Keynesian Economics and the Communications Industry

John Maynard Keynes, (June 5, 1883 – April 21, 1946) was a British economist whose ideas, called Keynesian economics, have had a major impact on modern economic and political theory as well as on many governments' fiscal policies. He advocated interventionist government policy, by which the government would use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms. Should government spending extend to communication and the microwave industry?

As the US and the Obama administration look to short-term fiscal stimulus of the lagging economy, the idea of improving rural access to broadband telecommunications appears to be a worthy investment in the country’s information infrastructure and a reasonable economic stimulus project.

"The Rural Broadband Initiative: Deploying Next-Generation Broadband Service to Rural America," a white paper from Ball State's Digital Policy Institute (DPI), recommends funding broadband deployment by providing short term funding to existing rural telephone companies who then provide broadband service to rural areas.

There are significant, and widely agreed upon benefits of extending broadband technology. These include economic development, reduced costs of government services and improved quality of life. Today over 4 million U.S. households, primarily in rural areas, have no access to affordable broadband infrastructure.

The Universal Service Fund (USF) provides annual funding to local telephone companies in rural areas to offset the high cost of telephone service. But, even with this funding, rural areas have continued to lag behind, primarily in necessary network upgrades that permit rural residents to also interact with web 2.0 applications.

In each of the past two months the U.S. economy has shed more than 500,000 jobs. The Obama administration is attempting to craft a fiscal stimulus package that will simultaneously provide short-term stimulus – hopefully by the end of winter – and long-term infrastructure enhancements. Improving the nations’ telecommunications network is a significant part of this stimulus plan.

It was no surprise to industry insiders that Ball State was able to craft this plan. The university was one of the first institutions to pioneer WiMAX testing in the United States, and it recently announced a $17.7 million Emerging Media Initiative, establishing Ball State as a leader in the emerging media industry.

Unfortunately, any new plan that requires identification of needs and creation of a funding mechanism will require many months, if not years to implement. Even for worthy projects, the delay is too long to provide fiscal stimulus in 2009.

This proposal would provide next-generation broadband service to roughly 5.9 million access sites in the United States. This would create more than 200,000 jobs – in manufacturing of fiber optics and other telecommunications equipment, construction, engineering, installation of fiber optic networks and customer premise equipment. This would account for roughly 7 percent of the jobs envisioned under the stimulus plan, at a cost of about $28 billion or just 3.5 percent of the total cost. This is among the most efficient of the stimulus package elements. In addition and perhaps most importantly, this program would create jobs almost immediately upon start-up. Ball State's proposal is fast, will create jobs by mid-March and provides millions of Americans access to our most fundamental technologies of the 21st century.

Using the existing USF mechanism for identifying rural regions, this plan bypasses both the Federal and State bureaucracies and goes directly to the private sector companies who buy fiber optic line (made in America), construction equipment (made in America) and hire workers to install fiber optic lines. These private sector companies will scramble to create these new jobs because their profitability is enhanced by providing broadband services.

Meanwhile in Europe - On Thursday (Jan. 29th), the UK’s first communications minister, Lord Stephen Carter, published the much anticipated report: Digital Britain. It portrays the sector as a ray of hope in an otherwise bleak economy and proposes 22 recommendations to make the digital network the backbone of our economy in the same way that roads and railways have been in the past. All well intended, but severely lacking in the detail.

Britain is set to suffer the worst recession of any advanced nation, as such any measures designed to stimulate sectors of the economy must be timely and credible. It means taking the right long term decisions now to secure a competitive future. Governments face a choice now to move away from a reliance on the financial sector and make the broadband network the backbone of our economy in the same way that roads and railways have been in the past. Governments and policy makers can do this through creating and fostering a dependency on the services that these networks can provide.

In this respect the UK is already behind other countries both in Europe and the rest of the world. Elsewhere governments have launched national broadband tenders and committed to the direct financing of fibre roll outs. Digital Britain (perhaps unfairly) is seen as the UK’s answer to an Obama stimulus package but on seeing the interim report the UK is at risk of substituting action for yet more reports. No fewer than eight new reports will come out of Lord Carter’s initiative with responsibility spanning across three institutions – DCMS, BERR and Ofcom. The government must ensure that Digital Britain doesn’t become merely a series of reviews, reports and consultations.

Important key roadblocks have been acknowledged such as the delay to spectrum re-farming. Promisingly a new Wireless Spectrum Modernization Program seeks to address these delays and if a voluntary solution amongst operators does not emerge then a government imposed resolution could unfold. This is a crucial action point that should be prioritized. Without these spectrum reforms the deployment of mobile broadband is unlikely to become a reality. This has far reaching implications for the ubiquity of broadband since it is hard to define a new universal service obligation until such spectrum issues are resolved. And these aren’t the only barriers to such reforms.

Promising a universal service obligation for broadband by 2012 is an ambitious target with far reaching implications. Before making any such revisions, the UK must work with the European Commission to modify the current Universal Service Directive – an activity that is currently underway – but one that has been delayed for some time now. Given the progress to date it’s hard to see the situation in Europe changing before the final report due later this summer.