Broadband, Markets and the Great Divergence

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Affordable broadband continues to bubble up as an issue, too long unresolved, for underserved rural areas in Texas and other states. Because sparsely populated regions are not attractive for private-sector carriers, limited or expensive service constitutes the only option. Though satellite broadband internet is certainly available anywhere in the state, prohibitive expense — particularly in terms of equipment and installation costs — essentially rules out that alternative for most households.

Part of this public policy problem stems from the long-held belief that access to the internet was considered a luxury. We now understand the fallacy of such a notion. Internet access is a necessity for participation in the 21st century economy. Similarly, while the prospect of a deficiency in broadband internet access is nearly inconceivable to urban and suburban dwellers, for many rural communities it is an unpleasant fact.

As broadband applications continue to grow, they encompass more and more of daily life. Examples include the operation of critical infrastructure, emergency services, workforce development or distance learning, access to finance, small business development, social interaction, e-commerce, telecommuting and telemedicine. In addition, local government services often improve by becoming more transparent, cost-effective and responsive.

At present, approximately 25% of rural Texans lack access to affordable broadband connections, compared with about two percent of urban residents. A somewhat chilling fact is, according to research, communities that have less than two types of broadband attract fewer newcomers than those that do not.

The implications of life without broadband are real. Further, lack of internet access affects the poor most significantly. According to the Federal Reserve Bank of Dallas, one-third of households with incomes below $50,000 and that have school-age children do not have home internet. Looking at the situation another way, both income and unemployment statistics improve as the degree of rural broadband penetration increases.

Precedents between the internet today and electrification in the 1930s can prove instructive. Urban communities saw the introduction of electricity in the 1880s, but as late as 1932, only about ten percent of small-town America had electricity. Then as now, with relatively few people per square mile, a viable business case for investors remained elusive. The absence of electric power created a huge gap in standards of living compared to urban counterparts until that finally began to change with the Rural Electrification Administration in 1935. Similarly, with telephones, the Universal Service Fund established in 1934 ensured that homes in the country could obtain affordable landlines.

As was the case with rural electrification and basic telephone service, competition may not offer the best remedy. Rather, cooperative approaches spurred by government grant and loan programs tend to prove a far more effective means of serving sparsely populated areas where market failure occurs. It is a myth that markets, competition and privatization always achieve optimal results. 

In general, the attendant polarization implicit in the Great Divergence threatens the very fabric of society. Economist Thomas Piketty’s research demonstrates that returns to capital have far outpaced returns to labor since the 1970s. This is one reason political pressure mounts to increase the minimum wage, and why working-class wages stay largely stagnant even as the stock market dashes to record highs. The growing chasm between the wealthy and poor is greater than at any time in the country’s history — including the Gilded Age. The gap between urban and rural grows as well. 

The ability of equitably priced broadband for remote locales to facilitate important services that cities take for granted should become an immediate priority for both the Texas Legislature and policymakers in Washington. If, in fact, the current presidential administration gets serious about rebuilding the nation’s infrastructure, rural broadband would be a great place to start.

About the author: Thomas Tunstall, Ph.D. is the senior research director at the Institute for Economic Development at the University of Texas at San Antonio. He is the principal investigator for numerous economic and community development studies and has published extensively. Dr. Tunstall recently completed a novel entitled “The Entropy Model”

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