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It’s the Digital Economy, Stupid

While a variety of reasons exist for why President Clinton defeated President Bush, Sr. in 1992, a primary reason was his focus on the economy.  We saw a replay of this scenario in 2008 with President-elect Obama defeating his rival, in part, because of the high marks he received from voters on the economy in the days leading up to the election.  Indeed, he emphasized in debate after debate that not only would he make the economy a top priority in his administration, but that he would also invest in areas such as broadband, health IT and developing green technology, like alternative fuels and the smart grid.

In fact, President-elect Obama is correct to recognize that these areas will drive long-term economic growth and be the basis for future prosperity and American competiveness.  And investing in these sectors will also boost employment in the short-term.  These are exactly the reasons why the proposed $775 billion stimulus package should include, at least in part, investment in digital infrastructure.

In the past, stimulus packages targeted traditional infrastructure projects—building more roads, bridges and sewers—to create jobs, and quite literally, dig our way out of a recession.  These are important projects, and given reports of America’s decaying infrastructure, these projects will help cash-strapped states move forward with these projects that have been stalled because of insufficient funds.

But the fact is that investing in physical infrastructure will not have the same short-term impact on American jobs, or long-term impact on U.S. competitiveness and productivity, as a similar investment in our “digital infrastructure.”

ITIF released a report today that finds that $30 billion of investment in our IT network infrastructure would create or retain almost 1 million jobs.  The report looks at the employment impact of a $10 billion investment in each of three digital infrastrucutres: broadband networks, health IT, and the smart power grid.  It finds that spurring or supporting this level of additional investment would create or retain 498,000 jobs from broadband, 212,000 jobs from health IT, and 239,000 jobs in the smart power grid.  Approximately 525,000 of these jobs would be for small businesses.

Investing in IT infrastructure has a number of benefits.  For one, IT jobs are generally higher-skill, high-paying jobs.  For example, jobs related to broadband deployment pay 42 percent higher than the national average and jobs in the information technology industry (taken as a whole) pay 84 percent above the national average.  In addition, these types of IT infrastructures enable a whole host of innovations and new industries that a comparable investment in physical infrastructure would not.

For example, broadband Internet has spawned entirely new industries—from Internet search to online retail—creating employment not just in the new firms in these industries (e.g. Google, eBay) and the new occupations needed to support them (e.g. user interaction designers and online experience managers) but also through jobs created by individuals leveraging or using these technologies and services. To take but one example, eBay has found that more than 724,000 Americans report that  eBay serves as their primary or secondary source of income.  While obviously these are not all full time jobs (though quite many are), this lone example demonstrates the powerful ability of digital infrastructure to create jobs from the “network effect.”  These are new jobs being generated far upstream from the direct jobs associated with the initial investment to lay fiber optic cable, to develop new software that supports health IT, or to build a smart electric grid (not to mention the ensuing indirect and induced jobs created)

Finally, each of the digital infrastructure technologies reviewed in the ITIF report are also transformative—that is, they have the potential to fundamentally alter our society.  Take the smart grid.  Modernizing our grid infrastructure with sensors and two-way communication will not only allow utilities to generate and distribute energy more efficiently and reliably, it will allow widespread use of new technologies like plug-in hybrid electric vehicles, commercial energy storage, and residential solar generators.  It will also enable time-of-use pricing which will create new demand for smart appliances that not only use energy more efficiently, but also use it more intelligently.

We’ve elected a president that seems to truly grasp the importance of our digital economy.  He will likely be regarded historically as America’s first “tech” president.  As Congress considers ideas for a stimulus package, it would do well to remember lessons from the past—it’s the digital economy, stupid.

Originally posted on FastCompany.com.

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About the author

Robert D. Atkinson is the founder and president of ITIF. Atkinson’s books include Innovation Economics: The Race for Global Advantage (Yale, 2012), Supply-Side Follies: Why Conservative Economics Fails, Liberal Economics Falters, and Innovation Economics is the Answer (Rowman & Littlefield, 2006), and The Past And Future Of America’s Economy: Long Waves Of Innovation That Power Cycles Of Growth (Edward Elgar, 2005). Atkinson holds a Ph.D. in city and regional planning from the University of North Carolina, Chapel Hill, and a master’s degree in urban and regional planning from the University of Oregon.