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Commentary
FierceWireless

How to restore growth in America and in the wireless industry

harold_furchtgott_roth
harold_furchtgott_roth
Senior Fellow and Director, Center for the Economics of the Internet

The Commerce Department recently issued the gross domestic product measures for the second quarter of 2012. The news, a meager 1.5 percent growth, is not good for either the economy as a whole or the wireless sector.

In a market filled with bad news and declining expectations, a weak 1.5 percent growth actually beat expectations. The day of the Commerce Department announcement, stocks rose, and wireless telecom stocks rose in particular.

Therein lies the problem: We Americans expect our economy to perform so poorly that we are cheered by news of poor performance. We comfort ourselves with the thought that it could been even worse. We seem to have lost focus making our economy better, much better.

China redoubles its efforts this year when economic growth is only 7.5 percent rather than 10 percent. Yet in America, we celebrate 1.5 percent growth.

Economic expectations matter, and low expectations are infectious. A CEO expecting a weak economy is less likely to invest in new network equipment or to hire new workers. A banker expecting a weak economy is less likely to lend money to a large company or a small entrepreneur. A family expecting a weak economy is less likely to buy a new wireless router. An individual expecting a weak economy is likely to uprgrade a phone. Sadly, most Americans seem to expect a weak economy.

The wireless sector, one of the few economic bright spots in the American economy, cannot rescue the economy by itself. For the past 25 years, the wireless sector has grown more rapidly as the economy as a whole. The most recent Census Bureau data confirm that the trend continues with the wireless services industry growing at 6.3 percent in the most recent four quarters.

Even that growth is not good enough. The wireless sector cannot grow if the rest of America slouches toward defeat. Being an ever larger share of a declining economy is hardly a worthy aspiration.

There are occasionally signs that the telecommunications industry is single-handedly attempting to rebuild America. A recent report by Diana Carew and Michael Mandel of the Progressive Policy Institute, "Investment Heroes: Who's Betting on America's Future?" shows that the two firms making the most capital expenditures in the United States by far are AT&T and Verizon. This is a surprising result given that these companies are not the largest American corporations.

Other large American corporations invest substantial sums in capital expenditures, but much of it goes overseas. Sadly, many rational investors have determined that the best place to invest American dollars is somewhere other than America. Other countries provide a better place for capital investments because they offer less costly labor, lower taxes, and substantially less burdensome regulation. And their expectations of economic growth are not as diminished as ours.

Declining to invest in America is not a new phenomenon. According to the Census Bureau's Annual Capital Expenditures Survey, capital investment in America appears to have peaked in 2008. 2010 is the most recent year for which data are available, and, at slightly more than $1 trillion, investments in 2010 were below 2001 levels.

Investment in the information sector, which includes telecommunications, is even more troubling. Investment in that sector peaked in 2001 and has not recovered since. Indeed, the sector of the American economy with the largest decline in investment over the past 10 years is the information sector, investing $47 billion less in 2010 than in 2001.

Several of the largest telecommunications companies recently turned down more than $100 million dollars in the FCC's Connect America Fund to invest in building new broadband networks in unserved areas. Who could blame them for turning away the money? No doubt, there were too many strings attached to the money to make it worthwhile. No doubt, rational businesses look at the FCC with its irrational proclivities to over-regulate and worry that any investment at the behest of the FCC will ever make sense. No doubt the companies made a rational decision, and Americans in unserved areas are no better off for the FCC's efforts.

But there is a larger problem. When a nation is so demoralized that it celebrates 1.5 percent economic growth, few investments, no matter how much subsidized by the government, will look attractive. When a nation struggles to grow at 1.5 percent, rational investors invest their money elsewhere. Sadly, we are that nation. The wonder is not that we are growing at 1.5 percent. The wonder is that we are growing at all.

America can do better, much better. The shackles on economic growth can be lifted. Simpler taxes, fewer regulations, and a sense that the government is at least not discouraging investment would go far towards restoring the American economy. The prescription is simple. The prognosis is good if only a president would muster the courage to try.

When growth in the American economy returns, the wireless sector will lead the way. It will continue to grow more rapidly than the rest of the economy. Rapidly growing economies import, rather than export, investment capital. Businesses won't be declining FCC money to build out America. Instead, businesses will be using their own money.