California Takes Step to Encourage Internet Job Growth

I’ve been doing a lot of research recently on state and local tech-based tech-based economic development (see here).  And I’ve been thinking a lot about California’s economy.

From 2007 to 2011 the number of jobs in California’s “Internet industry”—web search, publishing, social media, and the like–rose by 50%. What’s more, that trend has continued. Over the past year alone, the number of California want ads for computer software engineers—the key human capital input for growing internet firms–has increased by 27%, according to The Conference Board’s database of help wanted ads.

Given the job-creating strength of the state Internet industry, it’s a good thing that  California–traditionally known as a high-regulation state–is  taking steps to protect its growth. On September 28 Governor Jerry Brown signed a bill that prohibited the state’s Public Utilities Commission from regulating Voice over Internet Protocol (VoIP) and other internet-based services, including mobile apps.

The bill made two important points:*

California’s innovation economy is leading the state’s economic recovery. Silicon Valley alone added 42,000 jobs in 2011, an increase of 3.8 percent versus a national job growth rate of 1.1 percent. The newly designated “app,” for application, economy has resulted in 466,000 new jobs nationwide, with 25 percent of that total created in California.”

and

The Internet and Internet Protocol-based (IP-based) services have flourished to the benefit of all Californians under the current regulatory structure.

In other words, if it ain’t broke, don’t fix it–a good principle.

The bill would stop the state’s Public Utilities Commission from putting more rules on Internet-based services, including VoIP. Clearly this makes sense for California, which is benefiting so much from the growth of the Internet sector. But this applies to other states as well:  if individual states started regulating Internet-based services, we would get the equivalent of trade barriers between states.

But there’s a broader question as well. The Progressive Policy Institute has just released a paper entitled Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy. This paper shows how, more than ever, data is a potent source of economic growth.   Data consumption by individual Americans, if measured correctly, is responsible for adding an extra half percentage point  to GDP growth today. And that contribution is only going to grow over time.

That means states, localities, and countries have to encourage the growth of the data-driven economy, for the benefit of long-term prosperity .  And that means the old models of regulation won’t work in the 21st century economy.

Going forward,  one key question will how to regulate phone service as providers shift to a VoIP model.  Internet-based services were historically unregulated, and it may very well be that we get more innovation and growth if we pare back the regulatory structure on phone service as part of the shift to VoIP.

From that perspective,  California’s action may hold lessons for the rest of the country.

*The figure of 466,000 App Economy jobs was, of course, were drawn from my February 2012 paper Where the Jobs Are: The App Economy

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