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By | Timothy Prickett Morgan 7th January 2009 23:11

IBM and ITIF pitch for $30bn to save America

Giant job-producing IT stimulus package ahoy

As expected, a report from the Information Technology and Innovation Foundation think tank has called on Barack Obama and Congress to pump billions of dollars into IT infrastructure to help create jobs in America.

As El Reg reported yesterday, top advisors for energy and technology were briefed by IBM's chairman and chief executive officer, Sam Palmisano, on the job-creation effects of a stimulus package focused on information technology in three specific areas: broadband Internet, healthcare, and smart electrical grids. And working with the analysts at IBM, the ITIF cooked up some estimates about how such infrastructure investments - like those made in road, bridges, and other physical infrastructure by governments seeking to create jobs and to at least look like they are doing something during a crisis - would add jobs to the American economy.

Its conclusions are in The Digital Road to Recovery: A Stimulus Plan to Create Jobs, Boost Productivity and Revitalize America, which is released today.. While I am all for investments in IT, since I participate in the IT ecosystem myself and since I like the idea of having modern networks for Internet access, healthcare, and electricity, it is hard to believe, as a citizen paying the tax bill behind such a stimulus package, that anyone can predict with anything close to the precision that IBM and the ITIF say is possible: namely that 900,000 new jobs can be created in America with $10bn plunked down into each of these three areas.

'Secret sauce' methodology?

The ITIF report is long on talk about how IT increases labor productivity and vague on how it came up with its calculations on how many direct jobs, indirect jobs, and induced jobs would be created. And while the report was keen on pointing out that the IT jobs created through such investments yield jobs that have higher salaries - 84 per cent higher than the average job in the States - the report did not once mention the fact that IT jobs, over the course of the 90-year history of tabulation, data processing, computing, and information technology, have nuked untold millions of jobs that human beings used to do.

IT is a job killer as much as it is a job creator - this is the nature of automation. The reason we are all not Luddites is that IT allows us to do things that were not possible before automation, or allows us to do the same things more quickly and more easily. When the computers are working, any way. On the whole, it is safe to say that IT is good for society. Making the case that IT investments create net new jobs over the long haul seems a bit more difficult. And that's why IBM and the ITIF didn't try to do that. They just worked up some numbers showing how many jobs $30bn in IT infrastructure investments would create.

More than half of the 497,955 jobs that IBM and the ITIF are estimating will be created in one year by a $10bn investment to bring broadband Internet service to places where it does not currently exist are so-called "network effect" jobs, which means jobs that are created or retained because of the direct jobs that come through the investment.

Only about 60 per cent of American households have broadband access, which is embarrassing. Despite the fact that Americans pay pretty hefty telecom and Internet access fees, the telecom and cable companies have not provided universal access to high speed Internet services, which ought to be against the 1996 Telecommunications Act, but somehow is not. (Universal service was the rule for voice telephones, and it was a good idea.) The report estimates that a $10bn stimulus aimed at expanding broadband Internet would create 49,820 direct telecommunications jobs (or retain them, considering the cost-cutting that telcos are doing these days) and another 13,840 jobs among the capital equipment suppliers who build the gear that goes into networks (switches and servers and such). The report estimates that another 165,815 indirect and induced jobs will also be created by such a broadband stimulus package. This appears to mean the jobs that will be created or retained because the workers at the telco companies and equipment providers will spend their salaries on food, housing, entertainment, transportation, and so on.

But why stop there? Why not iterate the network effect again? Those people in turn spend their salaries on goods and services, which creates jobs. Right? So we can do a third, fourth, and fifth derivative (maybe it is an integral) network effect, and so on and so on... This is how an economy works, after all. That way, IT investments could take credit for an entire recovery, much as it did in the dot-com boom during the Clinton Administration. Which is hogwash, of course.

To be honest - and this is a hard thing for politicians, IT vendors, and think tanks to do - we have to worry about direct jobs created and hope for - but not count on - the network effects for additional jobs. And that is because we are dealing with people who are afraid to spend money. Those other jobs may not materialize, after all. In that case, we are talking about $157,085 per created or retained job, with the hope of adding another 434,295 jobs, with a $10bn investment for broadband infrastructure. That sounds pretty expensive, and it also sounds more like a bailout for the phone companies, the cable companies, and the IT and telco gear makers.

This stimulus package idea reminds me of when, during the 1990s recession, Bell Atlantic - one of the Baby Bells that is the predecessor of Verizon - offered homeless people free voicemail services, when some food and lodging and maybe a job was really in order. The free voicemail is great - don't get me wrong - but it doesn't address the problems homeless people face.

The $10bn stimulus package for IT investments at healthcare providers - not the healthcare billing companies, but real doctor's offices, clinics, and hospitals - seems more pragmatic, even if it will not create that many direct jobs. Only about 43,410, according to estimates by IBM and ITIF. Another 115,670 indirect and induced jobs were projected from this investment, and another 53,025 from network effects from those jobs. We all could use better medical care, for sure, and it seems stupid but understandable that only 1 in 20 medical practices have computerized records. (They sure have computers for billing, though.) You would think that patient care would be the priority, but billing really is. Medicine is a business, after all. Anyway, the ITIF report estimates that that $10bn investment in healthcare IT would create 5,800 computer manufacturing jobs, 10,600 software development and support jobs, and 27,000 IT services jobs.

As for the smart grid stimulus, the ITIF report reckons that a $50bn investment to modernize the electrical grid to allow producers and consumers to control their usage and the price they pay for juice, among other things, would create an average of 58,645 direct and indirect jobs. (Notice how ITIF lumped direct and indirect jobs together there? That's suspicious, and it implies that direct job creation for this stimulus is even lower than for economic stimulus aimed at broadband Internet and healthcare IT.) Adding in induced jobs and network effects on the local economies where the electrical grid is modernized takes up the job count to 238,745 (this one is an average over five years, not in one year). ITIF says that if the government pumped in $100bn over five years into smart grid tech, it could boost the total number of created jobs to 477,490.

It is hard to argue that America doesn't need universal broadband Internet service, or computerized healthcare, or a smart electrical grid that saves us energy and money. But it is harder to argue that these investments are the best way to create and retain the most jobs. You could argue that a better long-term investment that creates lots of jobs would be to build more schools or better transportation systems. And you can bet that all of the industrial giants in the country, just like IBM's Palmisano, will be making their cases to soon-to-be President Obama. ®

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