Build It and They Might Not Come

An article in a recent issue of The Economist (“Sweet Land of Subsidy,” December 3rd to 9th, 2011, p. 42) tells the story of Iuka, Mississippi, a small community (2000 pop. 3,059) in Tishomingo County, where the local economic development foundation “invested” an unreported sum of the taxpayers’ money in the mid-1990s to build a 90,000 square foot facility so as to lure a job-creating private employer to the area. Although several call-centers have since “taken a look”, the building never has had a rent-paying tenant and remains vacant nearly two decades on.

The director of the development foundation there blames the county’s failure to attract businesses on the lack of local access to broadband internet connections.

Not to worry, though. In early November, the Federal Communications Commission (FCC) announced that it would redirect $4.5 billion from a program established to guarantee universal access to landline telephone service to a new “Connect America Fund” (CAF), intended to provide “reliable” broadband internet connections to Americans living in rural areas and, as is obligatory in a period of state-created recession, claiming with a straight face to add 500,000 new jobs and $50 billion to GDP over the next six years.

According to the FCC, 18 million U.S. souls do not now have broadband service, and it claims that 7 million of them can be reached with the new subsidy. The subvention thus amounts to more than $640 per person, assuming that none of the unconnected people live in the same household. (The marginal cost per household is estimated to be $775, although, owing to duplication, the incremental cost of previous subsidies has run as high as $350,000 per house.)

More recently, according to the same article, $7.2 billion in federal stimulus money was spent on rural broadband access. CAF raises the ante by 62.5 percent.

But given the universal service obligations of telephone companies, virtually all of those 18 million Americans have access to dial-up internet connections.

My family lived in Oxford, Mississippi, for 23 years without access to broadband at home because the local telephone monopolist, AT&T, did not find it profitable to provide high-speed internet service to a five-household “neighborhood”. Broadband connections were, however, available at my place of work, at local coffeehouses and many other retail establishments, as well as through satellite TV providers.

FDR (and LBJ) famously used the Rural Electrification Administration to buy votes in rural areas. That federal program survived far beyond the time when nearly everyone had access to electric power and the cost of serving those who did not was much greater than any plausible estimates of the value of the benefits received. President Obama, for the same political reasons, is following the same cost-ineffective path.

One recent survey reported that half of the Americans who do not have internet access at home would not use it even if a connection was available.

Plus ça change, plus c’est la même chose. (The more things change, the more they stay the same.)

William F. Shughart II is Research Fellow and Senior Fellow at the Independent Institute, the J. Fish Smith Professor in Public Choice at Utah State University, past President of the Southern Economic Association, and editor of the Independent book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.
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