The Next Economy – Why the wrong Stimulus today could fail us tomorrow

After reading The Great Crash it is hard to not feel that we are the cusp of another economic depression – the parallels between today and 1929 or almost eeire. Much like the last crash, a whole slew of business models, technologies and ways of thinking are simply going to become obsolete (or at least, not-profitable).

For example, I was talking to an American friend whose partner had been laid off by a bank and they were talking about what expenses they were going to try to eliminate. High on the list? Their land line and cable television. Low on the list? Cell phones and their high speed internet. This may finally be the beginning of the end for the old copper wire – this will accelerate a trend begun about a decade ago in which households have no fixed phone line. Indeed, Reuters is reporting that:

In the first half of 2008, 17.5 percent of households were wireless only, up from 13.6 percent a full year earlier…

…Service providers such as Verizon Communications, AT&T Inc, Qwest Communications International and others have seen a steep increase in customers cutting the cord on their home phones.

Qwest said recently that the trend was exacerbated by the weak economy as some customers were disconnecting home phones to save money.

It makes sense. Why keep a land line when you can just use your cell, or even Skype for free when you are at home?

What this means is that connectivity has never been more important to people – not just for social, but also for professional reasons. Can anyone imagine a professional, creative classer or service sector employee, under the age of 35 looking, for a job without an internet connection? Impossible. The simple fact is that a robust telecommunications network – specifically, access to the internet – is today what an electrical, phone or road network was in the 1930’s. That means, if you want to help invest for the economy of tomorrow, help bring the costs of accessing the internet today – and make sure everyone can get access.

At the moment, one reason why costs are high is because providers have agreed to build their networks out, even to “unprofitable” parts of the country. If the government provided – or helped to provide – such access internet access could be rendered cheaper and service could be improved.

My biggest fear is that here in Canada and the in United States the call for a “new” New Deal with result in a stimulus package that looks a lot like the new deal of the 1930’s – with big infrastructure projects receiving the bulk of the money. The fact is, unlike in the 1930’s new roads aren’t going to generate the same returns over the next 50 years like they did back then – there will be marginal returns at best and negative returns at worst. What we need to identify the infrastructure that is going to guide the next economy, not the last one.

And be afraid, because one thing is almost certain, the next economy almost certainly doesn’t include an auto sector of even remotely the same size or structure. (Think how much ZIP car reduces the need for cars.)

10 thoughts on “The Next Economy – Why the wrong Stimulus today could fail us tomorrow

  1. Tide Waters

    Speaking to your point somewhat, myself and most of my low-income friends haven't a phone at all – not even cell. For most of the very poor, they either meet each other face-to-face or, in communities which offer public Internet access, stay in touch using their free Web-based email accounts. As for me, the choice was between paying for an Internet connection which I use many hours each day or paying for phone service I seldom use. When given the choice, for communications other than with friends, I've always opted for email over a phone call; I like to have a record of what transpired.The problem is that many small to medium-sized communities are still in the Dark Ages in terms of providing an appropriate infrastructure for Internet services. And communities which do have the services in place, like mine, can still be in the Dark Ages in terms of the number of businesses which have kept up with the times and have a website or, minimally, an email address. For someone who depends on the Internet for her sole communication vehicle, this is particularly frustrating.

  2. Kim Feraday

    I think Obama has already targetted network infrastructure as a play that will get funding when the next big stimulus is announced after he becomes president. We need to do the same and to accelerate new competition in this market. That said, I also think we need investment in manufacturing but I'm not sure that the old auto makers are the way to go. There are new companies like Tesla and Th!nk and Zenn in the auto sector and for sure we should be investing in other green tech. And finally we do need to invest in upgrading roads. Across most of the country their a mess. And sewer and water systems etc. so I think it would be a mistake to discount thes.

  3. Harley

    Hi.This was an interesting post, and continues discussion of an important topic. Nonetheless, I think many of your analogies are disingenuous. Nothwithstanding the opportunities created by physical (rail, roads, etc.) and technical (performant telecommunications) infrastructure, the build out/maintenance of the former, creates a more immediate impact and seems a precursor to expansion of the latter. For instance, it's challenging to bring all the internet equipment (servers, routers, switches, drive arrays, etc.) from the Chinese manufacturing operations into Canada and get it from Vancouver to Calgary and Toronto and Halifax if you don't have ports, roads and rails in those places. Similarly, it's difficult to power all of that equipment if you lack a stable national power grid — another things that's difficult to build and maintain without rail links and roads.Moreover, while the development of a stable, affordable and high-performance telecommunications network is crucial, its job creation possibilities exist in the future, and rely on new innovations in order to produce economic benefit (roads and rails face the same challenges, but most people understand how they work today). You can't just take all the laid off auto-industry workers, put them in front of a PC and say, “Ta da! Now you've got the necessary tools. Create the next Google.” I think the desire of the creative class to clutch on to their iPhones might be short-lived; like their manufacturing brethren, many creatives are sure to find themselves looking for yet unable to find work. As addition sectors of the economy slip into the chasm of economic carnage, corporate advertising spend will continue its precipitous decline. Consequently, many of the internet firms whose business model is something like “Build Web Application -> Create Partnering FaceBook App -> Use Google AdWords to Earn Money -> Magic Happens -> Long-Term Sustainable Profit” will end up going off to quietly die, releasing from their employment all the Interaction Designers and Social Media Consultants they once paid. I think most of those people will prioritize eating over being able to update their Facebook status to “Hungry and wishing I could afford food, but I spent my last $71 on my monthly iPhone bill.”You're right about needing to move forward and not back. Unfortunately, as people clamour for safety in the economic chaos, I think they'll plead to continue with the “old ways” — i.e., improving and maintaining roads — rather than pouring all sorts of money into something that, for many people, is an uncertain (and largely unknown) bet. Even if many Canadians are capable of sending email and using a web browser, many fewer understand how to build the software and hardware that supports all of those tools, and fewer still understand how to operate a profitable business involved in those activities — a hurdle that even the some of the brightest have yet to surmount.I recently returned from Australia where the government is currently in the process of designing and building a national broadband network. The project is being managed by the Australian Department of Broadband, Communications and the Digital Economy. Does Canada have such an animal? Do we even have a coherent strategy for the “digital economy”? To be sure, a national telecommunications network is an important part of our future; however, it must be but one part of broader strategy that involves not just infrastructure build-out, but better educational incentives (more math, science, and engineering students), more R&D spending, and yes, even support of manufacturing — though perhaps not one so heavily focused on cars.

  4. Alora

    It's ironic: I haven't had cable television since 1998 and I have not had a land line/phone since 2002. People always used to scoff at that and look at me like I was nuts. But my husband and I each have our own laptops (no sharing computers!) and cell phones (no sharing those, either!). The need around all of those items has changed: without a (cell) phone, computer and access to online mapping providers, I couldn't even look for a job these days. And thanks to online options and offline services like Netflix (especially their on-demand functions), first-run commercial television is not even remotely missed when it comes to in-home entertainment. The only thing that is a bummer, is that because I've been doing without those things for so long, it makes “cutting back” my expenses in tough times a little difficult, because there isn't much left to cut.

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