Monday, September 1, 2014

Broadband and the Rural Economy

05/17/2011

Daily Yonder A rural broadband provider advertises near Lexington, Texas.

What difference will broadband mean for rural economies?

Four leading experts participated in a forum on this topic, sponsored by the Center for Rural Strategies, publisher of the Daily Yonder.

Part of the conversation appears below. The full transcript can be found here.

The participants include: Shane Greenstein, Northwestern University; Ken Flamm, University of Texas at Austin;  Amy Glasmeier, Department of Urban Studies and Planning Department Head, MIT; and Bill Lehr, with the MIT Research Program on Internet & Telecoms Convergence.

The moderator was Sharon Strover, director of the Telecommunications and Information Policy Institute and the University of Texas.

Broundband Roundtable

Strover:  Can we expect home use to amount to anything in terms of economic productivity?

Some of our research in Texas revealed the significance of what we called “soft outcomes,” namely the impact of information that would contribute indirectly to better job outcomes by, for example, finding new locations to market one’s services or learning something about one’s craft (we had an example from a sheepherder who learned some new ways to take care of his herd from online sources).  

For certain populations, using the Internet did not lead immediately to new jobs, but it could make subtle improvements to their lives. 

Greenstein:  As for changes in business practices, there will be a few more users–that should show up as a few additional small-establishment users (most big establishments already have wire-line service, even in low density locations). Traffic levels also should increase. As in the prior case, selection bias largely shapes the anticipated result. 

Strover:  In other words, are you saying that those users who felt they could make improvements by having broadband have generally already made the necessary investments to acquire broadband services?

Greenstein:  Businesses that depend on information technology largely avoid being in areas where they cannot get what they need. So, almost by definition, we will be observing the effects of broadband on a population of firms who do not have a high willingness to pay much for it. I would expect to see a bit more of the same, but no dramatic change. 

Strover:  More generally, since we know that competition is reduced in rural regions, what impact might this have on broadband prices?  

Flamm: With a monopoly now providing the services to an area, a government subsidy will not necessarily translate into a lower price, and the profits of the monopoly provider might merely increase.   

Strover: What sorts of differences should we look for in terms of the impact of more available broadband in rural versus urban regions?

Flamm: There are three sets of studies I have worked which bear on the issue of whether or not rural areas are at an initial disadvantage relative to urban areas. All these studies detect some form of rural disadvantage, or negative differential, relative to urban areas, in broadband demand or supply. 

Lehr: I agree with Shane on the general matter of broadband’s economic impact on small communities. The results from my earlier research found there was a positive impact on jobs and other metrics of economic growth associated with expanded broadband deployment. BUT, that was based on the first generation of broadband deployment and we are not talking about that at this point. 

As broadband becomes essential infrastructure, it will be taken for granted as a baseline service. Its absence may be associated with a loss of jobs, but its presence may not create jobs. The remaining places that do not have broadband are places that face many more challenges than just a lack of availability, and are not representative of the communities that provided initial evidence of broadband’s positive economic impacts. 

I also think we will need to be realistic about the different qualities of broadband that we should expect to see in rural and urban settings. 

Strover:  You are suggesting that certain disadvantages for some rural locations are more or less already in place?  Are you saying that technology fixes and digital literacy programs cannot be expected to produce profound changes?

Glasmeier: The issue for rural areas is not whether there is supply, but what governs demand. 

More technology will be available. More opportunities will emerge for the use of the technology. While there are places still without technology, nonetheless, my research on Pennsylvania indicates two major concerns: price; and inability or reluctance to use the technology. 

Making wires available is one step, but this will not guarantee utilization.  Education, reductions in the cost of services, and opportunities for learning-by-doing are necessary complements to the availability of the technology. 

Strover:  Amy, you disagree that no “meaningful” changes can be expected?  Perhaps the focus on improving employment statistics does not tell the complete story.

Glasmeier:  The human side of broadband utilization should not be underestimated. 

There are demographic barriers—age, education, ethnicity--that seriously limit appreciation for, and use of, interconnectivity.  For example, we did a study of broadband utilization by health care personnel. We found that doctors over the age of 50 lacked exposure to and the skills required to use telemediated information retrieval. They resisted accessing knowledge through telemediation from specialists, choosing instead to use the telephone for verbal confirmation of treatment. 

Overall, we found that broadband availability was no longer the problem as 95 percent of the land area had access to some type of broadband service. What remained powerful residual problems were price and utilization. 

Strover:  Your point on utilization might have interesting repercussions on how important some people believe broadband should be in terms of government investment.  A recent Pew Internet survey reports that by a 53%-41% margin, Americans say they do not believe that the spread of affordable broadband should be a major government priority. 

And contrary to what some might suspect, non-Internet users are less likely than current users to say the government should place a high priority on the spread of high-speed connections. 

If short term outcomes are difficult to assess, what might be the long-term influence of investment in rural broadband infrastructure, specifically in terms of economic and employment conditions in these regions?

Greenstein:  For most places the long run will be a series of short runs, so for MOST PLACES I would not expect dramatic changes of any sort. 

Employment levels, wages, establishment size, and the specialization of economic activity should remain roughly in the same place. There is a brutal economic truth behind that forecast. Most economic decisions depend on a multitude of factors, and broadband is but one of many. 

Other key determinants of a region’s economy include its resource endowments (e.g., being naturally beautiful, endowed with minerals or forest, etc.), the quality of its labor force (e.g., well-educated, etc.), the specialization of its existing businesses (e.g., ranching, agriculture, tourism, etc., which has been determined over decades), and other facts, such as the nature of the vehicle traffic in the area (e.g., near a major highway or not). 

The presence or absence of broadband cannot change those factors, and cannot massively change long-term economic trends established over decades (e.g., prevalence of entrepreneurship, loyalty to a region or out-migration of youth, the ability of a regional economy to generate revenue through exporting to other parts of the country). 

Strover:  What about opportunities to recruit new businesses to rural regions, ideas that often are tied up with improvements in broadband infrastructure?  In the 1990s, for example, there was a small boom in recruiting call centers to rural regions that had surplus labor and good telecommunications.

Greenstein:  I would NOT expect information technology to help much in economies that depend on call centers or manufacturing, or other activities that depend on improving logistics through use of information technology. I expect this for a simple reason; the same trends that benefit an isolated, low-density location in the U.S. also benefit an isolated location in India, Ireland, and Malaysia, where wages are drastically lower. 

In short, while things might be getting better, they get better everywhere, and usually not to the comparative advantage of a U.S. location. 

Having said all that, I am not a complete pessimist.  There is the potential for an exceptional outcome here or there. 

I would expect that in economic activities which make intensive use of information technology; hotels and resorts, for example, are big users of information technology. So it would not be surprising if an isolated and beautiful location uses its broadband to find a way to translate the technology to develop new services and attract new tourists, or longer stays among visitors. 

Agriculture and mining have made use of information technology in the past to become more efficient, and that should be anticipated in this case again. In short, when information technology is highly complementary to the endowment of an area, there might be a bigger response in the long run. 

But such places should be the exception rather than the rule.

 

Comments

Broadband and the Rural Economy

The Rock Port Chamber of Commerce was discussing this very issue yesterday while brainstorming about ways to attract new business to the area.

As a 72-year-old with rural roots, who is deeply immersed in digital technology, I think we sometimes underestimate the ability and willingness of certain groups to change.  

Rock Port has broadband access and not all the customers are city dwelling youngsters.

Many older, rural people rely on e-mail and the internet for news of the world.

Local businesses who take advantage of that can and do thrive in rural areas.

 

Jim Banister

Hear, hear Mr. Banister!

The idea that demand for broadband in rural areas is insufficient is a well-worn excuse used by commercial carriers who prefer to invest in more populated areas. In the 1930s, we finally got past this market ideology and solved the rural electrification and rural telephony crises.

We did this, as a nation, not by waiting on the magic of the market, but by empowering rural areas to build nonprofit electric and telephone cooperatives. These initiatives were hugely successful. The initial subsidies were long ago recouped, and the networks these subsidies built continue to be maintained and upgraded.

Rural electric and telephone networks draw on long-standing and proven traditions of self-help and self-reliance. By contrast, market ideology only deepens rural America's dependency on absentee-owned corporations. The only thing preventing us from implementing self-help initiatives to solve the rural broadband crisis is the hold that market ideology and corporate lobbyists have on our policymaking today.

Wally Bowen

Mountain Area Information Network

Asheville, North Carolina