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

Countercyclical Regulatory Policy Gains Momentum

The Economist has a nice piece about countercyclical regulatory policy here. The piece ends with:

Just as fiscal and monetary policy vary according to the economic cycle, so perhaps should regulatory policy: lighter when unemployment is high, heavier when it is low. The economics of incorporating employment considerations into regulatory policy is in its infancy. Mr Sunstein calls it a “frontiers question”. Given the sorry state of America’s job market, it is worth answering.

FDA Reverses Course on Melafind

Remember that a couple of months ago I wrote a piece about FDA overregulation, applied to the particular case of Melafind, a handheld computer vision system intended to help dermatologists decide which suspicious skin lesions should be biopsied for potential melanoma a system for assessing. The FDA’s original response to Melafind had been to deem it  “not approvable,” saying that MelaFind “puts the health of the public at risk.”

In my piece I analyzed why the FDA had unreasonable and contradictory expectations for Melafind. I then testified before a Congressional subcommittee on the subject.

Well, the FDA has surprisingly changed its mind. From the WSJ today:

Doctors in the coming months are likely to have a new tool to diagnose the deadly skin cancer melanoma, after the Food and Drug Administration reversed its earlier decision and said the MelaFind device was “approvable,” pending some final negotiations.

The FDA cleared the path for approval in a letter it sent to Mela Sciences Inc. Thursday night. The letter hasn’t previously been disclosed.

More to follow.

Hamilton Advocates Countercyclical Regulatory Policy

James Hamilton asks What could America be good at?  and considers the impact of regulations:

… if new regulations cause someone to lose their job or kill a new project that would have been hiring, the regulations are making a direct contribution to our cyclical problems, and are significantly more costly than if the same regulations had been implemented when the economy was operating at full employment.

Hamilton’s major concern is regulations that affect our ability to take advantage of natural resources, but it applies to all regulations. He then goes on to say:

Obviously what we need to do is weigh the costs of regulation against the benefits. Just because the costs are higher in a recession, that does not mean that new regulations during a recession are always a bad idea. But I do believe Americans need to acknowledge that, both because of the current economic weakness, and because of the longer-run challenge in finding a basis for future economic growth and current-account balance, we are poorer than we used to be. A challenge of this magnitude needs to be approached with some humility about just what we should be willing to do to get back on track.

Just the argument that I have made for countercyclical regulatory policy (see here and here).   In periods of economic weakness, we have learned how to change our monetary and fiscal policy in order to stimulate the economy, cutting interest rates and running deficits that would be unthinkable in normal times. We should consider using the very powerful regulatory apparatus of the government in the same way.

Can the California Legislature Really Be Serious?

So let me get this straight.   The California economy is a mess:   Private sector jobs  in the state are  down 8% since  2007 (the national average is down  5.5%) . But the state legislature has time to do something like this?

“Gov. Brown vetoes ski helmet, phone fine bills”

Gov. Jerry Brown on Wednesday smacked down what he called overbearing and expensive proposals for state regulations by vetoing bills that would require that kids wear helmets when on ski slopes and increase fines for people who talk on cell phones or text while driving.

<snip>

In his veto message accompanying the helmet bill, SB105 introduced by Sen. Leland Yee, D-San Francisco, Brown appeared to side with GOP critics who had characterized the measure as “nanny government.”

Brown, a Democrat, wrote, “While I appreciate the value of wearing a ski helmet, I am concerned about the continuing and seemingly inexorable transfer of authority from parents to the state. Not every human problem deserves a law.”

<snip>

A bill aimed at getting drivers off their cell phones also fell under Brown’s veto pen. The measure would have increased the base fines for texting or talking on a cell phone while driving by $50 on the first offense and $100 on subsequent offenses. The measure would have brought the total penalty to $328 for the first offense and $528 for subsequent offenses. It also would have applied to bicyclists, but with lower penalties.

Brown said that was too much. In explaining his veto of SB28, he wrote, “I certainly support discouraging cell phone use while driving a car, but not ratcheting up the penalties as prescribed by this bill. For people of ordinary means, current fines and penalty assessments should be sufficient deterrent.”

Or is there something here that I’m missing?

A Negative Sign for Investment and Job Growth

There’s a good rule of thumb–you get what you reward.

Here’s a summary of current U.S. policy towards big corporations: Invest in the U.S., create jobs, and get sued by the government.

You would think that during a business investment drought, any company that puts big money into the U.S. would be patted on the back. But no…

AT&T is the company which is putting the most money into the U.S….almost $20 billion in capital spending in 2010.  AT&T is also planning to bring back call center jobs from overseas.  AT&T is also getting sued by the Justice Department to block the merger with T-Mobile.

Frankly, this sends a signal to U.S. companies that getting out of  the reach of government regulators by going overseas is the right strategy.

While Economy Burns, Regulators Fiddle

So let me get this straight. The economy is slumping, economists are warning of a double-dip, and the Obama Administration is pleading for companies to invest.

But clearly Obama’s telecom regulators didn’t get the memo, based on the way they are treating AT&T, a company that actually invested almost $20 billion in the U.S. last year, tops in the country.  Rather than encouraging AT&T to speed up investment in this period of economic weakness, the regulators actually seem intent  on slowing down  the telecom provider.

The latest move: An indefinite postponement of AT&T’s request to buy some wireless licenses from Qualcomm, originally proposed in February. From Reuters

AT&T Inc’s $1.9 billion offer for some of Qualcomm Inc’s wireless licenses will be tied to a simultaneous review of AT&T’s $39 billion proposed takeover of T-Mobile USA, U.S. communications regulators said in a letter sent late on Monday.

The Federal Communications Commission, citing the many related issues, dropped the agency’s informal 180-day timeline for review of the Qualcomm deal. The move could significantly delay completion of the smaller Qualcomm deal because the review of AT&T’s bid for Deutsche Telekom AG’s T-Mobile is expected to span at least into the first quarter of 2012.

Qualcomm said swift action on its deal was in line with the FCC’s goal to free up more airwaves for mobile broadband use. The company said the deal would not only re-purpose unused spectrum for wireless Internet services, but it would also allow it to invest and deploy more spectrum efficient technology.

I’m sure this choice seemed perfectly reasonable to the regulators, and who knows, in some ideal world it might be the right thing to do.  But on the day that the stock market is crash,  a move to slow down a successful business sends another signal that the priority of the Obama Administration is regulation rather than the state of the economy today.  No wonder voters don’t believe Obama is serious about jobs and investment. 

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