Bridging the Digital Divide
Advances in communications and related technologies have spurred economic growth and created tens of thousands of jobs in Texas. The past few years have seen enormous advances in the availability of broadband across the state as communications companies have invested billions in infrastructure. One reason for this trend, especially in rural and remote areas, is the support provided by the Texas Universal Service Fund (TUSF).
During the long period of telephone regulation, service to high-cost areas was partially funded through the rates that were set for other, more densely populated areas and for long-distance calling. This phenomenon was almost completely hidden from the typical customer. Once the market became more open to competition, such implicit subsidies were no longer possible. Thus, in order for universal service to be maintained at affordable prices, an explicit subsidy was required.
The issue of affordable service is particularly problematic in Texas because of its vast geographic territory and wide dispersion of population. In some parts of the state, the cost of providing basic service exceeds $600 per month. The TUSF, which is funded by a fee that is assessed on all basic telephone customers, provides a mechanism to reduce charges in high-cost areas, as well as programs for low-income and hearing-impaired individuals.
If you go back to the origins of the concept in the 1930s (and similar initiatives with regard to electricity and transportation), the idea was to keep rural areas integrated into the economy and society in a way that would not occur based on traditional or market criteria due to expense, remoteness, lack of density, and related factors. In today’s environment, broadband access is in effect analogous to that of basic telephone service in past decades. Areas which are not able to have such services are likely to be left behind in future economic expansion, access to modern health and educational options, and many other opportunities. This phenomenon is sometimes referred to as the “digital divide.” In essence, broadband is the new infrastructure of the country (and the world). If the TUSF were to be drastically reduced or eliminated, the incentives to invest in new technologies in the high cost, rural regions of the state would be substantially diminished.
Some critics have suggested that the TUSF should be eliminated, allowing market forces to determine telephone service. It is certainly true that markets are extremely powerful and achieve remarkable things in a seemingly invisible and effortless manner; however, they are not perfect barometers of optimal social outcomes. Markets are, in essence, a mechanism to allocate resources. If left unfettered, they do so with great efficiency. They do not, however, honor social policies and priorities beyond efficiency, and they do not capture social benefits or costs that extend beyond private transactions.
To the extent that universal service at affordable prices is still a significant social priority, a mechanism such as the TUSF remains an appropriate public policy initiative. In the absence of some type of specific provisions, market forces will compel that all users pay the full amount of service costs (with some potential allowance for collateral sales opportunities) and affordable rates in many areas will be eliminated.
In an analysis last year (which reflected 2006 funding levels and data), my firm estimated the annual spending losses associated with the elimination of the high-cost elements of the TUSF to include almost $949 million in economic activity each year (as measured by total expenditures), $535 million in annual economic output, and 7,416 jobs. Because the telephone system forms a vital communications linkage across the entire state, a substantial portion of this loss would occur in the most populous areas of the state.
More recently, we completed an analysis which revealed a net loss to rural Texas as of 2030 associated with inadequate broadband investment of 65,800 to 92,100 jobs, $13.85 billion to $19.39 billion in personal income (by place of work in constant 2007 dollars), and $17.97 billion to $25.16 billion in gross product (in 2007 dollars). In order to avoid these shortfalls, there is little doubt that continuing incentives such as the TUSF will be necessary.
Another recent study suggested that the state as a whole could gain 173,117 jobs through more aggressive broadband adoption. This analysis compares various states and their efforts. A reasonable TUSF policy would need to be a part of such a strategy, although it would not be the sole determinant.
In response to recent legislation, the Public Utility Commission of Texas (PUC) analyzed and considered policy alternatives to update this important program. After much input and debate, effective solutions were crafted which both reform basic telephone rates and preserve the critical concept of universal service. The Commission is to be congratulated for its effort in this little noticed, but critically important area.
The entire state of Texas benefits from the availability of affordable telephone service to rural areas, and there is a compelling need to assure rapid broadband deployment. The investments can only occur with an appropriate cost-return balance, which requires a vital and significant universal service mechanism.
It has long been a goal of the PUC and the Texas Legislature to ensure that rural Texans have access to affordable telecommunications services. The recent resolution ensures that all of Texas has the economic opportunities afforded by modern communications infrastructure and that no areas are denied this essential resource. To do otherwise would be to limit the economic potential of the Lone Star State. The TUSF benefits Texans across the state as well as the state economy. Preserving it will help maintain a bridge across the digital divide.
It’s A Small World After All
One of the most important influences on the future directions of the US business complex is the ongoing trend toward globalization. Although the theory of globalization was introduced in 1897 by Charles Taze Russell and was in effect practiced by the Mercantilists much earlier, the concept did not gain much modern popularity until the late 1980s. The term and its underlying ideas are now a part of our mindset, and with good reason. By almost every measure, the economies of countries around the world are becoming ever more interlinked through trade of goods and services, a mobile workforce, and the flow of information.
Since the 1980s, new and innovative technology has enabled businesses to market products and services all over the globe. This process has basically broadened the theory of mercantilism that once motivated Ferdinand, Isabella, Elizabeth I, and other luminaries to put their nations on more equal competitive footing with others around the world. The system has also created unique niche markets that continually require business operations to adjust to ongoing changes. How well countries adapt to the varying circumstances often determines the level of success attainable.
More precisely, globalization normally refers to the process of integrating national economies into an overall global one through trade, foreign investment, labor growth, and utilization of new technologies. Finding a country that can more effectively and economically produce goods is a distinctive goal and, as a result, the outcome often leads to outsourcing. When the process in a particular country becomes more expensive and less profitable, another source is frequently sought. In this way, the resources of each country are used to their highest potential.
The agriculture sector provides an example of this phenomenon. From 1970 to 2001, the importance of agriculture as an economic generator fell to about 2% in developed countries, but contributed approximately 11% of the gross domestic product (GDP) of developing nations. The relatively labor-intensive nature of much of agricultural production and the low skill requirements explain the decline in the importance of this once-dominant sector to the economic strength of highly industrialized nations. For example, China has about 45% of its workforce in the agricultural sector, but this industry only produces about 12% of the GDP.
International trade, of course, naturally plays a dynamic role in the globalization concept. For the first nine months of 2006, world exports grew an average of 14.1%. US trade expanded by approximately 14.8%. While India and China trade increased by about 21.7% and 26.5%, respectively, total growth in global trade was somewhat lower because of the less-than-stellar performances in many developing countries.
Although China was third to the US and Germany in total exports for 2006, it should surpass the US for second place in 2007 and will probably leap over Germany this year to become the world’s biggest exporter. With even the poorest countries continuing to boost their trade (up by some 30% in 2006), it becomes apparent that globalization is a highly important cog in the economic wheel of all nations in the world.
By increasing their abilities to operate on a global basis and take advantage of the economies of scale, companies significantly enhance overall growth possibilities no matter where the location of the corporate headquarters. While the adjustments can be difficult when companies decide to change their locations to take advantage of preferable conditions in various countries, the end result is an increase in overall prosperity.
As global economies expand, individuals and businesses can better afford to purchase US goods and services, thereby enhancing opportunities here. Globalization is inevitable. Fortunately, it’s also desirable and ultimately beneficial despite the initial dislocations and associated election-year rhetoric.
Texas—A Top Tier State
Over the past few weeks, as a result of the NCAA basketball championship campaigns, we learned a lot about the various schools that participated and the caliber of young men and women who represented those institutions. Most of us were probably pretty familiar with the majority of the universities involved, but some institutions were less well known.
Perhaps that’s true for many of us with regard to the Lone Star State. We know a few facts, but on other matters we are not quite as conversant. I thought a quick mention of some of the pertinent areas in which Texas is in the top tier might help us understand and appreciate the state a bit more.
It’s probably common knowledge that Texas was first in adding new jobs last year, but perhaps not as well known is the fact the state has the 11th largest economy in the world, with about the same annual gross domestic product as Brazil. Our output is now well in excess of $1 trillion per year!
The state is also a top-ranked destination for foreign direct investment due in major part to the Texas Enterprise Fund and the Texas Emerging Technology Fund. As a result, Texas ranked third nationally in 2006 in the number of jobs created by foreign-owned businesses. Moreover, for the third year in a row, many of the nation’s leading executives, as noted in the Chief Executive Magazine, named Texas the best state to do business.
Furthermore, Texas is the second most populous state in the US with the number of residents expected to increase annually at a 1.88% rate over the next five years, almost double the anticipated rise in the population of the US. If Texas were a country, it would rank in the top 50 of all nations in population. Currently, there are approximately 6.6 million Texans living and working abroad. If just that number were taken into consideration and made into one state, “Texans abroad” would be the 17th most populated state and rank in the top 100 among all the countries in the world.
Of the 10 most populous cities in the US, three are in Texas—Houston, Dallas, and San Antonio. In fact, the Dallas-Fort Worth metroplex aggregate population is more than the total number of residents in 31 of the nation’s states.
Just as a way of noting the size of Texas, its largest county in land area, Brewster, is almost as large as the combined square mileage of Connecticut and Rhode Island. Just the King Ranch, located near Corpus Christi, encompasses more acreage than Rhode Island.
Texas has always been a land of immigrants. From its earliest day, people have come to this area from across the US, Mexico, and Europe. That trend continues and, since 2004, Texas has been a minority-majority state, one of four in the US at that time.
The year 2007 marked the sixth consecutive year that Texas has led the nation in exports with a value of more than $168 billion. Overtaking California in 2002, the gap between the two states has been growing annually. In 2002, the difference was about $3.18 billion. Last year, the Lone Star State’s exports exceeded those of California by more $34.01 billion. (It is only fair to note that an experimental method of defining the point of origin of exports could, if adopted, return Texas to second place.) According to the US Census Bureau in 2007, some 108,900 Texans were employed in manufacturing goods for shipment outside the US. California led the nation with 206,100. Ohio was third with 95,600, followed by Michigan with 79,800. Overall, approximately 2.2 million jobs in Texas are associated with various aspects of international trade.
Credit for Texas’ ongoing success in so many areas must be given to the state’s positive business climate, low taxes, its “right to work” status, limited regulations, highly educated and trained workforce, quality of life, and infrastructure. As a result of these and many other positive factors, Texas certainly has a competitive edge and is well prepared to continue its advancement as the 21st century progresses.
Employment Positives
Texas created more jobs than any other state last year, and the possibility exists that a repeat could be in the making. Of course, we’ve just finished with the first quarter of 2008 and a lot of things could happen, but the signs are looking good. Besides, I enjoy being an optimist.
The state’s annual job growth rate of 2.1% is more than double that of the US (1.0%) for 2007. Furthermore, so far this year, the state’s unemployment rate is hovering around a 30-year low and is significantly less than that of the nation as a whole.
Over the past few months, the US has been undergoing a nagging economic slowdown. Twists and turns in the market have received prominent headlines and caused wide-ranging consternation among investors. New record high oil and gasoline prices have hit hard and put a crimp in the budgets of businesses and families because of the resultant rise in prices of numerous other products.
To solve the ongoing dilemma, the Federal government has been undertaking several unprecedented moves including a stimulus package that will provide hundreds of dollars to most Americans and has the potential of helping create new jobs. The President and lawmakers are currently considering ways to assist struggling homeowners in lowering their mortgage payments. In addition, the Federal Reserve has reduced interest rates dramatically and made huge sums of money available to banks and other market participants to bolster their operations.
Of course, not everything has been rosy in Texas in recent weeks, but for the most part, the Lone Star State has seen the sun shining fairly brightly. Our economy has proven its resilience as evidenced by a steady upward climb in wage and salary employment. Of the 218,600 jobs created in the Lone Star State in 2007, the leading area was professional and business services with approximately 59,000 new workers.
In the first two months of this year, more than 25,700 jobs were created. The pace is somewhat slower than the past year (which we anticipated), but is quite an achievement in the light of a national economy that lost 80,000 jobs over the same period. Because of the health of the Texas economy, Governor Rick Perry last month approved an employment tax cut of $90 million that will be felt by an estimated 370,000 businesses across the state. Due to the growth and strength of the state’s economic situation in 2007, more money was collected than was required to meet the anticipated needs of the unemployment trust fund. As a result, the replenishment tax has been suspended for a year.
There are a lot of factors, of course, that contribute to the vibrancy of the state’s economy. Reasons range from its geographic location to its business friendly atmosphere. The strength of the energy sector is also a plus, as is the economic development climate. Most of all, however, is the fact that Texas is where the jobs are.
Over the past several years, Texas has been highly successful in competing with other states for businesses looking for new locations, as well as expansion opportunities. People across the US have been acknowledging this kind of success by trekking to the state in droves.
According to data released last week by the Census Bureau, around one in six Americans who moved out of their state in 2007 came to Texas, which has been averaging growth of more than 422,000 residents per annum since 2000. The report also indicated that the Dallas-Fort Worth area was the biggest population gainer among all US metros from July 2006 to July 2007 with 162,000. Houston, Austin, and San Antonio were also among the top 10 growth centers for this timeframe.
Approximately three-quarters of the jobs in Texas are in the major and border metropolitan areas, each of which is distinct in the types of employment offered in their locations due to the industry clusters that serve as key economic generators.
In addition to job opportunities, home prices were a significant draw according to a report produced by Global Insight in March. It suggested that residences in Dallas were undervalued by as much as 30%. A study by First American Loan Performance stressed that the Texas coastal areas remain big draws for retirement homes and weekend residences.
While building permits for single-family and 2-4 family residences in Texas have been experiencing a slow descent over the past year or so, permits issued for the construction of apartment buildings have been encouraging.
With all the positives about the Lone Star State, it’s no wonder that those who were not fortunate enough to be born here are steadily getting here as fast as they can.