Impact of Broadband on Economic Growth and Productivity

Chen Ying

Ministry of Industry and Information Technology

Information and communications technology has played an increasingly vital role as a driver of global growth and in China’s rapid economic development, Mr. Chen said. The industry has grown faster than others over the past 30 years. Its contribution to global gross-domestic product has risen by about a percentage point each decade, he noted.

The ICT industry will “be very important to growth of our national economy,” Mr. Chen said. China’s goals now are to improve the information-technology industry and maximize its potential. The government is setting priorities on different IT technologies, promoting a greater diversity of products, and “improving the infrastructure and applications of IT in different areas of our daily lives,” he said. “It will create a great number of technologies and products, and will open up new markets. It will cultivate integration with new industries that have strong innovative abilities and with high value-added and new areas of growth.”

Breakthroughs are occurring in areas such as the next generation of the Internet, new visual display devices, and digital audio equipment, Mr. Chen observed. Worldwide, governments are developing national strategies to target such opportunities, he added.

Over the next five years, information and communication technologies are expected to create no less than $5 trillion in global market demand and will lead economic growth. “Meanwhile, the manufacturing and service industries that are based on ICT industries are maintaining a growth rate of 30 percent,” he said. These include electronic commerce, modern logistics, and outsourced software and services. ICT also is helping “optimize redistribution of resources worldwide.” The growth of the industry also is creating more market opportunities for information-technology products, he said.

One top priority is to integrate information and communication technologies into Chinese industries. ICT can have a major impact in renovating and improving existing traditional industries, Mr. Chen explained. “Wider deployment of ICT can greatly help Chinese companies optimize the efficiency of human resources, their cash flow, and logistic flow and boost their productivity and economic efficiency,” he said. “At the same time, it can decrease the consumption of natural resources, protect the environment, and realize sustainable growth.”

A recent World Bank study highlighted the potential economic impact, Mr. Chen noted. According to the study, a 10 percentage point increase in broadband penetration rates can boost GDP by 1.38 percentage points in developing nations and by 1.12 percent points in advanced nations. One quarter of GDP growth in the European Union and 40 percent of productivity growth can be attributed to ICT, he said. The impact is felt in all industries in which management software programs such as ERP have been integrated into the entire manufacturing and operations process.

Better use of ICT can even streamline industries such as steel, chemicals, and furniture, Mr. Chen said, citing a recent European Union study. Information technologies are applied throughout material purchasing, R&D, design, transportation, sales, distribution, marketing, and customer service. “They have effectively increased productivity and decreased operating costs,” he said.

The wide deployment of global electronic commerce saved an estimated $2 trillion in costs worldwide in 2009, Mr. Chen said. Handling orders and transactions by hand is eight to 18 times more expensive than orders processed through e-commerce. ICT has been especially important in improving the efficiency of corporations and industries during the recent financial crisis and global recession, he pointed out.

One major goal going forward is to optimize the integration of ICT into Chinese industries, Mr. Chen said. Several years ago, the government promulgated a national information technology industry strategy for 2006 through 2020, he noted.² Rejuvenating the ICT sector is a major goal. “These policy statements have helped us have a blueprint and optimize our national ICT industry,” he said. It also has encouraged Chinese to “apply ICT in our daily lives so that we can improve the scale.” Information and communication technologies also are seen as a way to improve the efficiency of China’s overall economy.

In 2009, income from China’s electronic information industry amounted to 10 percent of the nation’s industrial production, Mr. Chen said. Despite the financial crisis, China’s software industry is still growing at more than a 25 percent annual rate. In the words of former Chinese President Jiang Zemin, Mr. Chen noted, “the ICT industry has become a multiplier of economic growth, a transformer of development methods, and an accelerator of industrial upgrades.”

Broadband Strategy in the United states

Eugene J. Huang

White House Office of Science and Technology Policy

One reason the Obama Administration has focused so heavily on broadband is that “we believe it is critical infrastructure to stimulate economic growth in the United States,” Mr. Huang explained. “The important thing about infrastructure is that unless you use it, and use it in very interesting and innovative ways, it won’t contribute to economic growth.” The Administration, therefore, is focusing on the “entire ecosystem surrounding broadband and how we will use it in the future in the United States to stimulate economic growth,” he said.

One of the first pieces of legislation signed into law after the Obama Administration took office was the American Recovery and Reinvestment Act, Mr. Huang noted. This legislation allocated $7.2 billion to the U.S. Department of Agriculture and the Department of Commerce to be used for grants to stimulate broadband deployment throughout the United States. The law also required the Federal Communication Commission to develop a national broadband plan and a “broadband map” of the United States.

The Department of Commerce has deployed $4.7 billion over the past year through its Broadband Technology Opportunities Program. The money was used to support broadband infrastructure, expand and enhance public computer centers, and encourage sustainable adoption of broadband service, Mr. Huang said. The other $2.5 billion has been used by the USDA to help deploy broadband in rural areas. “Much like China, infrastructure in our rural areas, especially when it comes to broadband, is lacking in comparison to cities,” he said. “So there has been a concerted effort to make sure our rural areas have the ability to take advantage of broadband and the opportunities that broadband presents.”

Mr. Huang explained that he had played a role in helping develop the national broadband plan while he was on the FCC staff. The plan focused not only on deployment of infrastructure, such as wireless systems or wired fiber-optic cables, or on how to get more people to subscribe. “It also focused on what we called ‘national purposes,’” he said. “How do you use broadband? And how do you use broadband to promote economic growth and other key national priorities?”

The long-term goals of the National Broadband Plan³ over the next 10 years are that:

• At least 100 million U.S. homes should have affordable access to actual download speeds of at least 100 Mbps and actual upload speeds of at least Mbps.
• The United States should lead the world in mobile innovation, with the fastest and most extensive wireless networks of any nation.
• Every American should have affordable access to robust broadband service, and the means and skills to subscribe if they so choose.
• Every American community should have affordable access to at least 1 gigabit-per-second broadband service to anchor institutions such as schools, hospitals, and government buildings.
• To ensure the safety of the American people, every first respondent should have access to a nationwide, wireless, interoperable broadband public safety network.
• To ensure that America leads in the clean-energy economy, every American should be able to use broadband to track and manage their real-time energy consumption.

What is clear about the goals, Mr. Huang said, “is that they are extraordinarily ambitious and, more importantly, are focused on how we use broadband for the future to promote economic growth.”

Mr. Huang then displayed the first “broadband map” created as a result of the Recovery Act funding. The color-coded map depicts broadband penetration rates across the country, ranging from deep red for areas where zero to 10 percent have broadband access to deep blue for areas with concentration rates of 91 percent to 100 percent.

The deep blue areas primarily are on the East and West coasts and “in pockets throughout the United States that primarily are in urban areas,” he said. “For the areas that are more red, you will see that broadband penetration generally is lacking in rural areas of the United States.”

The $2.5 billion managed by the Department of Agriculture dedicated to rural areas is meant to address that deficiency. “We recognize that we need to continue to do a better job, focused along the lines of what the United States did in the 1930s when it determined it was a priority to get telecommunications distributed throughout the U.S.,” Mr. Huang said. As a result of that commitment, he noted, the penetration rate of phone lines is close to 99 percent. “We hope to get there in the same way with broadband communications.”

In terms of next steps, Mr. Huang noted that broadband was a key part of the Strategy for American Innovation⁴ released by the Obama Administration in September 2009. In addition to calling for expanding broadband infrastructure, the strategy committed to assuring network neutrality to preserve free and open Internet access. To carry out these recommendations, the Administration created a broadband subcommittee of the National Science and Technology Council’s Committee on Technology, Mr. Huang explained.

The Administration also has several programs aimed at using broadband infrastructure to promote economic growth and national priorities. For example, “there is a real focus to insure that smart grid deployment occurs throughout the United States,” he said. Broadband is integral to that strategy. The National Recovery Act included $15.5 billion for smart-grid technologies and implementation.

The Recovery Act also included $19 billion in funds for health care information technology. Broadband “can be used to improve delivery of health care services and health care outcomes to the American people,” Mr. Huang said. Yet another critical area involving broadband infrastructure is public safety communications, where he said the Administration will soon make some announcements.

The Administration also is interested in using broadband to more effectively deliver public services. They include areas like open government, expanding online service delivery, and integrating new media and social media. One of the Administration’s key initiatives, he explained, is Data.gov,⁵ a portal where the government can put data online. There also is Apps.gov,⁶ a portal for applications. “If you haven’t seen some of these portals, I encourage you to visit them online,” Mr. Huang said. “They are very, very innovative, and we hope they will pave the way for a new generation of public services online.”

ICT Development in U.S. and Chinese Contexts

Mark E. Dean

IBM Research

It is becoming increasingly important that commercial enterprises “be allowed to work, collaborate, and innovate globally,” said Dr. Dean, a 29-year IBM veteran. The United States and China both already benefit from globally integrated enterprises. And “most of the challenges and opportunities facing us can only be addressed with global collaboration and innovation,” he said. “Innovation in isolation is not significant for a successful company or one country.”

Globally integrated enterprises are a relatively new phenomenon on the world scene. By this, Dr. Dean said he does not mean companies that merely have operations and facilities around the world. “I’m talking about operating and innovating globally in a fashion that is inclusive and connected, rather than disconnected, across our borders,” he said. “Many countries have yet to experience this. Thus, there is obviously some caution over what they wish to do.”

IBM Research is a truly global organization, Dr. Dean explained. It has eight major labs—three in the United States, and others in Zurich, Haifa, Tokyo, Bangalore, and Beijing—that employ 3,000 researchers. About half of those researchers and 60 percent of IBM’s 220,000 technical employees are based outside the United States. “So we have to work to not only innovate and integrate our operations globally, but also to maintain all of that in an effective operating environment,” he said. “We cannot compete if we innovate in only one country because it is not effective.”

Now IBM Research is looking to expand its presence further and explore new models of innovation. “Our old model of innovation has supported us well to date, but it is not sufficient,” Dr. Dean said. “We are looking at how we can innovate even more broadly and in an even more integrated fashion.”

IBM Research has a number of collaborative programs. For example, there are “co-laboratories,” in which facilities around the world make five-year commitments to specific research projects. Other programs concentrate on deploying technologies around the world.

There also are collaborations with clients and joint-development projects in which IBM Research and other partners work together to accomplish something more effectively. Such partners include Kaiser Permanente, StatOil Hydro, the National Geographic Society, IDA Ireland, the Industrial Technology Research Institute in Taiwan, and Wanfujing in China. IBM Research also wants to establish a research presence in Africa and Latin America.

Each year, Dr. Dean is responsible for generating a global technology outlook for IBM Research. This full-year exercise explores the major technology trends that will affect IBM and its clients. Projections look out three to 10 years and are used to drive IBM’s technology strategy.

One important factor in considering the future is that societal changes have a major impact. “We used to think that technology would drive society,” Dr. Dean said. “That’s not true. Actually, society chooses technology that it needs. We have embraced that.”

One theme for 2010 is industrial transformations caused by the global economic downturn and shifting needs in energy and health care. Another broad area is “analytics and optimization,” which includes responding to the mass digitization of the world. A third is transformation of software and services due to such rising phenomena as cloud computing. A fourth area is “systems and infrastructure,” which looks at responses to the explosion in wireless traffic and needs to optimize costs, energy, performance, and time.

An example of how IBM Research applies some of the world’s best minds to real-world problems is a large-scale simulation it is developing to analyze Tokyo traffic in real time, Dr. Dean said. IBM Research also is experimenting with using electric vehicles as storage facilities for the power grid in order to offset the lows and highs of electricity generation. In China, IBM has a deep analytical project to analyze supply-chain logistics in order to lower carbon dioxide emissions into the atmosphere.

IBM has a long history in China, Mr. Dean explained. The company had a presence in 1934. Like most multinationals, it left following the revolution and returned in the late 1970s when China opened its doors again. IBM’s first sales office was an experiment. “We wanted to understand the culture, how businesses wanted to buy ICT technology, and how they wanted to work and innovate,” he said.

In the 1990s, IBM began making strategic investments in China to take advantage of the tremendous opportunities. It began operating in several cities in multiple lines of business. In 1992, IBM began melding its China operations into its globally integrated enterprise model. “That has proven to be quite effective,” Dr. Dean said.

IBM now has three R&D operations in China. They focus on three major areas—research, hardware development, and software development.

IBM’s 200-engineer China Research Lab, established in 1995, collaborates with a number of Chinese partners. It primarily works on the company’s Smarter Cities program⁷ and software technologies. One of its “grand challenge” projects involves “the Internet of things.”⁸ IBM Research projects that for every person on the planet, there will be 1,000 things connected to the Internet. “If there are more than 1 billion people in China, that is a tremendous number of devices that you have to connect, manage, and provide information services to and from,” he said. “How do you actually make that work?”

Other big IBM facilities are the China Development Lab, which has 5,000 engineers and was founded in 1999. It is one of IBM’s biggest development labs, and focuses on software applications and services. The China Systems and Technology Laboratory, with facilities in Beijing, Shanghai, and Taipei, has 1,200 engineers specializing in systems. To be effective in China, it is important to do extensive field research “so that we can understand whether the solutions and technologies we are coming up with actually work,” Dr. Dean said.

Open and global collaboration is key to IBM’s research strategy in China. “There is not a single project we have across the research division that is isolated to a single country,” Dr. Dean said. “We work to create a matrix that cuts across all our research labs.” Most projects include personnel from multiple labs, including the China Research Lab.

The goal is to create technologies that have impact globally, not just in a single geographic location, he explained. Nor are research activities limited to information and communication technology. IBM researchers also work in unexplored areas of fields such as water desalination, advanced batteries, and solar cells, as well as software in businesses beyond where IBM presently is deployed. “Who knows what we might discover?” he said.

Partnerships have proved to be valuable to IBM, Dr. Dean said. Business partners account for 60 percent of IBM’s revenue. IBM has 10,000 partners in 350 cities in China. They include CS&S, Futong, Digital China, Kingdee, and Yucheng Technologies. IBM offers 340 courses through its IBM Channel University. These courses reach 30,000 people through more than 3,000 business partners in 130 cities.

IBM also partners with Chinese universities. It has 100 joint labs and joint technology centers, Dr. Dean noted, and 80 special programs with 20 universities. So far, 860,000 students have been trained with IBM curricula, and 80,000 have been certified. IBM also has trained 6,500 teachers.

Dr. Dean agreed it is hard to understand how IBM operates globally and in an integrated fashion. “But we see this as key to our success,” he said. “We work hard to avoid innovation in isolation, because that will create very narrow solutions that have very narrow upside potential.”

To coordinate its global operations, IBM has executives responsible for the entire world. One chief technology officer runs global operations, for example. There also are global chiefs for human resources and legal affairs. “We don’t replicate these activities in each country,” he explained. “We have a common leadership.”

A good illustration of IBM collaboration at work in China is the Smarter Cities project in Shenyang in the northeastern province of Liaoning. The mayor wants Shenyang to be China’s first Smarter City, Mr. Dean said. IBM, the city government, and Northeastern University formed a five-year, $40 million partnership to achieve that goal.

The partnership is developing information and communication technology to manage systems such as water purity, energy, food safety, and integrated urban planning. “This is not only going to be an interesting and important exercise for IBM,” Dr. Dean said. “We also think it will start an effort to replicate this approach in other cities, both in China and around the world.”

Another major IBM effort in China is to develop technology to help utilities evaluate their networks and develop optimal investment plans to meet future demand, Dr. Dean noted. “The goal is services and technology that will allow us to look at each part of the distribution grid and the optimizations that can make that network operate more efficiently,” he said. The target is to save 25 percent through such analytics. Potential partners are utilities in Tianjin, Chongqing, and Yunan Provinces.

Discussion

Dr. Wessner asked Dr. Dean to explain the major advantages of IBM’s approach in China and the main challenges it faces. He also jokingly asked if IBM appeals to the “global government” if it has a problem in China, such as with intellectual property protection.

Dr. Dean explained that IBM has learned that Chinese businesses and individuals buy for different reasons. Therefore, IBM has “had to learn to build products and services that are a little more geared toward the challenges and opportunities that are there.” The opportunities are with companies that want to grow 20 percent to 30 percent a year.

The big challenge for IBM “is to establish ourselves as an accepted entity in the region,” Dr. Dean said. Because IBM has a U.S. headquarters, it is regarded as a U.S. company, he explained. But it also is global and integrated. “It is hard to express ourselves that way,” he said. “We want to express ourselves globally, as a global entity. And we want governments to look at us that way.”

But although IBM has made great progress in China and works closely with the government, “we’re not necessarily viewed as a Chinese company, which can be a constraint in many ways. We would not like that to be an inhibitor,” he said. “We would like to be viewed as an equal partner compared to indigenous companies, because we believe our investments will be on par with Chinese companies. I know Cisco experiences the same thing. We would like to be on a level playing field and bring innovation into China—not just innovate and pull out, but also bring. The total, I think, will be greater.”

Fang Haiyang, director-general of the Shapingba District of Chongqing, raised a question about misuse of science. “I would like to ask how we can prevent the basic value of science from being misunderstood,” he said. “The principle of science is to pursue the truth, explore natural rules, and enable people to make their lives more colorful and happier,” he said. “In the process of industrialization and commercialization of every scientific research result, so troubles may also be brought to human beings.” Mr. Fang noted that Alfred Nobel gained his reputation in science by inventing dynamite. “He brought much convenience, such as the use of explosives in infrastructure projects,” he said. “But use of explosives in war brought disasters to human beings.” Mr. Fang asked what the National Academy of Science thinks about preventing the abuse of science.

Dr. Wessner responded that it is a fair question. “One thing about the National Academy of Science is that it is full of scientists, which means it is full of opinions,” he said. “It reminds me of an Israeli joke. If you have three scientists you have five opinions.” Regarding negative uses of technology, Dr. Wessner said that “we look forward to (the Chinese) government’s support in the United Nations with respect to some of the countries that seem to be inclined to create problems with technology.”

He agreed that the two nations must work together to control technologies, and added that he was excited to hear about the potential to collaborate on transportation and energy technologies. In information technology, Dr. Wessner said “there is so much potential to rework the way we work, travel, and communicate.” There also is potential in semiconductors. “As your government understands, perhaps better than ours, these lowly devices are vital to the information technology that has brought us such enormous progress in the last 30 years,” he said. “I think companies like Cisco and IBM are showing a path forward on how to connect ourselves.”

Dr. Wessner noted that the STEP Board convened a conference like this one with the Indian government two years ago. “We found that there were enormous interconnections we had not realized existed between the two countries,” he said. Dr. Wessner noted that China is far ahead of India in terms of economic development.

Dr. Wessner said he was very impressed when a president of a Chinese university told him he had recently been vice-president of the University of Pennsylvania. “The sea turtle exchange is a source of value,” he said. “I would hope over time that there is what the OECD calls ‘circulation of high-value human capital.’ In part, that is what this meeting is about, a chance to exchange ideas and to build relationships.”

There is no simple answer to the question of misuse of science, Dr. Wessner said. “Since the beginning of time, science has been an opportunity for good and, alas, an opportunity for evil. We very much need your help in keeping this world in balance. We very much look forward to working with you to collaborate for a better planet.”

Mr. Fang commented that he thought scientists should not be responsible for the industrialization and commercialization of their research results. Nor should they be responsible for investment and profit-making. “Government should be involved,” he said. “I think the government should prevent technology from being misused and abused.” He asked what role the government should play.

Dr. Dean said IBM has to deal with this question often. The National Academies brings transparency to science, enabling everybody to be part not only of discoveries but also their applications. “There always will be bad actors in the world,” he said. “There is nothing you will do that can protect the world from a few people who will act badly. I am not sure we should constrain our exploration of science and its application by having people look over our shoulder.”

While there should be checks and balances, Dr. Dean added that companies also are responsible for making sure they develop technologies in a way that that is safe for society. “IBM takes that very seriously,” he said. “Policies governments put in place can help with that, but government alone can’t carry the responsibility. No single government controls enough of the world to make sure science is not used in negative ways. We would constrain innovation if we have that in mind.”

Moderator Dan Breznitz interjected with a comment on Dr. Wessner’s joke. As somebody who was born in Israel, Dr. Breznitz said, he knows the ratio is not five opinions for every three scientists. “It is seven,” he said.

Ren Weimin then asked about the Obama Administration’s ability to fund its ambitious broadband plan. He noted that public funding in China is limited. “When will you be able to complete these projects?” he asked. “It’s mentioned that the projects will need a lot of investment. In China, public funding is centralized. So I’d like to know how the project funding is structured here.”

Mr. Huang of the Office of Science and Technology Policy explained that the information and communications technology plan is to be implemented over 10 years. It is hoped that by 2020, all of the long-term goals will be achieved.

Regarding funding, he acknowledged that the $7 billion provided in the 2009 economic stimulus act “is only a small drop in the bucket in comparison to what is necessary to meet all of the very ambitious goals.” According to some estimates, up to $300 billion would be required to achieve everything.

The bulk of that money will come from private industry, however. “The U.S. has a very robust system for competition in terms of broadband providers,” Mr. Huang said. They include traditional telecom operators that are investing in fiber-optic capability and cable and wireless telecom providers that are investing to get broadband to the American public.

Mr. Huang noted that China has a unique opportunity to build state‐of-the-art broadband: “There isn’t the legacy of copper wires we have in our country, where we have telecom infrastructure going back to the 1930s,” he noted.

When one studies broadband opportunities in the United States, one finds there is a clear opportunity for third- and fourth-generation wireless, Mr. Huang added. There also is opportunity for very high-capacity network connections for fiber-optic cable. “For us in the United States, it is not just a matter of picking one or the other technology,” he said. “It also is to make sure there is an ecosystem that can leverage investment by the public sector, which is small, with investment from the private sector.”

A member of the Chinese delegation asked how the United States initiated its smart grid program. She wanted to know if pilot projects were led by state governments, the federal government, or by a company, and whether pilots will be tested in one place first or launched nationally.

Mr. Huang explained that the federal role is limited. He said government investments in efforts such as smart grid and health-care information technology are a very small part of what is needed to fulfill deployment across the United States. The $15.5 billion mentioned in his presentation represents federal government investment in research, development, and very limited deployment, such as proof-of-concept demonstrations in communities. “We hope that once these particular initiatives demonstrate commercial value, they will be commercialized by the private sector,” he said. “We hope that federal funding will help jump-start development and accelerate full deployment in the future.”

Dr. Breznitz thanked the panelists, and said he hoped the discussion will stimulate dialogue for years to come.

Footnotes

1

Dan Breznitz, Innovation in the State: Political Choice and Strategies for Growth in Israel, Taiwan, and Ireland, New Haven, CT: Yale University Press, 2007.

2

China’s 11^th Five-Year Plan (2006–2010) calls for 30 percent annual growth, reaching $125 billion in revenue in 2010, and for boosting exports by 28 percent annually.

3

See Federal Communications Commission, Connecting America: The National Broadband Plan, <http://www​.broadband.gov/download-plan/>.

4

Executive Office of the President, “A Strategy for American Innovation: Driving Towards Sustainable Growth and Quality Jobs,” National Economic Council, Office of Science and Technology Policy, September 2009, (<http://www​.whitehouse​.gov/assets/documents​/SEPT_20__Innovation_Whitepaper_FINAL​.pdf>).

5

See <http://www​.data.gov>.

6

U.S. Chief Information Officer Vivek Kundra has described Apps.gov as a “one-stop source for cloud services.” The portal contains business applications, cloud services, productivity software, and social media software. See <http://www​.apps.gov>.

7

Smarter Cities is an IBM initiative that seeks to improve management of transportation, water, and other systems through next-generation information technology. See Suzanne Dirks and Mary Keeling, “A Vision of Smarter Cities: How Cities Can Lead the Way into a Prosperous and Sustainable Future,” IBM Global Business Services executive report, IBM Institute for Business Value, 2009, ftp://public​.dhe.ibm​.com/common/ssi/pm/xb​/n/gbe03227usen/GBE03227USEN.PDF

8

The Internet of Things refers to connected objects such as home appliances. The concept is attributed to the Auto-ID Center formerly based at the Massachusetts Institute of Technology. One good study on the topic is “ITU Internet Reports 2005: The Internet of Things,” executive summary, International Telecommunications Union, November 2005, <http://www​.itu.int/osg​/spu/publications/internetofthings​/InternetofThings​_summary.pdf>.