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Is broadband a general purpose technology?

September 28th, 2009 by Scott Wallsten - Economics Director

Scott Wallsten BBTruly transformational innovations are few and far between.  Economists call them "general purpose technologies," or GPTs, and they can affect nearly every aspect of the economy and the way people live.

One of the leading scholars on GPTs, Professor Timothy Bresnahan, wrote in 1996 that

"GPTs are characterized by pervasiveness (they are used as inputs by many downstream sectors), inherent potential for technical improvements, and innovational complementarities', meaning that the productivity of R&D in downstream sectors increases as a consequence of innovation in the GPT.  Thus, as GPTs improve they spread throughout the economy, bringing about generalized productivity gains."

Scholars generally agree that the list in modern history includes electricity, the steam engine, and perhaps the semiconductor.

What about broadband? Some have argued that information technology in general is a GPT, in which case broadband might be just an important component of a GPT.

But perhaps a better analogy would be the story of the steam engine.  Professor Manuel Trajtenberg argued in a 2001 paper that it was not the steam engine, per se, that revolutionized manufacturing.  Instead, it was the Corliss design, "with its vast improvements both in fuel efficiency and in key performance characteristics…[that] greatly contributed to tipping the balance in favor of steam" and away from waterpower (p.3)

In this analogy, then, broadband would be to information technology as the Corliss was to the steam engine.  It is the technology that makes IT a breakaway success.

Why does any of this matter?  For at least two reasons.

First, a GPT may have very large effects throughout the economy, but those effects can be exceedingly difficult to measure.  Thus, in addition to measuring the direct value of broadband, we may need to develop mechanisms to understand and measure the effects in other markets.  Those effects might be big or small, but we should try to measure them, especially to the extent that they would not be captured in a straight measure of willingness to pay for broadband.

Second, adoption of GPTs makes us much better off as a society, but we have to recognize that some groups lose out.  For example, local merchants might be hurt as more of their customers shop online.  Some merchants will be able to adjust and profit in the broadband world, but some won't.

Thus, if broadband is a GPT then we should expect continued radical change in our economy and in the way we live. The transition won't be comfortable for everyone, but among our tasks as we develop the national broadband plan is to understand how broadband affects the economy and society and how the country can take advantage of the opportunities it presents and make the transformation a positive one for sectors like health care, education, and energy.

18 Responses to “Is broadband a general purpose technology?”

  1. DG says:

    One needs to look no further than the FCC itself for the reason that there is a lacking of radical changes in the delivery of broadband access across the United States. In the early days of Internet provision it was ENTREPRENEURS all across this country who started and built the original Internet Service Providers, NOT the Bells, and NOT the cable companies. Rather than foster this highly innovative, and competitive marketplace of more than 10,000 ISPs across the country, the FCC chose to destroy it. The FCC's belief that broadband consumers were best served by pitting Cable against Telco was simply flawed. It is without question the most significant reason for the demise and stagnation of broadband provision in this country. Today the number of ISPs across this country has dwindled greatly from the highs of the 1990's, with many customers no longer having a choice of which ISP they can use. With decreased competition has come higher prices for same or stagnated services, and the U.S. has fallen woefully behind broadband service levels of other countries.

    In your analogy above, if the FCC was in charge of regulating the industrial revolution, it would have chose to put Tesla and Edison out of business, declaring that electricity is nice and all, but America is best served by pitting steam engines against water wheels. In that world, we would have several steam motors in every house wondering that there must be a better way. It's time for the FCC to stop coddling the steam engine makers and bring back the age of Tesla and Edison to the broadband marketplace.

  2. Guest says:

    "If" ... oh, please. Stop with the 'If' regarding broadband being a general purpose technology. That might have been a relevant question in the mid-90's but it only shows how far out-of-touch anyone could possibly be, today, to be posing that as an open issue.

    When will you stop playing these little games and get on with enabling Americans to be at least as viable in the 21st Century as Australians, South Koreans, ...... .

  3. The Editors says:

    Scott,

    We all understand broadband is not the GPT, but a conduit for transmission of the GPT. This is why it is so important to prevent the natural monopoly/duopoly access market from crippling the growth of the Internet market.

    But we see where you are going here in your last three paragraphs. When you return to your work at TPI (and the paycheck supplied by industry incumbents) they will be quite pleased that the FCC picked you to work on the national broadband plan.

  4. Leela Bender says:

    When will the FCC offer the public an explanation of why it hired Scott Wallsten to work on this broadband plan?

    No offense Scott, but you are a known economist-for-hire, one with a lengthy history of working for the big cable and phone companies. You may think you are an impartial researcher, but there is no way to remove the taint of your past work for industry, work designed to prevent the FCC from protecting network neutrality and forcing incumbents to open their networks to more competition. You were even defensive of Comcast's outright blocking of P2P. Your history just doesn't seem to fit what this FCC is trying to do.

    Why is it that they hired you, but real public interest advocates are viewed (in the FAQ of the Broadband Hearings page) as having the "taint of advocacy"? Why did they hire you, but not someone who shares opposing views?

    This, understandably gives the public some concern. Please explain.

  5. Roman Polander says:

    This is outrageous. Why did Chairman Genachowski turn over the national broadband plan to an economist who once worked for the "Progress and Freedom Foundation"?

    Did anyone at the FCC actually read the official comments filed by Wallsten in the national broadband plan proceeding (09-51)? These comments are designed to derail the FCC's action by portraying the U.S. market as doing just fine (a conclusion Congress rejected). How did quotes like this (all refuted by other researchers) not conflict him out of working on the plan:

    "broadband in the U.S. is far better than many claim"

    "We argue that the U.S. market for Internet services is working well overall, as evidenced by nearly ubiquitous coverage, rapid adoption, large investments, and increasing speeds.

    "In other words, to the extent that the U.S. is behind the leaders in broadband penetration, it is behind only by months.

    "Many believe that speeds in the U.S. are not sufficient for Americans to fully use Internet applications, such as video. Such claims do not comport with reality."

    "These indicators tend to put the United States at or near the top" (quoting the debunked ICT indicators that consider factors like income, tax laws, university enrollment, and other non-broadband factors that actually indicate we should be doing better than we are).

    "The right way to compare wired broadband connections across countries is to measure connections per household, not per capita" (true, but he then goes onto present data from very different sources to portray the U.S. as good in household penetration, ignoring a recent study on household penetration that placed America 20th in the world).

    He also relied heavily on speedtest.net to show U.S. speeds are fine, ignoring the fact that such self-administered test are completely unreliable, and ignore factors like cable's powerboost.

    "The FCC is supposed to develop a national plan by February 2010. This is a tall order, and we empathize with Commission economists and lawyers who will be charged with developing the plan. Our goals here are more modest-namely, to set forth a series of eight recommendations aimed at increasing overall economic efficiency while allowing the government to meet its objectives" (in other words, the FCC should low ball the broadband plan, simply outrageous).

    "the government could declare all unused spectrum currently allocated to broadcast to be henceforth unencumbered and auction it in an -overlay plan described by Hazlett" (ignoring the option of unlicensed use, a wildly sucessful policy that economist like Wallsten and Hazlett despise).

    "Many potential concerns in the broadband market-from monopoly pricing to fears that providers will degrade content that competes with their own-are inherently antitrust issues. Thus, where competition remains insufficient to discipline providers, the government's existing authority should police an Internet service provider's behavior" (in other words, the FCC should butt out of competition policy, and leave it to the DOJ -- where antitrust enforcement is rarely pursued, and takes years for an outcome).

    And on and on and on.

    How again could Chairman Genachowki hire an incumbent funded economist who espouses these anti-consumer views. Shame on you FCC.

  6. Brett Glass says:

    Scott, it's great to see you active and online as part of the Broadband Plan team. A few comments on the article above.

    Firstly, it's important to consider what the "general purpose technology" here actually is. Is it just the Internet, or is it networking technology in general (including not only the Internet but also intranets)? Does it include the "private VoIP" networks which cable companies are creating -- systems which use TCP/IP because it is a convenient standard but don't connect to the public Internet at all?

    Secondly, it's important to be careful about where we intervene. If we tie engineers' hands (perhaps, to continue your analogy above, establishing a mandate that only one type of steam engine be used), we'll stifle innovation and limit the range of products available to consumers. Likewise, if we prohibit business plans that help to make innovation possible (e.g. cellular handset exclusivity), we will ultimately hurt consumers and retard the advancement of technology. The Broadband Plan should not only enumerate areas where we might want to regulate (e.g. "special access"), but also ones where we shouldn't (e.g. prohibiting premiums for expedited delivery of data packets). And if we regulate, we really should do so only in situations where markets cannot produce good results or have failed.

    Finally, it's important that we do not attempt to steer markets or technologies so as to create winners and losers. Many of the commenters in the broadband plan proceeding have obvious agendas: they hope to cause the Broadband Plan to give the a business advantage and harm their competitors. Rather, we should seek to makee the playing field as level and open as possible and to eliminate policies (such as the way in which spectrum auctions are conducted, which locks out small players and makes spectrum more valuable to incumbents than to newcomers) which advantage certain players and technologies and harm others. Economists such as yourself will play a vital role not only by bringing your empirical skills to the table but by helping to flush out such motives.

    Good luck to you over the next few months! The welfare of our country (and many livelihoods, including mine) will hing upon your output.

  7. We the People says:

    We the People are shocked and outraged that the federal government would hire Scott Wallsten, a known pro-business economist, to run their broadband plan.

    We the people appreciate Mr. Wallsten's contribution to the debate. But the place for him to do that is at his desk with Progress and Freedom Foundation or TPI or George Mason, not while working at the FCC.

    We the people demand the FCC immediately relieve Mr. Wallsten of his duties. His past writings makes him completely unsuited to work on a plan that is supposed to be in the public interest. His work shows he is focused on achieving the public interest only through first promoting the private interest. This is not acceptable for an FCC that is supposed to be free of lobbyist influence.

  8. An Open Internet Supporter says:

    Hey FCC, did you not notice that Scott Wallsten and a bunch of other economist signed a letter against network neutrality? Why is he on this blog? Why is he working on the national broadband plan?

  9. Fred Pilot says:

    Broadband itself isn't a distinct GPT but is a subset of a larger GPT that includes various types of communications that have been transforming such as radio, television and telecommunications.

    Broadband is an element of robust second or next generation Internet protocol-based telecommunications technology that will also encompass the previous generation forms of mass communications, i.e. radio, TV, newspapers.

    Fred Pilot http://eldotelecom.blogspot.com/

  10. Dr. Jane Azule says:

    Dr. Wallsten,

    You raise some very thoughtful points and I am so glad that the FCC has ignored all the calls from the angry left wing demanding your resignation. It is refreshing to see the FCC finally recognize that economics and economists like yourself are completely unbiased scientists who only ever use facts. There is a long and rich history of economists like you, Dr. George Ford, Dr. Spiwak and Dr. Eisenach being vilified simply because you happen to work for think tanks that take money from incumbent phone and cable operations. I'm glad to see the FCC boldly show the left wing advocates that money and science can live happily together, without the tainting of research.

    Keep up the good work.

  11. Guest says:

    Hey, FCC, I know that I personally put a comment in this thread a while ago. Why do you take so long to moderate the comments? It is important that feedback is posted before this post gets pushed down the page by new posts.

  12. J Dilla says:

    Well, that's it. This post confirms what the FCC has in store for the broadband plan. Wallsten clearly does not want the FCC to do anything beyond auction more spectrum and hand incumbents subsidies to deploy in rural areas (via reverse auctions). This is all publicly known, and in the record of this proceeding. Now this post shows us where Wallsten is leading the FCC: to a conclusion that since you can't really define things like GPTs, then there is no justification for the FCC taking any regulatory action in the \free market.\

    Thanks FCC, best hiring decision ever. What, was Randall Stephenson and Ivan Siedenberg not available to work on the broadband plan?doggedly Redskin-Cowboy

  13. Guest says:

    Come on, really FCC. You're going to put on a show of "open interactive process" and then censor the comments in these threads? Why are you taking so long to moderate comments? Just scan them and post them.

  14. rob friedman says:

    If I want to leave my faucet on full blast then I should be able to. If I want to use the Full Bandwidth of a DOCSIS2.0 internet connection, ~38 mbits down/up, I cannot. They do not offer it in anyway.

    Internet access is a pure utility. A router is no more than just a digital water main.

  15. Res Cogitans says:

    "No offense Scott, but you are a known economist-for-hire, one with a lengthy history of working for the big cable and phone companies."

    "This is outrageous. Why did Chairman Genachowski turn over the national broadband plan to an economist who once worked for the "Progress and Freedom Foundation"?"

    While we're on the topic of Dr. Wallsten's background, let's look at the experience critics like the above conveniently (and consistently) fail to report. How about years spent at the World Bank, where Wallsten conducted research on telecom in developing countries that other academics continue to cite? Or his longstanding relationship with Stanford University, an institution hardly known for it's endorsement of "junk" science or scientists? Or his peer-reviewed publications? Somehow I doubt the approval of a pseudonymed, ill-informed activist is the proper test of an economist's merit.

    I hate to entertain these asinine objections, but to ignore them is to add to their undue weight in this forum.

    "We the People are shocked and outraged that the federal government would hire Scott Wallsten, a known pro-business economist, to run their broadband plan."

    When the federal government begins employing "anti-business" economists, will someone please send me notice? I'll need time to pack my bags.

  16. Jim A says:

    Scott..

    I view the Broadband Internet as an infrastructure.. the foundation for a growing economy..

    New infrastructures rely on older infrastructures.. which can best be seen while driving on I-90 in upstate NY.. Mohawk River (1600s)>>Barge Canal (1700s)>>Railroad tracks(1800s)>>NY Thruway(1900s)>>Fiber optic in road median and radio towers in view(2000s)..

    The universal language of the Broadband Internet is television.. the marriage of all the arts and all the sciences.. combining text, sounds, and images to creative people connectivity and understanding on a world wide scale.

    JFK understood TV well as he won the Nixon debate.. most people thought the reason why JFK wanted America to go to the Moon was for space exploration.. but he knew it was for all of humanity to experience being Americans via TV for just a few moments in time.. that would last forever.. Obama knows this.. it is your job to keep the dream alive.. the Broadband Internet is the tool.

    It is important that all people have access everywhere at all times to text, sounds and images (TV).. while text and voice is a regional language.. and music and images are universal.. people everywhere learn English very fast via TV.. and are able to participate in a growing economy.

    Your job is to make sure TV is available on screens of all sizes everywhere.. in your pocket, car, lap, desk and wall seamlessly. Just as Lincoln made all rail tracks the same gauge.. your job is to make the Broadband Internet inter-operable, seamless and available to all builders and users everywhere at all times.

  17. Dave says:

    You only have to look at the lack of foresight when road designers built motorways that cannot cope with today's car loads to realise that the same thing will happen with broadband. Maybe it would have cost more to implement substantial cable connections, but they didn't and there will be problems when sites start getting really complex.

  18. SomatiK says:

    hello, spring is cooming! good post there, tnx for blog.broadband.gov

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