Should the State Boost Broadband?

No: Engler Inflates Benefits, Downplays Costs and Consequences

This article originally appeared in the Jan. 28, 2002, Detroit Free Press (http://www.freep.com/voices/columnists/ekatz28_20020128.htm).

In his 2002 State of the State address, Gov. John Engler touted the economic benefits to be derived from his proposed state government takeover of Michigan's high-speed Internet network. But a host of unrealistic assumptions underlie the governor's claims.

Engler and his supporters are undoubtedly well-intentioned and correct in stating that broadband technology can increase efficiency and spur innovation. The Big Three automakers, for example, are moving their $300-billion supply chain online to streamline design, production and delivery of auto parts.

Attempting to accelerate deployment of broadband infrastructure, Engler's administration is pressing lawmakers to impose a multimillion-dollar tax on existing telephone and cable lines with which to fund a new state agency to manage the high-speed network.

The governor says his plan would pump $440 billion into the Michigan economy and generate 550,000 new jobs over the next decade. If true, this would constitute an astonishing boost to Michigan's fortunes.

Unfortunately, these forecasts are largely hype, the product of untested predictions by a private consultant. Engler has drawn his conclusions from a costly study by Gartner Consulting of Stamford, Conn.

When questioned by the Mackinac Center for Public Policy about the methodology used to estimate the effects of the Engler plan, analyst Behram Dalal of Gartner Consulting acknowledged that his economic assumptions were, in fact, "arbitrary," and their approach "unique."

The Gartner forecast model borrows from United Nations research that indicates a correlation between the availability of telephone service and economic growth.

Not surprisingly, countries with more telephones enjoy a higher per-capita gross domestic product (GDP). Countries with fewer than 40 telephone lines per 100 inhabitants report a per-capita GDP of only $10,000 or less. But where "teledensity" exceeds 70 lines or more, per-capita GDP exceeds $25,000. Communications technology reflects economic sophistication, and thus wealth.

The Gartner analysis assumes this same correlation between high-speed Internet access and economic growth.

In other words, the governor is claiming that his broadband plan would have the same effect on Michigan's economy as installing a national communications network in, say, Botswana. But economic benefit is inextricably linked to the degree of innovation introduced. Obviously, wiring an unwired nation constitutes a far greater technological leap than speeding up existing Internet connections in a technologically sophisticated state like Michigan.

Thus, Engler justifies more government interference in the private sector, which already is providing broadband service in accord with the laws of supply and demand. Michigan is a highly ranked state in the number of existing broadband lines, and the individuals and industries with the most to gain from high-speed access already are connected. The higher taxes and regulatory costs of the Engler proposal are more likely to inhibit than enhance broadband use.

The governor, however, is on target when he criticizes the excess fees charged by local officials he calls "broadband bandits."

Meanwhile, a January survey of 600 Michigan residents indicates that broadband's "problem," if it has one, is not lack of infrastructure, but lackluster demand. Only 5 percent of respondents reported to Lansing-based pollster EPIC/MRA ever having tried to purchase broadband service.

Some 70 percent said they were "uninformed" about broadband, although 42 percent have Internet access at home or at work and 73 percent go online daily, mostly for e-mail.

Internet service was reported "acceptable," "fast," or "very fast" by 72 percent, while only 22 percent called their service "slow." When asked what would make them use the Internet more, 26 percent said nothing would; next in line, with 17 percent, was pornography.

When it comes to cost, some 54 percent opposed a new state broadband agency and tax, and most favored a more market-oriented approach. This would indicate that most citizens perceive no broadband "crisis."

Faced with a $1.4-billion budget deficit and sluggish state economy, it is reasonable to question why Engler has made a new tax and bigger government his top priority. This is his prerogative, of course. But the governor cannot expect to counter growing skepticism or win converts by embellishing the benefits or misconstruing the costs of his broadband scheme.

"The governor says his plan would pump $440 billion into the Michigan economy and generate 550,000 new jobs over the next decade. Unfortunately, these forecasts are largely hype, the product of untested predictions by a private consultant."

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