Elizabeth Warren’s Rural Broadband Plan Repeats Historical Mistakes

Senator and presidential candidate Elizabeth Warren (D-MA) has a plan for rural America. All of America should be concerned, because it reflects a fundamental misunderstanding of economics and business.

Her plan for the 19 percent of Americans that live in rural areas is expansive, including government provision of healthcare, childcare, banking, and broadband. So the federal, state and local governments that earn a grade of D+ in how they provide infrastructure — down from a C average during the Reagan administration — would be in charge of remaking rural America.

What could go wrong? Plenty. I’ll focus on the rural broadband plan.

What’s in the rural broadband plan?

The plan includes giving cities control of privately-owned utility poles and conduits, adopting laws requiring real estate developers and building owners to provide open access to property and internal wiring, improving FCC broadband maps (this is already in progress), providing more education and technical assistance for “Indian Country,” reinstituting net neutrality regulations, and funding grants for broadband and “digital equity.” The overarching theme is that private businesses cannot be trusted, and neither can consumers (except maybe when they are voting for Senator Warren), so government officials should take control.

How would greater city control of poles and conduit affect broadband deployment?

Greater city control of poles and conduit would slow broadband deployment. As my AEI colleague Roslyn Layton has explained, city governments often use their control of rights-of-way and poles to delay private investment and extract money from private telecommunications providers. Why? It’s a way to add money to government coffers without having citizens recognize that they are the ones paying via delayed service and higher prices.

How would renewed net neutrality regulations affect broadband deployment?

Most research in top economics journals and most applied studies find that net neutrality regulations stifle broadband deployment. The research isn’t unanimous, but there is also anecdotal evidence of net neutrality regulations being antithetical to broadband investment.

Imposed net neutrality suppresses broadband because the regulations decrease returns on investment. How? The regulations limit internet service provider (ISP) service offerings, and so cut off revenue streams that ISPs can use to fund broadband. The regulations also open the door to requirements that ISPs lease their networks to rivals, which increases risk, imposes regulatory costs, and possibly diverts profits to rivals.

How would the grant programs affect broadband deployment?

The grant programs would likely depress broadband expansion. The broadband grants would be available only to “electricity and telephone cooperatives, non-profit organizations, tribes, cities, counties, and other state subdivisions.” Experiences with such government grant programs have not been good. The wasted money and the tendencies of governments to bias regulations to favor their own enterprises would adversely impact broadband.

The Obama administration had great failures with its broadband grant programs. Projects funded with US Department of Agriculture grants had high failure rates and provided only about 10 percent of the broadband promised. The US Department of Commerce grants were equally ineffective and laden with political cronyism.

And government enterprises struggle to be viable: A recent study found that only one in twenty municipal broadband programs had payback periods of less than 30 years even with government subsidies.

Sen. Warren’s digital equity program would also be fraught with political favoritism. Grants would be overseen by state governors. Just as happened with the Obama Department of Commerce grants, the political calculus would be to send most of the money to states with Democrat governors, and the governors would tend to direct money to supporters.

What are other takeaways?

These policies appear to reflect nostalgia for the Gilded Age and the Great Depression. The senator’s plan to break up big tech harkens back to the antitrust sentiments of 100 years ago. And her vision for farming embraces how farmers worked in the 1930s.

The policies proposed by Sen. Warren fundamentally misunderstand how an economy functions and improves. The American economy grows when innovation and investment improve human productivity. Allowing individual consumers and business managers to make decisions that make economic sense will provide the right direction and dynamism for a vital rural America.