In his 2014 book, The Accidental Superpower, Peter Zeihan traces the origins of America’s economic prosperity to its abundance of rivers. The U.S. has more miles of navigable waterways, which provide a uniquely efficient and inexpensive means for transporting goods across a continent, than the rest of the world put together. According to Zeihan, this difference was a critical factor in the country’s emergence as the world’s leading superpower. And because rivers do not require large-scale efforts to build and operate, they favor decentralized development, which has encouraged local entrepreneurs, who represent a distinctive aspect of the U.S. economy. The U.S. is also blessed with many natural harbors that are another major contributor to a country’s economic success.
In recent years, it has been technology — and especially information and communications technology (ICT) — that has provided the critical infrastructure that has promoted economic growth in the U.S. and globally. It turns out that the economic impact of ICT has been based not only on its technical characteristics, but also on the way that it has been developed and deployed.
Consider, for example, the satellite-based global positioning systems (GPS) that millions of us rely on daily to navigate the world around us. The technology was originally developed and operated by the Pentagon for the exclusive use of the military, but in 1996 the Clinton administration considered opening the system up for civilian use. At the time, the administration estimated that consumer uses of GPS could generate $8 billion in revenue and create 100,000 new jobs. This turned out to be an enormous underestimate. By 2013, more than 2 billion GPS units were in use worldwide that were generating more than $200 billion in annual revenue.
The power of platforms
A key reason that GPS was so successful was that it provided a platform that enabled many different parties to develop distinctive applications for a variety of users. The result was the creation of many novel uses that were never contemplated when the technology was first introduced. For example, by combining information on a user’s location with real-time data on traffic conditions on nearby roads, a GPS system can identify the optimal route to get an individual to his or her destination in the shortest possible time. This combination has enabled travelers and commuters to avoid endless hours of sitting in traffic (one study found that access to real-time traffic information could save the average driver in the U.S. up to four days per year of driving time and reduce auto emissions by one-fifth). GPS data has also been instrumental in the development of a wide range of other commercial applications — ranging from ride sharing to delivery services — that depend on knowledge of an individual’s location.
Perhaps the most dramatic example of the power of a platform is the Internet itself, which is arguably the biggest of all disruptive innovations. One of the Internet’s essential features is its openness: anyone who agrees to conform to the technical standards that define the Internet’s operation can plug into it and use it without requiring consent from anyone else — a process that has been described as “innovation without permission.” Owned by no one and controlled by no one, the Internet has become the most pervasive global communications infrastructure ever created.
The Internet has accelerated innovation in a number of ways: It provides virtually instant access to information and to computing resources that can empower research, lower transaction costs and make markets more efficient. By enabling e-commerce, the Internet has allowed even small companies to operate globally. And perhaps most importantly, it has promoted innovation by connecting people and enabling them to share ideas and to collaborate in new ways.
Amplifying the impact of the Internet are broadband networks that extend and increase the ease of access to Internet-based resources and enable the Internet to deliver much richer, more complex content. In fact, it is the combination of the Internet and broadband that has created an unprecedented engine for innovation and economic development on many different scales.
The economic importance of broadband was highlighted in the National Broadband Plan that was published by the Federal Communications Commission (FCC) in 2010:
Like electricity a century ago, broadband is a foundation for economic growth, job creation, global competitiveness and a better way of life. It is enabling entire new industries and unlocking vast new possibilities for existing ones. It is changing how we educate children, deliver health care, manage energy, ensure public safety, engage government, and access, organize and disseminate knowledge.
But precisely what has been the economic impact of broadband?
Measuring broadband’s impact
Attempts to understand the value of information and communication technologies are not new. In fact, efforts to determine the impact of the telephone on economic growth go back at least 50 years, to the early 1960s.
More recently, studies have focused on the impact of broadband deployment. One early study, published in 2005, looked at whether economic growth was higher in communities that had deployed broadband compared to others that had not yet done so. The authors found that communities with broadband had indeed experienced more rapid growth in terms of employment and the overall number of businesses. They also found that simply having access to the technology was not enough to stimulate growth; in order to realize the full benefits of broadband, it has to be integrated into companies’ operations and be used to support new, more efficient business processes.
A more recent study, by the International Telecommunications Union, affirmed this result, concluding that “broadband only has an economic effect in combination with the adoption of information technology and the implementation of organizational and process changes in enterprises.” The ITU’s 2012 study, titled Impact of Broadband on the Economy, explored several different ways in which this impact happens and summarized what we have learned about the magnitude of its financial impact.
The first order of impact comes from the construction of broadband networks, which generates jobs and stimulates the broader economy through “multiplier” effects. According to USTelecom, the broadband industry has spent more than $1.3 trillion since 1996 to build both wired and wireless broadband networks. Just in the year 2013, the industry invested some $75 billion in new construction. The importance of these expenditures is suggested by a study that found that investment in ICT — of which broadband is a significant part — accounted for nearly two-thirds of all economic growth attributed to capital investment in the U.S. between 1995 and 2005.
Beyond direct investments, the adoption of broadband by organizations and individuals improves productivity by enabling more efficient business processes. And broadband supports the creation of new applications and services that also contribute to the growth of GDP.
Although there was considerable variation in the results of individual studies reviewed in the ITU report, the authors conclude that, collectively, they provide strong evidence that “broadband has a significant positive effect on GDP growth” (estimates of the impact of broadband ranged from under 1% to 1.38% for every 10% increase in broadband penetration).
Broadband is still a work in progress. In fact, it could be argued that the technology is still in its infancy. Performance continues to improve, with gigabit speeds in the offing for both wired and wireless networks. Coverage continues to grow, and novel applications continue to emerge. The next big thing, which is beginning to appear today, is the much-heralded Internet of Things (IoT).
The connection of millions, then billions, of objects equipped with sensors and intelligence will open up entirely new uses and new business opportunities in areas ranging from energy and transportation to agriculture and healthcare. With sensors everywhere and intelligence built into devices of all sorts, we will gain the ability to monitor processes in real time and at unprecedented levels of precision, making it possible to eliminate waste and improve efficiency across virtually all industry sectors.
According to supporters, the economic impact of the IoT will dwarf that of previous technology innovations. For example, Cisco CEO John Chambers has predicted that what he calls “the Internet of Everything” will generate some $19 trillion in new revenues and new savings over the next decade – an impact that could be larger than that of the Internet itself.
Keeping our edge
America’s ability to develop and deploy new technologies has been an important source of competitive advantage globally. But unlike rivers and harbors, tech-based infrastructure like broadband is not a permanent God-given asset. Every country in the world has exactly the same amount of spectrum — the one natural resource that is critical for telecom infrastructure — available to it as the U.S. does.
The growth of the IoT will place huge demands for wireless spectrum to enable billions of interconnected devices to communicate with each other. Without adequate capacity, that growth could be slowed. We need to expand the amount of spectrum available for commercial use, which has direct bearing on our telecommunications policies.
Although we remain the pre-eminent source of tech innovation, new technologies get diffused around the world almost overnight. If we are going to keep our economy strong in a highly competitive world, if we are going to keep the Internet-powered engine of innovation running at full speed, we need policies that will promote permission-less innovation, continued investment in expanding and upgrading our digital infrastructure and policies that encourage companies to use it creatively. In future columns, I’ll explore what those policies might be, but a new Communications Act that better fosters experimentation in new products and services is one of them.
Richard Adler is a distinguished fellow at the Institute for the Future in Palo Alto, Calif. He has written widely about the future of broadband and its impact on fields such as education, healthcare, government and commerce.