Government Investment in Broadband

The New Zealand Government is set to spend around $1.5 billion in an effort to improve New Zealand’s (relatively poor) broadband capacity by laying fibre cables. I worry it’s making the mistake the US Government narrowly avoided one hundred years ago:

“That it is not feasible and desirable at the present time for the Government to purchase, to install, or to operate pneumatic tubes,” is one of the most important conclusions reached by a commission appointed by the Postmaster General to inquire into the feasibility and desirability of the purchase and operation by the Government of pneumatic tubes in the cities where the service is now installed…

The pneumatic tube service is in operation at present in New York, Philadelphia, Boston, Chicago, St. Louis, and Brooklyn…

The report commends the service as an important auxiliary for the rapid transmission of first-class mail and special delivery mail. It however, adds these conclusions:

That pneumatic tube service appears to be still in an experimental condition, although progress has been made toward the development of a fixed standard of machinery;
That with the above reservation the regularity and efficiency of the tube service are commendable.

Now, I don’t think our modern electronic intertubes will go the way of the pneumatic, but I do think it’s entirely plausible that fibre will become completely obsolete at some point in the not too distant future. I don’t know what might replace it (wi-fi mesh networks, perhaps?) but I don’t think the government can confidently assume the fibre will continue to be useful enough to justify investment.

As it happens I don’t think government investment in broadband is at all justified.  Isn’t this just thinly-veiled redistribution from those who don’t like the internet to those who do? It’s not a public good, and while there are some positive externalities from increased business activity due to lower input prices, there is no reason to single out any particular input. Why not subsidize stationary, since virtually all businesses use pens and staplers? The answer, of course, is that broadband is sexy.

4 Responses

  1. In principle that’s correct but companies are not going to make big investments when there is a risk of being labelled a monopoly and having their profits regulated away.

    There’s really no way, short of a complete libertarian revolution, to convince companies that won’t happen again.

  2. The risk of regulation will lead to underinvestment. I’m not sure that would be enough to justify government investment in a particular technology, though. You’d need to weigh the costs of underinvestment against those of overinvestment, wrong-headed investment, inefficiency, etc.

  3. I just always think that private investment in technologies trumps government spending any day of the week.

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