The Underwhelming Economic Effects of Municipal Broadband

by on December 15, 2014 · 0 comments

The FCC is currently considering ways to make municipal broadband projects easier to deploy, an exercise that has drawn substantial criticism from Republicans, who passed a bill to prevent FCC preemption of state laws. Today the Mercatus Center released a policy analysis of municipal broadband projects, titled Community Broadband, Community Benefits? An Economic Analysis of Local Government Broadband Initiatives. The researcher is Brian Deignan, an alumnus of the Mercatus Center MA Fellowship. Brian wrote an excellent, empirical paper about the economic effects of publicly-funded broadband.

It’s remarkable how little empirical research there is on municipal broadband investment, despite years of federal data and billions of dollars in federal investment (notably, the American Recovery and Reinvestment Act). This dearth of research is in part because muni broadband proponents, as Brian points out, expressly downplay the relevance of economic evidence and suggest that the primary social benefits of muni broadband cannot be measured using traditional metrics. The current “research” about muni broadband, pro- and anti-, tends to be unfalsifiable generalizations based on extrapolations of cherry-picked examples. (There are several successes and failures, depending on your point of view.)

Brian’s paper provides researchers a great starting point when they attempt to answer an increasingly important policy question: What is the economic impact of publicly-funded broadband? Brian uses 23 years of BLS data from 80 cities that have deployed broadband and analyzes muni broadband’s effect on 1) quantity of businesses; 2) employee wages; and 3) employment.

In short, the economic effects of muni broadband appear to be modest. Brian’s economic models show that municipal broadband is associated with a 3 percent increase in the number of business establishments in a city. However, there is a small, negative effect on employee wages (perhaps as firms substitute technology for employee hours?). There is no effect on private employment but the existence of a public broadband network increases local government employment by about 6 percent.

In a research area filled with advocacy, this is a much-needed rigorous analysis and a great update to the research that does exist. The muni broadband fights will continue, but hopefully both sides will make use of the economic data out there. Given the amount of direct federal investment, some positive effects were inevitable and Brian’s paper suggests where those effects show up (quantity of businesses and local government employment). Still, it seems that there are more cost-effective ways of improving local business development and jobs.

I suspect, and the research suggests, that the detrimental effect on private investment (and taxpayers) likely outweighs these ambiguous economic effects. Unlike city-provided utilities, like water and sewer, broadband infrastructure requires regular network upgrades, and consumers often prefer broadband bundled with TV and phone, which cities have a harder time providing. But on this subject, as scholars like to say on difficult issues, more research is needed.

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