A New Economic Challenge Facing Europe – and the United States

I spent much of last week in Geneva, Switzerland.  Even in that city of global institutions, in the European country most untouched by the continent’s sovereign debt crisis, most conversations found their way to hand-wringing over Europe’s economic decline.  As the Eurozone governments struggle to save their common currency, it is increasingly clear that the misguided austerity policies of many European governments have exacted large tolls on employment and growth.  Moreover, Europe’s economic problems will last much longer than the current debt crisis, even if it ends better than anyone now imagines.  One reason is that capital investment, the foundation of future growth, has been depressed since the crisis of 2008-2009. 

With capital investment persistently slow across most of Europe, political and economic leaders need to ask themselves, where would additional investment produce the greatest benefits?  One part of the answer is the same for Europe as it is here, in the United States.  Perhaps the single most important area of investment today lies in the telecommunication infrastructure, networks and devices on which business and social activity increasingly rely.  Earlier this year, NDN issued a new study I wrote with Kevin Hassett of the American Enterprise Institute on one aspect of this development.  We investigated the impact on job creation in the United States associated with the transition from 2G to 3G infrastructure and devices.  We found that this shift created almost 1.6 million jobs from April 2007 to July 2011, even as overall U.S. employment fell by nearly 5.3 million jobs over the same years.   

The current transition to 4G networks and devices should produce a similar economic bounce, so long as the necessary policies and capital investments are there to help drive it.  For example, since 4G involves more intensive data streams, the transition requires additional spectrum.  It will take strong White House leadership to ensure that the private investment needed to build out more spectrum and related, next generation IP broadband infrastructure are available to support 4G services.  In the process, these advances will promote the President’s larger goals of a strong recovery, job creation and universal broadband.  

Like the economy they enable, these technologies are inherently global.  So, the same dynamics apply to Europe, even in its current straits.  Throughout much of the 1990s, Europe had a real edge over the United States in advanced telecommunications, especially in the mobile or wireless space.  That is no longer the case.  Europe’s transition to 4G, for example, has been much more rocky than ours.  In its latest Digital Agenda report, the European Commission noted that while people and businesses in Europe “are generating enough digital demand to put Europe into sustainable economic growth,” this potential is undermined by a “failure to supply enough fast internet, online content, research and relevant skills.” 

Two years ago, the European Union set a goal of doubling its public investments in advanced telecommunications facilities and skills by 2020, which assumed annual growth in these areas of about six percent.  So far, the actual growth has averaged just two percent.  Moreover, private capital spending on 4G infrastructure across Europe also has lagged the United States.  In 2011 and 2012, American telecom companies invested more than $25 billion per-year in wireless facilities alone.  Yet, since 2007, comparable investments across the European Union, with a GDP slightly larger than ours, have been 15 percent to 40 percent less than in the United States. In response, European Digital Affairs Commissioner Neelie Kroes, warned recently, “Europeans are hungry for digital technologies and more digital choices, but governments and industry are not keeping up with them.  We are shooting ourselves in the foot by under-investing.”

The substantial effects on employment which we documented from the transition from 2G to 3G, and now from 3G to 4G, are signs of larger dynamics at work.  Across professions, industries and nations, Internet technologies have become integral parts of most economic activities and operations.  Moreover, with the advent and dispersion of 4G technologies, wireless Internet has begun to assume a pivotal role in these operations and activities.  National policy and business strategies ignore these developments only at great cost.  

To be sure, both Europe and the United States face special and more immediate challenges today, which neither has yet mastered successfully.  But the task of promoting investment in 4G infrastructure and networks is well within the capacity and understanding of all modern governments and businesses, and should be a national priority.  Fifteen years ago, in the transition to 2G, the United States followed Europe’s example, to America’s benefit.  Today, it is Europe’s turn to follow our spectrum policies and investment strategies.