Month: April 2020

graphic of city, icons representing digital infrastructure hovering above

Does Investment in Physical Infrastructure Really Drive Growth?

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Caleb Foote  Robert D. Atkinson April 20, 2020

SOURCE: Information Technology & Innovation Foundation

As Congress considers ways to stimulate the economy in the wake of coronavirus, many have called for major infrastructure investments, because it purportedly drives long-term economic growth. The World Economic Forum writes, “infrastructure creates economic growth.” Paul Krugman argues that “if the investment is productive, it will expand the economy’s productive capacity in the long run. This is obviously true for physical infrastructure.” Investment manager Steve Rattner, writes, “An infrastructure initiative would not provide quick relief, but it would support stronger growth in the future.”

But is this really true, especially when compared to other kinds of public investments that would also provide short-term stimulus? To be sure, spending money on pretty much anything will spur growth in a recession if it is debt-financed. As Keynes famously said, putting Treasury notes in old wine bottles and burying them in abandoned mines would create jobs as people dug up the bottles.

But assuming that the “shovel readiness” of investments are the same, policymakers are better off investing in areas that also boost long-term economic growth.

It has been an article of faith for decades that traditional physical infrastructure—concrete and steel—boosts long-term growth, but evidence suggests that the growth benefits are limited when compared to other areas, especially 21st century digital infrastructure.

Any infrastructure package is likely to invest heavily in roads and bridges. A widely-cited 1989 paper found that increasing traditional infrastructure investments in projects such as roads, transmission lines, and bridges by 1 percent increases productivity by 0.23 percent. But as the U.S. interstate system has become built out, the efficiency of these investments have declined. One study found that U.S. highway investments generated annual total economic returns of 18 percent in the 1970s, 5 percent in the 1980s, and just 1 percent in the 1990s. Similarly, a study of European transportation investment from 1995 to 2009 found insignificant returns to investment in motorways and a negative effect on GDP of transportation maintenance spending, even controlling for government quality. Most starkly, a study found “trivial” benefits of $850,000 per mile of roadway lane over 20 years in the United States.

In contrast, investments in digital infrastructure can generate greater overall economic returns. These include both dedicated digital infrastructure (infrastructure that is innately digital, such as broadband, 5G, cloud computing centers) and hybrid infrastructure (adding digital components to traditional infrastructure, such as smart meters, smart grid, and smart cities). For example, researchers estimate that if the rest of the European Union built out its digital infrastructure to the level Norway achieved in 2011, it would increase GDP by $315 billion.

Many benefits of information technology (IT) are intangible and not captured by standard statistics, with one study estimating that productivity is 16 percent higher than officially reported due to intangible gains from IT investments. Despite that, a meta-analysis last year found that 52 of 64 studies on the firm-level effects of IT investments since 2000 showed significant positive impacts on productivity. For example, researchers found that U.S. multinationals increased their productivity by 5 percent for every doubling of IT capital.

At the municipal level, digital infrastructure will form the foundation of smart cities, allowing services to be provided more broadly and cheaply. Equipping garbage cans with sensors backed by machine learning improved fuel efficiency by 46 percent and collection time by 18 percent. Smart lighting can reduce power consumption of streetlights by 38 to 60 percent.

Why does physical infrastructure then continue to get such attention? One reason is the inability to consider other kinds of public investment. Government can build roads, so government should build roads, goes the thinking, but this should not prevent consideration of other opportunities.

Many believe that infrastructure spending provides good jobs for non-college educated workers. But while 80 percent of workers in the construction industry do not have a college degree, according to the Department of Labor, the median annual salary is only $38,835. In contrast, the median annual salary for non-college educated workers in the wired telecommunications carriers (broadband companies) is $57,266—47 percent higher.

This does not imply that physical infrastructure should be ignored. There are potential projects that can have big payoffs, but a stimulus bill should avoid the notion that massive investment in infrastructure will pay long-term economic dividends. It is also worth remembering why our roads and bridges have gotten so bad. Congress has refused to increase the gas tax since 1993. If Congress wants to fix roads, the best way, as the National Surface Transportation Infrastructure Financing Commission recommended, is to raise the gas tax, enable more tolling, and move to a vehicle miles traveled payment system.

So, as Congress considers an infrastructure investment package, here are several ideas that warrant attention on the digital front:

  1. Fund a one-time, large-scale injection of capital for broadband infrastructure in areas of the country where it is too costly for private providers to serve, and attempt to transition away from recurring annual support.
  2. Provide a tax credit for all capital expenditures directly related to 5G investment between now and the end of 2021.
  3. Fund the FCC’s Lifeline program to expand and improve subsidized broadband options, including tablets and computers, for low-income users.
  4. Fund a nationwide smart cities program to help cities and towns use digital technologies to improve operations and improve quality of life.

For more ideas like this, see ITIF’s recent report “Digital Policy for Physical Distancing: 28 Stimulus Proposals That Will Pay Long-Term Dividends.”

Icons associated with 5G, cloud, wireless computing, flowing into a sunset on the horizon, city in background

Facebook, Cisco, Verizon Give Glimpse Into Future of Networks

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The impact of COVID-19 on network infrastructure is providing a sense of what the future might hold, according to a group of technology executives assembled for a group video chat today.

“The internet is moving from huge to absolutely massive. It’s moving from being critical to being essential to economies, businesses and governments, and keeping us all connected,” said Jonathan Davidson, SVP and GM of Cisco’s Mass-Scale Infrastructure Group. “As a result of COVID-19, we’re getting a glimpse of what the future for the internet is today” with the majority of work and learning now occurring at home. 

With most U.S. residents continuing to stay home to avoid spreading the virus, the demand on networks and services of all types is surgingCisco’s video conferencing platform Webex has served 20.3 billion minutes thus far this month. When heightened demand began to take off last month, Webex experienced a total of 14 billion minutes. 

Cox Communications CTO Kevin Hart said downstream traffic has increased up to 20% and upstream traffic has jumped up to 40% during the last two months. “The peak usage window has moved from 9 p.m. on the weekends to 2 p.m. to 3 p.m. during the weekday,” he said. 

Andrés Irlando, SVP and president at Verizon’s public sector division, shared some even more dramatic spikes in usage. “In a typical pre-COVID day we handle anywhere from 650 to 670 million calls a day. Since the crisis, we’ve had weeks where that number has been more than 800 million calls per day. We had a day last month where we had 9 billion text messages on our network,” he said.

Since the pandemic began, video on Verizon’s network is up 41%, VPN usage is up 65%, and there’s been a tenfold increase in collaboration tool usage, Irlando explained. 

Networks Unprecedented Shifts

Messaging has also “exploded globally” on Facebook’s platforms, said Dan Rabinovitsj, VP of connectivity. “Messaging on all of our platforms is up by about 50%. In some markets we’ve seen, you know, 1,000% increases in things like video calling and video messaging,” he said. 

The resiliency of networks around the world amid unprecedented shifts in behavior and usage has been inspiring, Rabinovitsj said. “If you look globally it is rather impressive that most networks have managed to stay pretty resilient, pretty high fidelity, even with this unprecedented amount of traffic.”

While networks have largely met the demand, Irlando said it’s unlikely the past couple months of activity will become the new normal. “I don’t think anyone really knows what the future holds but, you know look, we’re not going to have 93% of Americans sheltering at home long term. That’s not the new normal,” he said.

The pandemic is, however, giving everyone a glimpse into the future and as such, he anticipates an acceleration of remote work, telemedicine, distance learning, and continuity of business or government operations. Those activities come with challenges and as a result there has never been a stronger case for security and managed or professional services, Irlando added.

Hart echoed some of those comments, adding that 99% of its nodes are in a healthy state, and the services it provides have become more critical and essential than ever before. “We’re going to invest $10 billion over the next five years to continue to build out our network capacity, provide additional access, drive higher speeds, low latency connectivity, [and] security,” he said. 

Throughout the video conference, most of the executives kept returning to the theme of connectivity, specifically those that have it and those that don’t, and the role that operators, vendors, and platform providers can play in bridging that digital divide. 

Addressing the Unconnected With Infrastructure

If there is a silver lining in this terrible disaster that has claimed more than 213,000 lives to date, including more than 56,500 in the United States, it’s that it has become widely accepted that access to the internet is paramount. It’s especially “critical when you have to work and learn and you can only do that remotely. This really highlights the gaps that we have on connectivity here and in emerging markets abroad,” Rabinovitsj said.

“There’s no silver bullet to solve that problem,” he said, adding that it requires innovation in backhaul and a greater focus on reducing costs. The Facebook-backed Telecom Infra Project (TIP) is trying to address some of those problems. 

The four-year-old effort aims to “take advantage of what the webscale companies have brought to data centers, for example, and what we’ve seen in this really big transformation, moving software workloads to the cloud, [and virtualization],” Rabinovitsj said. 

“That full change has still taken quite a long time for major network operators to adopt,” and it’s for good reasons because the changes are pretty profound, he said. But accelerating those changes is a “way to rapidly increase the pace of innovation and also to pull costs out of network operations and network engineering so that you can pour more of that money back into infrastructure.”

Most people didn’t want to talk about network infrastructure prior to this pandemic, but it’s becoming an exciting topic again, Rabinovitsj said. “Infrastructure is having its moment right now because we are all really depending on this.”

cell tower against sunset

Mobilitie Receives $325 million Financing for 5G Infra Deployments in the US

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SOURCE: FastMode

CIT Group recently announced that its Technology, Media and Telecommunications unit has arranged $325 million round of financing for Mobilitie, the largest privately-held telecommunications infrastructure company in the United States.

This is the third financing round that CIT has led in recent years on behalf of Mobilitie, which owns and operates a national portfolio of wireless communications infrastructure, including towers, distributed antenna systems and wi-fi networks. Proceeds will refinance existing debt and provide growth capital for its ongoing 5G network deployments and upgrades.

CIT’s Technology, Media and Telecommunications group supports the development, expansion, equipment, and strategic acquisition needs of clients in the telecommunications, technology, media and information services industries.


Christos Karmis, President and CEO, Mobilitie
CIT has worked with us for years as we’ve expanded our infrastructure to support a wide range of telecommunications needs, working closely with large public venues, real estate owners, large enterprises, and wireless carriers to ensure their customers are better connected.

Thomas Westdyk, Managing Director and Group Head, CIT’s Technology, Media and Telecommunications Business
CIT is pleased to lead another round of financing to support Mobilitie’s ongoing operations and development, particularly in this time when wireless networks are so critical.

left side of image showing city, right side showing large plain with grain silos, illustrating urban rural divide.

Infrastructure investments have never been so good

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The CBOE Volatility Index (VIX) has surged more than ever before in recorded history as a result of the COVID-19 pandemic — even more than the 2008-2009 Great Recession. Recent economic estimates point towards substantial costs associated with the national shutdown and effective quarantine with a 34 percent decline in GDP between April and June of 2020, according to Goldman Sachs.

Moreover, one of the authors recently found that, while the average county will experience a 10 percent decline in their entire year’s worth GDP growth for a two-month shutdown, some may experience as much as an 18 percent decline. Lower income counties and those with a higher proportion of workers in non-tradables sectors are expected to experience more severe economic declines.

While the CARES Act might have been an important first-step for providing economic relief to small businesses, households, and certain sectors that have been disproportionately impacted by COVID-19, our country may need to take another step that directly confronts the magnitude of the workforce challenge that we are already beginning to see take shape: unemployment insurance claims surged by over 10 million in March — and even more are probably under-employed in their current jobs.

We already know that our country’s infrastructure has been failing — for years. The American Society of Civil Engineers gave our infrastructure a D+ in 2017, and roughly $4.6 trillion of investment is needed to solve the problem. Rather than spending stimulus funds on pork, which economists widely concede will have little economic benefits during times of high uncertainty, we should invest our precious national resources on projects that will have a long-run payoff that will enable the industries and jobs of the future. This is particularly important given our race to 5G and leadership in the digital economy.

An infrastructure deal needs to have at least two important features.

First, rural communities have long been underutilized. Increasing empirical evidence points towards growing polarization in the quantity and quality of jobs across geographies, with rural communities falling behind. And yet, the cost of living is large and growing disproportionately in larger metropolitan areas, such as San Francisco and New York, which also have deteriorating infrastructures.

Why not invest in infrastructure that brings greater connectivity between rural and urban communities? For example, professors Chang-Tai Hsieh and Enrico Moretti found that restrictive housing market regulation was holding back productivity by 36 percent and suggested that the development of accessible and rapid public transportation (e.g., high speed rail) linking closely connected markets would have substantial economic benefits. Moreover, because COVID-19 has shown that a significant amount of work can be taken digitally, individuals would not need to travel between locations every day.

One of the stark realities from the ongoing pandemic is that everyone is affected. Although we’re all going through the same storm, we’re not all in the same boat, as pastor Steven Furtick at Elevation Church eloquently put it, even non-retail and hospitality jobs are affected. For example, job posting for even professional, scientific, and technical services as of April 22 have declined by 19 percent, relative to last year, according to EMSI. That means there are going to be a lot of software engineers, consultants, lawyers, and other traditionally white-collar workers who have skills and time to offer following the pandemic.

A genuine infrastructure deal would help unify the parties, particularly as we begin to emerge out of a shared national crisis that we’ve all been in together. An infrastructure deal that focuses on digital investments, and not just the traditional brick-and-mortar roads, will not only create new and high-tech jobs that leverage the strengths of recently unemployed or underemployed workers, but also advance national security aims so that we set the standard for the emerging 5G infrastructure.

While the White House is working diligently to apply an all-of-government approach to COVID-19, Congress would be wise to build on the bipartisan legislation introduced by Sens. John Barrasso (R-Wyo.), Thomas Carper (D-Del.), Shelley Capito (R-W.Va.) and Benjamin Cardin (D-Md.), which flew through committee in July.

Bradley A. Blakeman was a deputy assistant to President George W. Bush from 2001 to 2004. A principal of the 1600 Group, a strategic communications firm, he is an adjunct professor of public policy and international affairs at Georgetown University and a frequent guest on Fox News and Fox Business.

Christos A. Makridis (Ph.D., Stanford University) serves as an Assistant Research Professor at Arizona State University, a Digital Fellow at the MIT Sloan Initiative on the Digital Economy, a Non-resident fellow at the Harvard Kennedy School of Government Cyber Security Initiative, a Non-resident fellow at the Baylor University Institute for Studies of Religion, and a Senior Adviser to Gallup.