James K. Glassman
This talk today is timely. In Iran, as I speak, we are seeing hundreds of thousands of citizens protesting what is almost certainly a stolen election. It is an uprising encouraged and enabled by new social-networking technologies in a process I call the “Grand Conversation.”
This morning, I want to frame my remarks about technology and the Grand Conversation with some economic background. Then I want to talk about why technology is so important to a state and a national economy, including a bit about my own favorite project at the State Department. And, finally, I will discuss how to encourage technology growth and economic growth. The key in all of this is broad, deep, and rapid communication. If there is a thread running through my own career – in journalism, finance, academia, business, and government – it is just that: the incredible power of communication technology.
But first the economy….
In the rush of government activity since the financial crisis that began about a year, it is difficult to discern an actual policy – other than a patchwork of emergency measures based on a vague kind of Keynesian theory that if you throw a lot of borrowed, or printed, money at a problem it can be fixed.
And maybe it can – temporarily. I doubt seriously whether much of the fiscal stimulus (which hasn’t hit the economy yet) and the measures like pumping $80 billion or more in GM, Chrysler, and GMAC and creating a huge government-union auto consortium will have much positive economic effect at all. As I wrote in the New York Times a few weeks ago, the damage to the rule of law from bestowing favors on political supporters like the United Auto Workers at the expense of bond investors is going to boost the cost of capital – a phenomenon we’ve already seen. That damage outweighs any temporary stimulative benefits.
Still, the aggressive monetary policies of the past year, however, are flowing through the economy, and those, plus normal cyclical changes, are causing the recession to bottom out. I would venture the guess that the recession is over as of the end of this month.
But the economic problems aren’t. There may be temporary fixes, but over the longer term, an economy won’t grow at a decent rate unless considerable capital – financial and human – is invested. I see the future of that investment as pretty dim. For five reasons:
- The vast borrowing by the government is going to pull away money that would normally go to productive private sector investment.
- Higher taxes will discourage investment.
- The U.S. continues to have massive problems with human capital – mainly, our education system but also our demographic imbalance – too many retirees, not enough workers to support them.
- The global trading system that has served the world so well since the end of World War II shows signs of breaking down, and the U.S., which is balking at its leadership role, bears much of the blame.
- Regulatory policies that have not kept up with the times.
I want to concentrate on this fifth impediment because, unlike the others, it is something that states themselves can fix – and fixing it would have a huge impact.
But, first, I want to tell you this issue of regulation fits in with the work I have been doing lately.
I left government on Jan. 20 after nearly two years, first running U.S. international broadcasting – Voice of America, Radio Free Europe, and so on – and then as Under Secretary of State for Public Diplomacy and Public Affairs, serving as the government-wide lead for strategic communication, in particular our engagement with foreign publics.
As Under Secretary, I focused on two things: first, the war of ideas, or ideological engagement against violent extremism, and, second, technology. I developed a new approach to communications. Rather than using what I call the big megaphone, lecturing at the world, we facilitated and convened a Grand Conversation, a broad and deep engagement using the best new technology, including social networking tools like Facebook. This Grand Conversation works well against violent extremism, and, as we are seeing in Iran, against despotism in general.
The key is technology, especially information technology. Tom Friedman says that information technology brought down the Berlin Wall – it let East Germans know what life in the West was like, even if they could not experience it themselves. Innovations like Facebook and Twitter have allowed the opposition to organize in Iran. I am a follower of Change for Iran, an account on Twitter that is putting out the story of what is really happening in that country.
In addition, technology is making us healthier. It holds the promise to revolutionize education, and, in fact, if a new book I just reviewed in today’s Wall Street Journal is right, technology will reform our schools by shattering the political forces that have preserved the status quo. And, of course, technology boosts economic growth.
You in Georgia know what I am talking about. Georgia ranked number 1 among the states for entrepreneurship in a new survey by the Kauffman Foundation and number 18 (very good) on the New Economy Index, composed by Kauffman and the Information Technology and Innovation Foundation. And Atlanta this year ranks second on the Forbes list of America’s most wired cities. One big reason for Georgia’s strong performance in technology was the decision in 1995 to open up telecommunications to competition, ending Southern Bell’s monopoly. As a state legislator, Gov. Sonny Perdue led the movement to increase telecom competition.
In describing the benefits of doing business in Georgia, Georgia Power Co. in 2006 cited the fact that “Georgia’s deregulated telecommunications industry offers competitive choices for local businesses through nearly 500 competitive local exchange carriers and over 140 long-distance companies.” In that year, 2006, Gov. Perdue signed a bill that prohibited regulations that had reduced competition for wireless and broadband in the state.
But, while technology boosts economy growth, the United States and Georgia can do better. The job of updating telecom regulation is far from over.
Let me say clearly: the states that encourage information technology will be the states that provide the most prosperity to their citizens. The best way to encourage this technology is by making your state a place where the private sector wants to invest. A lot of big numbers get thrown around in the stimulus package, but the truth is that private capital dwarfs what the government is proposing to do, and private capital is more likely to flow to the most efficient uses.
Despite the recession, both Verizon and AT&T – just two companies — have announced that they will put $17 billion to $18 billion, each, into capital expenditures this year. That is a tiny decline from 2008. This capital will, quite naturally, flow to states with the best regulatory climates. By contrast, the stimulus package calls for $7 billion in broadband spending, total. It makes sense to use that money to fund under-served schools, hospitals, and other institutions directly – not to hand it out to service providers with the inevitable political strings attached.
I want to elaborate on why it is that information technology is so important to the economy.
To do so, I need to turn to an important economist, Paul Romer of Stanford. Romer developed a theory of what he calls New Growth Economics. It is based, as all elegant theories are, on a simple idea.
Romer says that “economic growth occurs whenever people take resources and rearrange them in ways that are more valuable.” Think recipes – prescribed mixtures of different ingredients. Progress comes from new recipes that arrange the same ingredients in different ways.
The number of possible recipes is staggering. Romer started his academic career as a physicist, and he points out that since there are about 100 elements in the periodic table, there are 94 million different ways to arrange any four of them. Now imagine that you arrange those four elements in different sets proportionally. Also assume that the proportions are not very different, ranging by ratio from 1 to 10. How many possible recipes? 330 billion. If the laboratories of the world evaluated 1,000 such recipes a day, it would take a million years to test them all – and that’s just for four elements.
But this is precisely the way progress occurs. As Romer says:
“About a decade ago, one of the hundreds of compounds discovered this way—a mixture of copper, yttrium, barium, and oxygen—was found to be a superconductor at temperatures far higher than anyone had previously thought possible. This discovery may ultimately have far-reaching implications for the storage and transmission of electrical energy.”
The arrangement of positions on an assembly line is a recipe. So is the process of writing software or methods of management. How do we encourage such discoveries, not just in electrical engineering, but in business, in economics, in architecture – throughout the vast range of activities that make us wealthier and our lives better? The answer is through increased, super-fast communications of precisely the sort I discussed – through a Grand Conversation.
Randall Stephenson, the CEO of AT&T, used a very descriptive term in a speech I heard him give a few months ago at the Economic Club of Washington: “commercial velocity.”
He said: “It’s a simple equation: When and where people connect, commercial velocity accelerates … and economies grow. The secret ingredient for unleashing the power of free markets is connecting people … whether its roads, railways or airports. It’s been that way throughout history. But one thing has proven to increase commercial velocity more than anything else … communications networks.”
Think, for example, of the revolution in health care. It is not occurring just in doctors’ offices. It is occurring online – as information about symptoms, diseases, and cures is disseminated as well to patients, researchers, and other stakeholders in health care. We now must apply communications technology to the delivery process itself.
Or education. Cyber charter schools – 190 of them in 25 states – are using communications technology to teach broader and deeper and could revolutionize K-12 education.
A new book by education reformers John Chubb and Terry Moe makes the case that the union blockade against changes in schools will be broken, perhaps soon, by the power of communications technology – specifically, cyber charter schools, which are growing rapidly.
Or foreign policy: At the State Department, I encouraged the Grand Conversation, an exchange of information to improve understanding of the U.S. and its policies. We saw our job as facilitating and convening this conversation using social networking tools powered by broadband and mobile devices.
Let me give you a specific example from my experience as Under Secretary of State:
Last fall, I visited Colombia, which has probably had more success than any nation in the world in fighting terrorism of both the left and right. A powerful counter-movement emerged there that has demoralized the remaining terrorist group, the FARC, a vicious organization that still holds hundreds of hostages in the jungle. The origins of a new force that has risen to oppose the FARC were not in government or conventional civil society. Instead, a young unemployed computer technician named Oscar Morales spontaneously started a Facebook group that grew quickly to more than 400,000 members.
The group, called One Million Voices Against the FARC, put 12 million people in the streets in a single day in 190 cities around the world — just two months after it was set up. These marches had real-life effects. They drove fighters to leave the FARC, seeing that popular support was not what FARC leaders had claimed. Today, the FARC’s forces have been reduced by half, from 18,000 to 9,000.
We decided to help form a public-private partnership – with Facebook, Google, AT&T, MTV, Columbia University, Howcast, and others – that would link the Colombian Facebook leaders with representatives of two dozen youth-empowerment groups, most with an online presence, together with technology experts in a conference in December in New York. The group, including Egyptians, Saudis, Brits, Mexicans, and many more, put together a handbook and an electronic hub – all to help organizations around the world, including in Iran, use new social-networking digital tools to build anti-violence networks.
We called it the Alliance of Youth Movements, and, frankly, the U.S. government does not control these groups, nor could we. We do not hide our hand. We got the ball rolling, and we’re proud of that. We think these organizations will be a force for good in helping to defeat violent extremism and leading young people down a path away from terrorism and toward constructive pursuits.
Romer says that the most important ideas are “meta-ideas” – ideas about how to support the production and transmission of other ideas. For example, patents and copyrights, invented by the British in the 17th century, or the modern research university, invented by the United States in the 19th century, or “peer-reviewed competitive grants for basic research,” invented in the 20th century.
I believe the Grand Conversation has the potential to be the first meta-idea of the 21st century. It is, essentially, an electronic conversation that has real-life extensions and consequences. It encourages other ideas – other inventions and innovations. So the Grand Conversation is something we must encourage.
How? Our federal government has said it is important to devise a national broadband strategy. I agree with the idea of a strategy. The question is what kind of strategy. Like many of you here, I am skeptical about government’s role. Let me note some things that government can and should do: help preserve privacy; encourage the adoption of broadband at anchor institutions, including schools and libraries; provide cyber security; help the unserved get broadband access. Government can also encourage the use of smart networks by using technology itself, pushing people online to learn about and use government services.
But by far the most important reason a national strategy is necessary is to address previous policy interventions – regulatory relics from earlier eras. And here is where the states come in. They must pull down the regulatory barriers that stop the development of faster, more pervasive networks. Such actions are in the states’ own interests.
Health, education, global prosperity, global peace even – all are dependent on the growth of communications technology. And that growth depends, in great measure, on smart, up-to-date regulation.
I am not saying throw out all regulations. Certainly, some regulations are needed, but, in many states, it is necessary that those regulations change with changing times. Tremendous change has occurred in barely a quarter-century: mobile phones, Blackberries, iPhones, hundreds of television channels available to practically every home, the wonder of being able to quickly download entire newspapers, books, music libraries, movies through broadband. And the ability, through the Internet, to create our own networks to stay in touch with the rest of the world, to communicate with video, text, and audio.
Here is an example of how many states have not kept up with changing times:
Different companies compete with each other to offer “phone” service (and I put “phone” in quotation marks): wireless companies, cable companies, VoIP companies and the traditional telephone companies. That’s great. Competition should mean more investment and more reasonable consumer prices. Unfortunately, competition cannot thrive when different companies operate under different sets of rules while offering the same type of service.
This is not just a matter of fairness. I am not sure most consumers care, as matter of equity, about whether a cable company has different regulation from a traditional phone company. No, the point is that, if everyone is operating on a level playing field, the competition on that field will be much, much more vigorous – and consumers will benefit in two ways. First from innovation and second from lower prices. And, by the way, history shows that these two go hand in hand.
So here is what I am saying: to encourage the Grand Conversation, we need to improve regulatory conditions. We need to bring antiquated regulation into the 21st century. Some states already have. A good example is Indiana, where, as a result of telecom reform legislation, thousands of new jobs have been created, broadband has vastly expanded its reach, major investments have been made to improve wireless networks and introduce Internet-based television.
Improving telecom regulation is only one way to encourage the Grand Conversation. Smart tax policies that boost investment and innovation are another. So is a more serious effort at improving secondary education. We cannot forget that these steps are more important today than ever. Yes, we need to drain the financial swamp we are in, but we also need to build on the dry land. The answer to our current fix is not just short-term stimulus, it is long-term, sustainable, growing business activity – both services and manufacturing, but all driven by ideas. That is America’s comparative advantage. In these difficult times, we should never forget where our strength lies: in exciting, explosive, full-blown, imaginative technology. Let’s get on with it.