Google and the case for broadband investment

Tom McDonnell28/06/2011

Tom McDonnell: It is too easy in these days of high drama on the European stage to forget the fundamentals that will drive our eventual economic recovery. And we will recover provided we make the right strategic decisions.

It was welcome therefore to see this intervention by Google's executive chairman Eric Schmidt. He stated yesterday:
“The thing the Government can actually do that’s hard is [to] work with the telecommunications providers to get more broadband. It’s very difficult for small businesses to do,”

“There are very few things that are better use of your money than long-term infrastructure in information technology that serves the interests of the citizens of the country.”

My own doctoral research has focussed on the development of telecommunications infrastructure in Ireland and there is a wide body of theoretical literature and empirical evidence that backs up Schmidt's claim that 'broadband' matters for a country's growth prospects.

The rate of knowledge acquisition in an economy plays an important role in the long term growth rate of that economy. Broadband internet reduces the costs associated with learning and is a facilitator of knowledge acquisition and diffusion par excellence.

It is what is known as a General Purpose Technology. That is a transformative technology like the steam engine and electricity which affects the entire economy.

And Ireland is a broadband laggard.We are at the bottom of the class with Portugal and Greece.

Fixed (wired) broadband subscriptions per 100 inhabitants in the EU15 and Norway, Iceland and Switzerland (June 2010)
Rank Country Total
1 Netherlands 37.8
2 Denmark 37.3
3 Switzerland 37.1
4 Norway 34.2
5 Luxembourg 34.1
6 Iceland 33.3
7 Sweden 31.8
8 France 31.4
9 Germany 31.3
10 United Kingdom 30.5
11 Belgium 30.0
12 Finland 26.4
13 Austria 23.0
14 Spain 22.2
15 Italy 21.3
16 Ireland 20.3
17 Portugal 18.9
18 Greece 18.7
Source: OECD

A number of factors have hampered broadband development in Ireland, for example, low population density and a geographically dispersed population.

A lack of infrastructural investment by Eircom has also contributed negatively to broadband development in this country. One reason for the lack of investment is that the company was loaded with debt in the years after privatisation. Eircom now has debt levels approaching €4 billion. This was a legacy of Leveraged Buy Outs which the state had made itself powerless to stop.

Eircom's troubled finances will prevent it from investing sufficiently in the future. Although the Government's finances are perilous, the case for state investment in broadband is strong.

Posted in: InvestmentFiscal policyInvestmentInvestment

Tagged with: growthbroadbandinfrastructureinvestment

Dr Tom McDonnell

McDonnell, Tom

Tom McDonnell is senior economist at the NERI and is responsible for among other things, NERI's analysis of the Republic of Ireland economy including risks, trends and forecasts. He specialises in economic growth theory, the economics of innovation, the Irish and European economies, and fiscal policy. He previously worked as an economist at TASC and before that was a lecturer in economics at NUI Galway and at DCU. He has also taught at Maynooth University.

Tom obtained his PhD in economics from NUI Galway.


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