Hail, the new economic wonder drug!

Well aware of the sundry benefits of faster broadband (not least the vastly improved performance of i-player!) I was fascinated to read recently that it’s also just the thing to supercharge economic growth.  According to analysis commissioned by DCMS from a consortium led by SQW (with Cambridge Econometrics and Dr Pantelis Koutroumpis), government interventions to upgrade broadband connectivity are projected to return approximately ‘£20 in net economic impact for every £1 of public investment’.  Wow!    

Unsurprisingly, I was not alone in feeling a tad sceptical about this conclusion: 

“Basically, BDUK has been getting a lot of flak and bad press…so the DCMS thought they best pay someone to write a nice report bigging up how much its broadband investment is going to bolster the economy”. (Computer Weekly) 

“The government, perhaps keen to cut through all the negative press, commissioned its UK Broadband Impact Study  in what appears to be a vain attempt to search for some good news about BDUK”. (The Register)

Within the Report itself, however, SQW appear to be refreshingly honest about its findings: 

“While recognising that there are still gaps in the empirical evidence base, and that the future is inherently uncertain, the study’s projections are the outputs from a rigorous and detailed analysis which draws on the best data currently available”. 

I was intrigued by that phrase, the ‘gaps in the empirical evidence base’, but it seems to stem largely from the Report’s later admission that: “The productivity impacts of increased speeds are, as yet, highly uncertain.” In fact, given the relatively recent introduction of high-speed broadband, SQW have had to invoke a labyrinth of tortuous logic and heroic assumptions to arrive at their central conclusion that: ‘an increase of 100% in the used speed in a year will lead to a 0.3% uplift in productivity  over the following three year period’. 

This sounds like a risky finding but, guess what…?

 “It also aligns…with research by Chalmers University of Technology, which found that a doubling of speed in OECD countries is associated with a 0.3 percentage point increase in GDP growth”.  What a coincidence!   

It turns out that the ‘research’ in question by Chalmers University (who??) consists of an econometric analysis of the past relationship between broadband speed and GDP growth in a sample of OECD countries.  A closer look at that analysis reveals this cautionary note from the authors: 

“This study concludes that the hypothetical impact of broadband speed on economic growth is statistically significant…. As the impact is modelled as linear, it needs to be judiciously applied when hypothetical country growth is far away from the sample means. The hypothetical impact is based on an elasticity measurement and any forward-looking simulation should be applied with care “. 

In other words, the past relationship established for this data set may not apply in the future for a different group…. As expected, therefore, take the ‘good news’ from DCMS with a pinch of salt.