Friday, February 20, 2009

Rural Broadband: No Job Creation Machine

Original Article - New York Times

In a bracing refresher course on why they call economics the dismal science, a gathering of academics Thursday poured cold water on the idea that the new stimulus plan will create lots of jobs and improve the lives of many by wiring rural areas for broadband Internet service.

The gathering was a seminar in Washington sponsored by the business schools of Columbia and Georgetown to assesse the impact of the broadband stimulus.

The upshot was that most of the economists said the ability of broadband to spur economic development in rural areas is difficult to quantify.

“Everyone talks about the jobs that are going to be created by this,” said Scott Wallsten, a senior fellow at the Technology Policy Institute. “There is no way to measure that.” One problem, he said, is there’s no way to tell which of these jobs would have been created even without the stimulus bill.

Raul Katz, a Columbia Business School professor, admitted the difficulty in counting jobs, but he nonetheless presented a paper that tried to quantify the effect of the broadband stimulus program on employment.

“We know construction will generate jobs,” Mr. Katz said. By his count, the stimulus bill will create 128, 000 jobs designing, building and administering the broadband networks. That figure also includes a multiplier effect that assumes that every 10 people directly hired by these projects will spend enough money to create 8 more jobs in other sectors.

Beyond the construction, things get more than a little fuzzy. There is some research that shows that spending on networks will create new applications — be it “telemedicine” or e-commerce — that will spur more employment. Over the next four years, Mr. Katz allocates 378,000 jobs to these sources.

But he also has his doubts. It’s not at all clear that the people who are going to be wired by the program are going to be as quick to exploit the full potential of broadband networks as the early adopters who were the subjects the earlier studies of innovation and job growth.

Then there is the John Henry Effect (my term refering to the railroad-building legend who raced against a steam hammer). Technology that helps fewer people get more work done may be good for the economy in the long run, but it makes extra workers redundant. Mr. Katz says bringing broadband to rural areas will eliminate 266,000 jobs.

The biggest question mark, in Mr. Katz’s analysis, is how zippy Internet lines connect the farmers and their families into the global economy where jobs are increasingly outsourced to wherever they can be performed cheapest. Some people may benefit by working for companies like Jet Blue, that hire people to work answering the telephone in their homes. On the other hand, when the general store has broadband, it can send its tax returns to India rather than hiring the corner C.P.A. Mr. Katz published several scenarios that range from a loss of 110,000 jobs to the creation of 164,000 jobs.

So what does this all mean? Mr. Katz adds all these factors up and says that the stimulus bill might lead to 273,000 jobs created in the rural economy (separate from the construction impact). Then again it might well reduce employment by 1,000 jobs. Trying to be safe, he says the most likely scenario lies in between, at creating 136,000 jobs.

Even Mr.Katz’s wide range of assumptions was challenged by other speakers. Robert D. Atkinson, the president of the Information Technology & Innovation Foundation, said the study undercounted the number of jobs created because the job losses from increased productivity take years to occur.

Dave Burstein, the editor of DSL Prime, a newsletter on the business of broadband, argued that broadband, especially the high speed sort, is still spreading rapidly in the country and there is little evidence that the couple of million extra homes that might be wired up by the program will change the structure of the economy.

“Most of the network effects are a crock,” Mr. Burstein said.

Despite the many numbers he published, Mr. Katz emphasized that the government should spend in job training and economic development programs that will encourage people in the areas being wired to take advantage of the new connectivity.

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