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The Internet Economy & Why We Need Gov’t

There are many who believe wholeheartedly that governments don't create jobs — the private sector does. I thought of this concept when I read last week a McKinsey & Co. report that said the Internet has created jobs, global economic development, and wealth creation that is as high as the GDP of several industrialized nations. When I read that, I couldn't help but think that the Internet's development began as a US military project.

Of course, it's easy to forget that the federal government created the Advanced Research Projects Agency (ARPA, later DARPA) in the late 1950s. ARPA created the Information Processing Technology Office (IPTO) whose objective was to develop a long-term strategy for the US military's communications networks and to interconnect its computers at the Pentagon, Cheyenne Mountain, and Strategic Air Command headquarters — and thus began the journey that has brought us the Internet that we all enjoy today.

The tangible benefits associated with the Internet are enormous. The McKinsey report reveals that the Internet is used by 2 billion people on the planet and almost $8 trillion a year is spent on e-commerce activities. Additionally, the Internet accounts for, on average, 3.4 percent of GDP in the 13 countries the report examined.

With regard to the Internet's capacity to create jobs, the researchers analyzed France's Internet-related job creation and concluded: “A detailed analysis of France over the past 15 years shows that the Internet created 1.2 million jobs and destroyed 500,000 jobs, creating a net 700,000 jobs or 2.4 jobs for every one destroyed.”

Undoubtedly, the high-tech industry owes a great debt of gratitude to the federal government and academia. Their efforts to develop the initial network connections and framework around which the Internet operates has given birth to products such as PCs, tablets, laptops, notebooks, and the software running on these devices, as well as telecommunications networks, smartphones, and other technology.

Furthermore, there's more growth to come. While the Internet has reached around 6 percent of GDP in the most advanced countries, like Sweden and the United Kingdom, nine out of the 13 countries examined in the report — Russia, Brazil, Italy, China, Canada, France, India, Germany, and the US — are below 4 percent.

To foster further adoption and strengthen the Internet ecosystem, the report recommends that government policy makers should work together with business executives. “Governments could leverage Internet public spending as a catalyst for innovation. Indeed, countries with the highest public investment in the Internet are also those with the largest nonpublic Internet contribution to GDP,” the McKinsey report said.

Additionally, government and business leaders should work together on issues such as standards for digital identities, intellectual property protection, and net neutrality, the researchers said.

I know it’s popular among many to deride the government for regulations and taxes that many say stifle business development. I agree that there are some regulations and tax codes that place unnecessary burdens on business, but that shouldn't cloud the fact that at times the government does have a positive role to play in fostering economic growth and job creation. The recent auto bailouts are a testament to that.

To say that government should play a limited role or not be involved at all in business development is short-sighted, counterproductive, and creates an unnecessary anti-government sentiment that doesn't create space for a more reasoned approach to designing an advanced economy.

16 comments on “The Internet Economy & Why We Need Gov’t

  1. Parser
    June 3, 2011

    As neighbors helped each other and expended to larger communities with population growth become a need to establish a body of people representing needs of neighbors. Government is not a remote entity it is us. Across ages there were countless examples how established procedure helped all neighbors. From times of wars, where economy was boosted by government (read: by us) spending directed at production for military to after the wars on efforts to rebuild our neighborhoods. Then through scientific discoveries from medicine to astronomy all that spending, by so-called government, goes to private enterprise. Without a good neighbor practice it would be not possible to discover unknown ventures. Internet is one of many examples of new tools and ventures government initiated. For established practice government is a hindrance. Keep the balance right and a lot of new technologies will be created for use in electronics, medicine and other sciences by new private companies. 

     

  2. SunitaT
    June 3, 2011

    Nicole,

      I totally agree with you that its wrong to say that governments don't create jobs. Infact as you metioned  Internet is brainchild of governments project (Advanced Research Projects Agency). But if the goernment tries to control the internet using regulations and taxes, Internet freedom will be lost.

  3. Jay_Bond
    June 3, 2011

    Nicole didn't state in her article that the government was going to regulate and tax the internet; she stated that most people deride the government for its current taxes and regulations. That many people feel that this is counterproductive to growth. Many people view the government as “stay out of my business, until I'm hurting. Then you can come help me.”

    Thanks to tax revenue, the government can help companies, and they can help build better infrastructures that can benefit everybody. 

     

  4. FLYINGSCOT
    June 3, 2011

    In many European countries government regulation may have gone too far to protect the few at the expense of the many.  As a result Europe has lost out to other countries with fewer government restrictions.  It all depends upon what is important to a country.  An extreme example is whether one death due to a factory explosion is worth the very real chance of losing the factory itself due to government regulations making the factory uncompetitive.  I am not making a judgement as I am sure nobody would like to be the one life lost.  However, I do worry greatly for the future of our children in Europe and wonder what kind of employment opportunities there are likely to be in future.

  5. Barbara Jorgensen
    June 3, 2011

    Nicole–this is a great analysis and thanks for bringing it to readers' attention. In a similar vein, commercial technologies such as RF, microwave, radar, GPS, wireless communications, night vision, and hundreds of others were originally funded and researched by the military. These technologies created jobs once the technology was applied to the commercial market.

  6. The Source
    June 3, 2011

    Parser ,

    I agree with you when you say that if we can strike  the right balance between the public and private sector “a lot of new technologies will be created for use in electronics, medicine and other sciences by new private companies.”

    It’s all about balance and reason and a country that shows both will truly be an enlightened society.

    Thanks for reading my post.

    Nicole

  7. The Source
    June 3, 2011

    Barbara,

    Thanks for reading my post and for pointing out other examples of the government’s contribution to the U.S. high tech industry.   If we were to measure in dollar terms how much the government has given the high tech industry do you think that the high tech industry has returned that investment in equal measure?  I guess that’s quite a question.

    Nicole

  8. eemom
    June 3, 2011

    Jay-Bond

    I agree with you.  The government involvement can be crucial to providing tax credits and relief to entice companies to do business in the US, for example.  We are always pondering the “not made in the USA” issue and I have consistently opined that if the government offered the right incentives, we can claim our technology and products back.  Right now with manufacturing still cheaper elsewhere and other companies offering better tax incentives than the US, we will continue to see products move overseas.  To say that we want the government to stay out of our “business” is indeed short sighted.

  9. itguyphil
    June 3, 2011

    eemom,

    I am with you on the govet-based incentives idea but the 'cost' factor is still the most important component. Even if companies would like to stay here and don't get overwhelmed when it comes to taxt time, they still need to operate and stay in the black. With costs for most supplies and resources (including personnel) being significantly more expensive in the U.S., it will be hard to entice those that have off-shored to come back. Unless there is a more feasible, short-term solution for more budget-friendly resource expenditures.

  10. t.alex
    June 4, 2011

    Nicole, your article makes me realize that those research programs into nanotechnologgy and biotechnology nowadays might create another big job market in the future. Only government can do that.

  11. Daniel
    June 6, 2011

    Yes, the evolution of internet is happened from one of the research labs in USA. They had created the data transfer packet models and defined other layers of communication. After that I think all the developments are happened in application sides and still the developments are happening. But from the initial form of internet communication, the underneath technology didn’t change still. All the developments are happened in application levels and how to access it

  12. The Source
    June 6, 2011

    Jacob,

    Every week technology companies announce a new product that either runs on or supports Internet activities.  With all this coverage, one might be tempted to believe that some entity other than government created the Internet.  Indeed, with the recent charges that government doesn’t create jobs, we may well come to the conclusion that many people don’t remember the government’s role in creating the Internet, because if they knew how the Internet was created they would know that the government can indeed create jobs. If people can’t remember what the government has done in the past, they may not know how the government can help the country in the future, and that has serious implications for the high tech industry.         

    Thanks to all those who read the article and posted a comment.

    Nicole

  13. Richbuyer
    June 7, 2011

    “There are many who believe wholeheartedly that governments don't create jobs — the private sector does”  – The very fact that this keeps getting tossed out into the MARS HILL forum of ideas reminds me of the disservice that ivory tower philosophers provide for the confusion of public discourse, or dare I say propaganda. 

    “the government does have a positive role to play in fostering economic growth and job creation” – of course, that's true! No one is arguing against that, but some present both concepts as if they're synoymous, which they clearly are not. By doing so, it's easier for some to defend statist, even fascist leaning trends in policy (read: taxes and metastasizing regs), by accusing those who argue for the proper role of Gov't, which MUST BE limited, of being anti-Progressive neanderthals, hostile to gov't.

    Almost comically, to allude to the “recent auto bailouts” as being a testament to the ” positive role”…that Gov't might “play in fostering economic growth and job creation” is truly twisted logic. The gov't, through collusion with the mob force of unions, drove our auto industry into bankruptcy, forced Bondholders out of their legal, rightful queue, to the benefit of the unions, so that the Gov't, as faux savior, could “bail out” (read: take control of) the industry, just like what happened in Germany in the 1930's. almost like out of a playbook!

    So, in between gladhanding each other about the glory of Gov't interference, perhaps you techies, whom I sincerely love and appreciate, could bone up on some history and political philosophy, before you venture too far out from your base of knowledge, pontificating about those who happen to withhold their slavish affections from the State. Otherwise, keep up the good work!

  14. Kevin Jackson
    June 7, 2011

    Obviously the Internet would have been created by someone without government assistance, it's time had come. All the pieces where there, you just needed a demand and an engineer to put the pieces together. After all, the automobile was created without government assistance, washing machines were created without government assistance there are untold examples of mainstream product that didn't need the government to come into existence.

    Yes the Internet is an example of a success, the space program used to generate many successes. But, how many other projects spent the money taken from me to fund something that didn't pan out or could never pan out? Everybody is aware of the government successes almost nobody seems to be aware of the perhaps tenfold number of failures.

    Look at what's going on today in the government funded renewable energy industry. Hundreds of millions of my money has been given to renewable energy start-ups that have failed in a year or two. I have to ask, how does a small company spend hundreds of millions of dollars and still fail in a year or two? Is it the executives’ salaries? Is it the fact the technology couldn't ever work out? Look at the money spent on George Bush’s Hydrogen Economy when all along everybody knows we have no way of creating the hydrogen – incredibly stupid waste of resources and money, look what we have to show for that today, nothing!

    What bothers me the most is the contrast between the private and public sectors. In private industry, if you spend too much money or have a product that is not viable, the management of that company loses their bonuses and probably their job after they squander the investor funds that were given to them voluntarily by investors that know, going in, that there is financial risk. In the public sector, the stolen money (I say stolen because I believe few tax payers want to invest in private firms with no hope of direct financial return and statistically little hope of financial success) is simply given away with little apparent oversight. When this venture fails, I don't get my money back, the politicians that selected the company for funding don't lose their job and I suspect the CEO and his buddies enjoyed generous salaries during the company's slow demise.

    I believe the private sector is far more capable of picking winners than the public sector is. The government has a role to play but it clearly should not be gambling with my money the way they are today.

     

  15. Kevin Jackson
    June 7, 2011

    Here, here!

  16. Richbuyer
    June 7, 2011

    Excellent! Very well said, Kevin! Thank you!

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