AT&T’s Investment Challenge to Corporate America

The economy is improving, but the U.S. is still struggling with an investment drought. Capital spending by business is 26% below the long-term trend, and has not yet recovered to pre-recession levels. By comparison, personal consumption has topped its pre-recession levels, and is much closer to the long-term trend.

Against that backdrop, it is notable that  AT&T announced yesterday that it  expected  a capital spending budget of $22 billion per year for the next three years.  To put this in perspective, the *entire* motor vehicle industry invested less than $20 billion  in the United States in 2011.

In some ways, AT&T’s willingness to make a public announcement of a capital spending target three years out is a challenge to Corporate America (though the company certainly does not frame it this way).  By making this public statement,  AT&T is effectively saying that it believes in the communications revolution, data-driven growth,  and the strength of the U.S. economy.

Why can’t other companies make the same sort of public announcement of  long-term capital spending goals and offer additional certainty to the still recovering U.S. economy?  Truthfully, growth is suffering more from investment uncertainty than from regulatory uncertainty. If large companies pledged to maintain or increase domestic capital spending over the next three years, it would go a long way to boosting economic and job growth.

With the election now over, the Obama Administration should hold up AT&T–and other companies willing to invest in America–as examples of what to do right.  If Obama wants a high-growth economy with prosperity for all, he needs to encourage more companies to make the same kind of bet on America’s future.

The Real Meaning of Obamacare

Back in 1996, I wrote a book called The High-Risk Society. The book was based on the vision that Americans had to embrace risk and innovation in order to achieve faster growth and long-term prosperity.

An essential part of that vision, however, is the creation of a much stronger safety net.  If we are going to ask Americans to take risks for growth, to accept disruption in return for innovation, they have to be protected from the worst consequences of failure.

In particular, it becomes much harder to take a chance on growth if it means you might lose your healthcare. That’s why Obamacare, despite being ungainly and awkward, is an essential step towards a high-growth economy. People who want to start a new company or join an innovative new enterprise shouldn’t have to worry about whether they will be able to get healthcare. People who want to work halftime and go back to school shouldn’t have to worry about whether a sudden medical problem will throw them in the poorhouse.

Obamacare is a step towards unleashing the creative juices of Americans.  There are lots of problems, of course. We need to ensure that the new Obamacare bureaucracies don’t strangle innovative companies. But now that the basic mechanisms are in place, we can move onto the more important task of empowering innovative and hardworking Americans.

The next choice: A high-growth economy vs long-term stagnation.

As soon as the results of the election are known, President Obama or President Romney will be beset with a list of difficult decisions: What to do about the fiscal cliff, whether to cut the federal deficit, how to implement healthcare reform or how to get rid of it,  whether or how to create jobs.

But the biggest decision facing the next president—and Americans in general—goes far beyond the ‘fiscal cliff’, or any of the machinations which fascinate Washingtonians. Should the United States follow its current path of long-term stagnation, or should we choose a road that likely leads to rapid—but disruptive—growth?

This choice will have huge and resonating consequences. In a slow-growth economy, government leaders must focus on apportioning pain and austerity. The rich and the poor within each country or region struggle over scarce resources, with predictable consequences. We are seeing the face of the stagnant future in Europe now, where country after country are being forced to absorb massive cutbacks. Slow growth means that our children will be poorer than we are.

A high-growth economy is based on innovation and the willingness to strike out into new areas. Rapid growth makes it easier to deal with purely financial problems such as the budget deficit—remember that Bill Clinton was able to produce a budget surplus in the 1990s.  Moreover, innovation challenges the status quo and breaks down the rigid income inequalities.

As you might guess, I favor the high-growth economy and the optimism about the future that comes along with it. But we can’t fool ourselves–innovation is fundamentally disruptive and risky. We’re not just talking smartphones and tablets. The list of potential breakthroughs is long and growing—3D printing to reinvigorate manufacturing, biotech to transform healthcare, nanotech to create new materials. Each of these potential breakthrough technologies can destroy existing businesses and jobs even as they juice up growth.

The high-growth versus stagnation decision does not fit easily into party boxes. There are Republicans and Democrats who favor the status quo and stagnation, just as there are Democrats and Republicans who favor innovation and a high-growth economy.  This lack of ideological clarity explains why the debates barely mentioned the internet or mobile (See here http://www.theatlantic.com/business/archive/2012/10/the-astonishing-obama-tech-boom-that-he-doesnt-want-to-talk-about/263601/).

But now that the election is over, it’s time to press the new president to actually move into the 21st century, and deal with what will likely be the question that defines the next Administration–what kind of growth do we *really* want?

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

One Reason Why Unemployment is Dropping

It’s difficult to reconcile the sharp drop in the unemployment rate with the relatively slow growth in measured real GDP. Some have criticized the unemployment statistics, worrying about an Obama ‘conspiracy’ to cook the unemployment books.

But an alternative explanation is that the government is underestimating the growth rate of real GDP by undercounting the strength of consumer data consumption. A new paper from PPI, Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy, makes the case that consumer consumption of Internet-related activities–email, video, social media, games, maps, and so forth–is rising much faster than the BEA numbers show. Once we correctly adjust for consumer data consumption, real GDP growth goes up about 0.6 percentage points.

So if the official GDP growth for the 3rd quarter is 2%, then the actual growth growth, adjusted for consumer data consumption, may be closer to 2.5%. That may help explain the drop in the unemployment rate.

To see why the BEA is underestimating the strength of consumer data consumption, take a look at the chart below. This chart, drawn directly from BEA data, tracks real consumer purchases of “Internet access”–both mobile and wired.

Please note that according to these BEA figures, Americans are consuming less internet access in real terms than a year ago. That can’t be right. To put it a different way, the official GDP statistics are describing a world in which Americans are retreating from the Internet. That’s not the world we live in.

Because this is “real” consumption, the effect of price changes is already taken out of the statistics. And as we explain in the paper, the “missing” internet access does not show up anywhere else.

Internet firms have the fastest 4-year job growth

Over the past four years, which U.S. industry has produced the fastest job growth? The internet publishing, search and social media industry—from giants such as Facebook and Google to startups such as Pinterest–has seen a 44% gain in domestic employment since 2008, far outpacing the rest of the economy.*

This fits in with the rapid growth of App Economy jobs, which totaled 519,000 in April 2012, up from nothing in 2007.

*(Based on 5-digit NAICS codes, as reported by the BLS, measured from July 2008 to July 2012. Calculated previous to the release of the September job report).

Added: The internet industry is NAICS code 51913. See here for a full list.

Data: The Future of the U.S. Economy

In a great display of synchronicity, I had two reports released simultaneously today: “Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy” and “The Geography of the App Economy”.

The first paper came out of the Progressive Policy Institute, and will serve as the keynote paper for the conference we are running in Rome next week, The Rise of the Data-Driven Economy: Implications for Growth and Policy.

The second paper was done for CTIA and the App Developers Alliance by myself and Judy Scherer, under the auspices of the economic development consulting firm South Mountain Economics LLC.

Both papers send the same message–that data is the driving force for both job growth and GDP growth. “The Geography of the App Economy” examines app economy jobs in each state, starting from Washington and California at the top of the list to Wyoming and West Virginia at the bottom. We show that the number of app economy jobs nationally is rising quickly, from 466,000 at the end of 2011 to 519,000 in April 2012. And we have plenty of examples, including ways that states can attract more app economy jobs.

“Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy” look at the impact of data on economic growth. I argue that data should be a separate economic category, along with goods and services. The implication is that the growth rate of the economy is being underestimated, by about 0.6 percentage points.

There’s a political message here as well, but I think I’ll put that in a different post.

 

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