The future of digital communications research and policy.

• Author: Wallsten, Scott

"Prediction is very difficult, especially about the future. "--Niels Bohr

1. INTRODUCTION II. NEEDED: A NEW RESEARCH FOCUS A. Is Broadband a General Purpose Technology? B. Economic Growth Will Flow Primarily from Business, Not Residential, Use III. WE CANNOT MEASURE THE MOST IMPORTANT EFFECTS OF RADICAL NEW TECHNOLOGIES IN THE SHORT RUN A. Research Should Focus on Business and on Fixing National Income Accounts I. INTRODUCTION

   Over the past decade, broadband has become nearly ubiquitously available to households and firms throughout the industrialized world. This rapid growth has spurred interest by policymakers and academics in understanding how public policies affect--and, hopefully, encourage-investment and adoption. While such knowledge is useful, it is important to recognize that broadband investment and adoption are only inputs into societal well-being. We are ultimately interested in outputs: how does investment and use affect our standard of living and the economy more broadly?

   These questions have become especially timely given recent poor economic growth and high unemployment. In the search for ways to increase economic growth and to "create" jobs, policymakers have identified broadband as a promising policy lever. In particular, they hope that stimulating broadband investment and adoption will accelerate its integration into the economy and translate into economic growth.

2. NEEDED: A NEW RESEARCH FOCUS

   The current belief that broadband can address short-term economic concerns has led to a certain degree of incoherence in research and policy discussions about broadband. First, if broadband is a general-purpose technology that has the potential to fundamentally affect the economy, then we must recognize that its benefits will not be distributed evenly. Unfortunately, in the short run, some will lose out in a broadband-connected world.

   Second, though policy and research has focused almost exclusively on residential broadband, use in the home is unlikely to be the primary driver of productivity improvements and, thus, radical improvements in our standard of living. Instead, it is how new communications technologies affect business that will affect productivity and determine whether those technologies radically reshape the economy.

   Third, if broadband has the potential to fundamentally affect the economy, then those changes are likely to take place over a fairly long time period. Even to the extent that such changes have begun, we do not yet know what to measure to capture those changes.

   This Essay begins by discussing, at a broad level, whether broadband and digital communications technology in general are likely to fundamentally affect the nature of the economy. The remainder of the Essay discusses what those effects may be, where they will originate, and how we should think about measuring them. It concludes with suggestions on how to build a more robust foundation for future research on the economic effects of broadband.

   1. Is Broadband a General Purpose Technology?

      At the core of the idea that broadband can enhance economic growth is the belief that the Internet, and broadband in particular, is a General Purpose Technology (GPT). If that is the case, then it does indeed have the potential to fundamentally alter the nature of the economy, just as electrification did.

      To some, it may seem self-evident that broadband is a GPT. After all, it is by now cliche to note that broadband affects the way we work and play--that it has become a ubiquitous presence in our day-to-day lives. Pervasiveness is a necessary but not sufficient condition for a technology to truly become a GPT. Bresnahan and Trajtenberg lay out the full requirements:

      GPTs are characterized by pervasiveness, inherent potential for technical improvements, and 'innovational complementarities', ... [meaning that] the productivity of R&D in a downstream sector increases as a consequence of innovation in the GPT.... [Thus,] [a]s a GPT evolves and advances it spreads throughout the economy, bringing about and fostering generalized productivity gains. (1) Broadband's high commercial penetration rates and large numbers of consumer and business applications make it safe to say that broadband is pervasive. Its rapid increases in quality (e.g., speed), demonstrate its inherent and continuously realized potential for technical improvements. But has broadband access improved innovation in downstream sectors in ways that have brought about generalized productivity gains? Perhaps, but it is not yet possible to convincingly identify generalized productivity gains resulting specifically from the Internet or broadband. This is either because they have not yet happened...