Broadband internet is like water. Just add it to a community, and the economy will grow.
Where this myth comes from
There is no doubt that there are macroeconomic benefits to broadband. Studies from leading institutions demonstrate the positive outcome of broadband deployment and adoption. Various ratios are offered such as a certain percent of broadband investment yields a set increase in gross domestic product. Desperate politicians have seized these numbers to see how they might tap this magic relationship for their constituencies. However the reality of realizing economic growth at the local level may require several inputs, not just broadband.
There is no doubt that information networks have a positive benefit for society. Just look at the transformation created from basic 2G mobile networks in developing countries. A fisherman uses an SMS as a contract with the village grocer. There are no shortage of stories about how mobile networks have improved labor markets and created transparency in food pricing, among other things.
But it’s a long way from an African village to a post-industrial city in the United States where the economy is developed and mature. Just adding more broadband internet does not mean we will get more economic growth. With a fiber to the home connection maybe I can stream Netflix on five TVs, but it not mean I will become more productive or increase my income. It may be that we face diminishing marginal utility as we increase broadband speed, given the current state of applications.
Applying the macroeconomic effects to the broadband level is not a copy paste activity. Forthcoming research from a colleague looks at the impact of broadband internet on employment in 8460 municipalities in West Germany. Over the last five years the German government has invested €454 million (almost $600 million) to bring broadband to the rural areas. Though there is an impact on local employment by local broadband infrastructure, the impact is very slight. An econometric study shows that an increase of DSL penetration by 10% yields between 0.03-0.16% increase in employment. What the research suggests is that broadband alone may not be enough to stimulate employment. Other factors such as level of education, professional skills, existing employment opportunities, types of extant industries and so on may also play a role in employment.
At my institute, the Center for Communication, Media and Information Studies (CMI) in Copenhagen, our academic leaders have investigated the broadband internet needs of Denmark in 2020. They observe that in Denmark 65% of homes are passed by a technology capable of at least 100 Mbps, yet only 0.7% of Danes subscribe. It is not the case that broadband is overpriced, but rather that people get what they want at lower speeds.
These findings are important to keep in mind when you hear politicians grandstanding about not enough broadband. In the US more than 80% of homes are passed by a high speed internet technology, but not everyone subscribes. The main reasons are lack of literacy, interest, or a computer.
The question we should be asking ourselves before we authorize the government to spend more on broadband is whether we are making the most of the speeds we have today.
Broadband is one of many important factors for economic growth.