to expect government subsidies for broadband to generate so many jobs? Nobody knows for sure, of course. But here's the argument: Like the car industry in its heyday, communications is a leading-edge industry, driven by rapid advances in technology. Historically, such leading-edge sectors have been big job producers. For example, during its growth years the auto industry created jobs for millions of people—everything from assembly-line workers to highway construction laborers to auto salespeople to the guys pumping gas at service stations. In 1972, for example, the auto sector employed 3.2 million people, or about 5.4% of the private workforce (that figure is now only 3.6%).

There are a lot of reasons why autos could be a bigger job generator than communications. One key difference: The automakers didn't have to worry about foreign competition until the 1970s. That meant manufacturing jobs stayed at home.

An Infrastructure Gap

But there's another factor holding back job creation in communications. Remember that the auto industry had its infrastructure—highways and streets—built and maintained by the government. Consider this: In 1965, as the interstate highway building boom was winding down, government at all levels spent roughly $12 billion on highway and street construction and maintenance, paid for in large part by gas taxes and other motor vehicle fees. The total wholesale value of new cars, trucks, and buses the same year was only about $22 billion.

In all likelihood, if the automakers had been forced to bear the full cost of building the roads and highways, they would have had to charge considerably more for their vehicles. Alternatively, fewer roads and highways might have been constructed, especially in rural areas. In either case, the process of creating jobs would have proceeded much more slowly.

Unfortunately, that's the situation of the communications industry, which has to fund its own infrastructure. From that perspective, $10 billion a year in broadband is a fairly conservative investment.

Still, some economists are skeptical of broadband's value as a short-run stimulus. For example, in a talk at the just-concluding annual meeting of the American Economics Assn. in San Francisco, Robert Hall, a leading Stanford University economist, pointed out that the set of contractors who know how to build broadband is very limited. That means it may be hard to ramp up construction quickly. Still, Robert Atkinson, president of the ITIF, notes that "there is some slack in this market already and additional folks could be hired and trained quickly for the technically easier parts of the jobs."

In the end, it's worth taking a shot. Creating jobs in communications, where demand is growing, is likely to be a lot easier than creating jobs in industries such as autos, where demand is shrinking. It's always easier to push on an open door.

Mandel is chief economist for BusinessWeek.

Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus