The Broadband Boost Small-Town America Needs

They are mostly towns you’ve probably never heard of, places like Sandy, Ore., Leverett, Mass., Lafayette, La., and Longmont, Colo. Yet these smaller communities, and hundreds more like them, have something even the techiest big cities such as New York, San Francisco and Seattle don’t have: widespread, fast and well-priced broadband service.

Big cities usually have the edge in the traditional drivers of economic development. They have the universities, the sports teams, the big airports, the interstate highway access, the ports. But in arguably the most forward-looking part of the economy, some smaller localities have the edge. They made it for themselves by developing their own broadband networks, typically employing the latest fiber-optic technology. “I believe over the next three to five years people are no longer going to be surprised that some small cities have much better internet access than big cities,” says Christopher Mitchell, director of the Community Broadband Networks Initiative at the Institute for Local Self-Reliance, whose national map shows more than 500 communities with some type of publicly owned network.

Private providers like Verizon or Comcast also build broadband networks in both big cities and smaller towns. But the technologies used vary, and if fiber-optic lines are used, companies don’t always extend them into the home. For understandable reasons, private companies tend to be stingy with their services, minimizing costs and maximizing revenues. For the customer, this can mean uneven and expensive service.

Publicly owned broadband networks, on the other hand, exist for one purpose: to give the most people the best service at the lowest possible prices. They do this because they know it benefits their residents’ quality of life and incomes. Chattanooga, Tenn., one of the larger cities with a public broadband network, has been called “an internet boomtown” because of all the businesses moving into the city or springing up there.

It’s similar to how municipalities operate a street system, a water department, or a cooperatively owned telephone or power company. Local leaders know they can get booted out of office, or off the board of the co-op, if they don’t satisfy their voters. So it shouldn’t be surprising that public broadband networks tend to provide cheaper, better and more comprehensive service, as has been documented in a study, “Community-Owned Fiber Networks: Value Leaders in America,” by Harvard University’s Berkman Klein Center for Internet & Society.

While theoretically a big city could set up a municipal broadband network, it’s generally the smaller communities that have done so. “You see this in Seattle and San Francisco, where they have been talking about municipal broadband for years, and you see little progress,” Mitchell says. “In smaller towns, you can make things happen.”

Not that the smaller towns have it easy. Verizon, Comcast and other big internet providers don’t like localities encroaching on their business, and they have gone to court to stop public broadband networks from being established. They have lost these cases, but defending them costs governments time and money. More successfully, the private companies have persuaded state legislatures to pass laws restricting municipalities from setting up community networks.

I believe that the political climate is getting better. With the increasing attention given to internet access as an engine of economic development, it’s getting harder for a state legislator to argue with a straight face that it’s in the public interest to stop towns or smaller cities from providing it, particularly when the big private-sector companies have been so slow to wire them up. Most such laws were passed years ago, but today there are efforts to repeal or bypass them.

When it comes to public broadband, even seemingly unfavorable political events can have unintended consequences. Open-internet advocates, for example, have been roundly critical of the Federal Communications Commission’s party-line vote in December to end the policy of net neutrality, which required internet service providers to charge all customers equally for similar services. Ironically, however, the FCC’s action may help efforts to start public broadband networks, which would be free to continue to observe net neutrality. In late December, The Denver Post headlined an article this way: “Net neutrality vote emboldens advocates for public broadband in Colorado.” In that state, more than a hundred municipalities have voted by referendum to opt out of a state law meant to stop them from setting up their own networks.

These political fights are not new. We are repeating the 1930s, when private power companies sued unsuccessfully to prevent the establishment of the giant publicly owned Tennessee Valley Authority, and by extension to block the establishment of the city- and cooperatively-owned power companies that grew out of the authority and similar efforts. It’s no accident that today so many of the towns and cities that have public broadband networks do so through their public or cooperatively owned power companies — products of those Depression-era battles.

Yet while providing good internet service publicly has the whiff of socialism, at a local level such efforts don’t divide neatly into red-blue political categories. Plenty of publicly owned broadband networks are located in Republican-leaning states and counties. Good internet service can cut through ideological lines.

Alex Marshall – “Governing” Columnist

How Automation Could Impact the Public Workforce

Automation has already altered several industries, and it’s only a matter a time before it transforms more of them. Given that many governments continue to grapple with tight budgets and suppressed staffing levels, it’s worth considering whether they might one day rely more on automation and technology to carry out tasks performed by humans.

Recent studies have shed some light on what this might look like, particularly in the public sector.

Automation has already made some forays into government. Kirke Everson, a KPMG intelligent automation consultant, cited “chatbots” utilized in call centers as an example. He suggested that automation could soon replace personnel who perform repetitive back-office tasks, such as eligibility checks and other procedures following a defined set of rules.

“Government is ripe for automation,” Everson says. “But if it requires a large amount of judgments or human interaction, maybe you don’t start there.”

In the U.K., an estimated 861,000 public-sector jobs could be automated by 2030, according to an analysis by Deloitte and Oxford University. “Administrative and operative” roles, which account for 27 percent of the public workforce, were identified as having the highest probability of being automated. These types of jobs are already declining, and the report projects their numbers in the U.K. to fall further from 87,000 in 2015 to only 4,000 by 2030.

A separate Oxford University study examined U.S. job occupations, deeming about 47 percent of total employment in both government and the private sector to be “at risk” of computerization. Some public-sector roles considered most vulnerable included library workers, postal service clerks and transportation inspectors — all positions with highly repetitive tasks. Many of the other occupations researchers identified were especially common in transportation. These included bus drivers and subway or streetcar operators, as well as highway maintenance workers.

But does this mean large numbers of public employees will one day be out of work?

Historically, industrialization and improvements in technology haven’t caused higher long-term unemployment. It’s unknown whether this time will be any different, though, with economists offering different predictions for automation’s effects.

Neil Reichenberg, who heads the International Public Management Association for Human Resources, views it more as a shift. “It’s not so much cutting staff as it is moving people to more strategic, higher-level work,” he says.

While technology has already reshaped countless occupations across just about every segment of the economy, it hasn’t yet prompted the complete elimination of many types of jobs. Consider teachers, who employ greater use of educational software programs in classrooms. These and other types of public employee positions haven’t vanished, but they do require greater tech skills than in years past.

Although some might associate automation with armies of robots, it’s computers that are most responsible for redefining work these days. A recent Brookings Institution report assessed “digitization,” or the degree of computer skills and related knowledge typically required of various occupations. Several public-sector jobs that required few digital skills in 2002 now mandate at least mid-level proficiency of computers or other devices.

Parking enforcement workers and compliance officers, for example, might have relied entirely on paper records not long ago. Today, the Brookings data suggests digital skills for these occupations have jumped considerably over the past decade.

In some ways, automating various aspects of jobs could prove to be more difficult in the public sector than in the private sector. Unions, Reichenberg says, will likely oppose efforts expected to result in job losses. Last year, the union membership rate for government workers was more than five times that of the private sector.

Still, if automation offers governments ways to cut costs without sacrificing quality of services, they’ll likely consider it. Resources remain limited. Revenues aren’t expected to grow much, and total state and local government employment is still below levels reached a decade ago. In some jurisdictions, automated processes or technologies could enable governments to provide services that otherwise wouldn’t be available.

“It’s inevitable,” Reichenberg says. “If you look at the way we do work today, technology is going to play a major role.”

 

Mike Maciag  “Governing” Data Editor

Rethink Local Economic Development…Again

In 1990, Michael Porter, a Harvard University Business School Professor, published The Competitive Advantage of Nations, an examination of how prosperity is created and maintained in the modern global economy. This book shaped how national policy was established across the world. Despite its age, this publication is a must read for any local government looking to create wealth and grow a sustainable local economy for the future.

While this well-known work did create a major shift in economic development across the world, it has not found its way into the hands of a majority of rural communities, it seems. Rather than discuss each and every concept Porter puts forth in this publication, there are two basic concepts in particular that should “hit home” for many rural local government entities striving to increase the economic well-being of their community.

First, a move away from solely utilizing the “tactical” approach of development and instead emphasizing a “strategic” method is a sure-fire way to spur new ideas and techniques to revitalize a fading business sector. The table below illustrates the central characteristics of each development method:

TACTICAL_001

Too often rural economic development is focused solely on chasing. A never-ending quest to find and “steal” that big industry or business and bring it into town. Efforts can be made to achieve this goal, because in reality, if achieved, this endeavor can have an enormous positive impact on a local economy very quickly. Nevertheless, achieving sustainable development occurs when we think “strategically” rather than “tactically”. It takes constant collaboration among both the public and private sectors of an entire region to achieve sustainable growth, this becomes even more necessary for rural communities. The strategic method also necessitates us to focus more on how we can grow what we have, rather than just search for the next big business. Big business attraction can create fantastic newspaper headlines, but rarely does aid in sustainable development on its own.

Similarly, concept two follows this discussion through the description of three stages of business competitive advantage. The stages are as follows:

  1. Factor-Driven Stage – In this state competitive advantage is based exclusively on the endowments of labor and natural resources of the community. This stage on supports businesses providing relatively low-wage.
  2. Investment-Driven Stage – This stage can be identified when efficiency in producing standard products and services become the source of competitive advantage. The economy is focused and concentrated on manufacturing and on outsourced service exports. These economies do achieve higher wages than the first stage, but are very susceptible to financial crises’ and external, sector-specific demand shocks.
  3. Innovation-Driven Stage – This final stage can be described as an economy that has the ability to produce original and/or other innovative products and services with the most advanced technological methods. The business environment is such that multiple sectors and clusters have deep roots in the community, growing and building with and from one another. Companies also tend to compete globally rather than regionally or state-wide and develop their own unique strategies for intelligent investment, growing with and alongside technology innovation, as well as having the capacity to innovate within.

After reading and thinking for a few minutes about each one of these stages, it will become quite obvious to those individuals who understand basic economics, which stage your particular community currently sits. In rural areas of the nation and State of Illinois Stage 1 economies are quite common, Stage 2 economies may occur in one or two communities per county, and Stage 3 economies may only appear once or twice regionally. However, while this may be the case generally, it does not have to be the rule.

Any community of any size can create a “Innovation-Driven” economy. The biggest mistake that a community can make is try to 100% mimic the stages of success a neighboring community followed. While a collaboration on strategy may be appropriate, the makeup and progression of the growth will differ. One community may have a location advantage, another a labor advantage, and even yet another with a community college. The essential piece of the puzzle is finding your community’s unique advantage and continually feeding this advantage until blossoming. An additional article that may help trigger ideas related to this discussion is “The Economy of Creativity”.

For more information from the Harvard Business School, please go to their website by clicking Harvard Business School

If you are interested in putting Michael Porter’s The Competitive Advantage of Nations on your bookshelf, you can find it here:

 

What’s dragging down the Illinois Economy?

Illinois is home to a well-documented people problem. The state’s population has been shrinking for four consecutive years, and its labor force is declining as well. At the same time, Illinois’ economy is lagging the nation in terms of growth.

Analyzing the component parts of economic growth shows how these two unfortunate realities are connected. And how state and local tax hikes in Illinois are making things worse.

Illinois’ slow growth

Analyzing economic growth in Illinois requires deconstructing the state’s growth in real gross domestic product into its primary contributions: labor inputs and labor productivity. The production process transforms labor, capital and technology into output (real GDP). That means if Illinoisans work fewer hours, or more Illinoisans leave the state or retire earlier over time, labor input in the production process will grow more slowly or even shrink. Declining labor input can easily cancel out any improvement in productivity growth, leaving real GDP growth unchanged or even lower than before.

Labor productivity growth and employment growth declined in Illinois relative to other U.S. states.

Illinois' economic growth lagging the nation

These results highlight that Illinois’ low population growth (including negative population growth since 2014) and declining labor force are mostly responsible for the decline in the growth rate of civilian employment. It is also obvious that Illinois would have grown faster than the rest of the U.S. economy if the state’s workforce had grown on par with the rest of the U.S. economy.

What’s behind sluggish employment growth?

Growth accounting deconstructs the growth rate of an economy’s total output into that which is due to increases in the contributing amount of the factors used in production – capital and labor – and that which cannot be accounted for by observable changes in factor utilization.

An analysis of Illinois’ expansions suggests that the growth rate of the capital stock (the crucial ingredient that makes labor more productive) has declined much more than the decline in labor. The state has experienced a serious decline in investment, and that is causing weaker wage growth. As a result, fewer people want to live and work in Illinois, fueling a decline in the growth rate of employment.

From 2010-2015, private nondurable goods consumption and government spending in Illinois increased to 70 percent of the real economy, compared with only 67 percent during the 1992-2000 economic expansion. Although the growth in all factors declined relative to the 1992-2000 expansion, declining growth in the capital stock was the main culprit. The slowdown in the growth rate of the capital stock is consistent with a decline in investment.

Weak growth in capital stock is behind Illinois' weak expansion

The large decline in the growth rate of Total Factor Productivity is common to most U.S. states. However, a larger decline in investment expenditures is the chief culprit in explaining why Illinois is experiencing its weakest economic expansion in the post-World War II era.

Tax hikes likely reduced investment in Illinois

In 2011, then-Gov. Pat Quinn praised the decision of state lawmakers to raise the individual income tax rate by 66 percent as necessary to address the state’s “fiscal emergency.” The plan raised the individual income tax rate to 5 percent from 3 percent, and raised the corporate tax rate to 7 percent from 4.8 percent. The tax hikes placed Illinois among the top four states in the United States for highest state corporate income taxes, and among the top four in the industrialized world for the highest combined national-local corporate income taxes.

In 2017, two years after the partial sunset of the 2011 tax hikes, the Democratic majority in the Illinois General Assembly, along with a group of Republican state representatives and one Republican state senator, broke the state’s two-year budget deadlock by overriding Gov. Bruce Rauner’s veto of a hike of individual and corporate income taxes. The Illinois income tax rate for individuals went up to 4.95 percent from 3.75 percent, which, added to an increase in the corporate rate, resulted in a $5 billion hike.

Income tax revenues are expected to increase, but at what cost? Although economists are divided as to whether tax cuts always stimulate economic activity, they agree unanimously that tax hikes lead to significant reductions in income and employment. Experts also agree that tax cuts enacted in periods of low or negative economic growth boost real GDP.

Not surprisingly, the share of income attributed to capital in Illinois – investment income – declined, according to Bureau of Economic Analysis data. Lower after-tax returns to investment reduce investment flows, thus slowing the growth of the capital stock and ultimately reducing real wage growth. A real wage decline has negative implications for employment growth and real GDP growth. Even with a highly educated workforce – as Illinois enjoys in the Chicago metro area, for example – a sharp reduction in the after-tax value of employment opportunities and Illinoisans’ purchasing power will fuel Illinois’ outmigration crisis.

The economic impact of tax and spending policy is not trivial. On one hand, higher income taxes penalize labor and capital income, therefore discouraging investments in productive capital. This reduction in productive capital causes labor to become less productive, thus causing the real wage to decrease. Declining real wages have a negative effect on labor supply. On the other handa lower after-tax income raises the need to work, save and invest in order to maintain the same living standard.

The first effect lowers economic activity – economists refer to it as the substitution effect – while the second effect raises activity through the income effect. The impact of the tax hike depends on which of these effects dominates the other in magnitude. Essentially, good tax policy implies a tax change that minimizes any reduction in the size of the tax base.

As evidenced by a decline in investment and employment growth, the 2011 income tax hikes were not good tax policy. And there’s little reason to think the 2017 tax hikes won’t have the same effect as Illinoisans look ahead to 2018.

The right policy prescriptions in Illinois should aim to stimulate investment. Policies that lower the cost of doing business and lower barriers to entry into the marketplace would result in higher demand for capital, thus making investment in Illinois more attractive. Illinois will not diverge from its path of poor growth until lawmakers realize the failures of recent tax hikes, and opt for more economic growth instead.

 

Source: Illinois Policy