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Should Governments Subsidize Broadband? An Economist’s and an Engineer’s View

by Andrea Di Maio  |  December 4, 2010  |  2 Comments

On the back of the discussion about a proposal for the constitutional right to Internet access (see previous post), I was involved in an interesting back and forth on Facebook with an Italian economist who is supportive of that proposal.

After giving me a much needed law lesson to explain the difference between civil and case law as a means to better understand the difference between the Italian and the American constitution, we got into an argument about the need for government to invest in further infrastructure (e.g. city-wide wifi).

His macroeconomic view is that, as the theory shows, there is always a link between public investment in infrastructure and growth. Indeed macroeconomics study the complex links between GDP and factors like employment, investments, trade, savings and so forth. Examples of how people describe the value of public investment in infrastructure as a trigger for growth are here and here.

My view is that, at times when money available to governments is rather scarce, it is very important to be able to find a direct correlation between the actual investment and its desired outcome (mostly economic growth, but there might be other public value elements as well). Does it make more sense to invest in broadband or environmental protection, in wifi or in education? And where growth has happened, to what extent were other factors – such as availability of private investments, level  and quality of education, propensity to risk – critical to a positive impact of the infrastructure investment?

I found this article quite interesting in dissecting the various views about whether more government spending in infrastructure demonstrably contribute to growth. It is certainly dated, but it expressed rather well, looking at highways as an example, how these debate can morph.

My own observation is that it is important for any government – be it local or national – to be able to articulate a business case clearly stating the intended impact and giving confidence that the model used to derive that impact is sufficiently reliable for government to be accountable.

I may be too cynical, but I have seen many investments in local broadband or wifi for all that have been approved on the basis of political emotion rather than a thorough examination of the rationale and the selection of appropriate and sustainable business models. I am sure that government officials in Australia, currently involved in deploying national broadband worth almost 40 billion $, will not agree, but their critics certainly do.

As an engineer, I have no presumption of proving or disproving that correlation. As an analyst, I observe that the direct correlation has not been proven so far. As a taxpayer I would like economists like my esteemed colleague with whom I discussed the above to do better at helping governments decide what to do rationally rather than emotionally.

Category: public-value-of-it  

Tags: infrastructure  

Andrea Di Maio
Managing VP
15 years at Gartner
28 years IT industry

Andrea Di Maio is a managing vice president for public sector in Gartner Research, covering government and education. His personal research focus is on digital government strategies strategies, Web 2.0, open government, cloud computing, the business value of IT, smart cities, and the impact of technology on the future of government Read Full Bio

Thoughts on Should Governments Subsidize Broadband? An Economist’s and an Engineer’s View

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  2. G says:

    Leaving aside the extreme questionability of the Keynesian macroeconomic view supporting the claim to a correlation between GDP and public waste, the article actually hits a good point: How can we know if a government should invest in x, y or z alternative projects? Well, the answer is not that hard actually. We CAN’T… The reason why a market and price system is needed is because only through voluntary interactions can we actually determine which was the right choice. That is the reason why socialist economies always fail, and it’s also the reason why government SHOULDN’T do any kind of investment…

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