Will Vermont’s Approach Actually Close the “Digital Divide”?

Vermont’s political class is taking an approach to “closing the digital divide” by engaging in a government supported effort to run broadband infrastructure to all parts of the state.  Since closing this divide is crucial to thriving in a digital age economy, it is crucial that we ask whether the approach Vermont is taking is up to the task.  Is there a better way that will not cost the Vermont taxpayers a bundle.  A recent article in the Vermont Digger spells out Vermont’s current approach:

The good news is that a little more than a year from now, Vermont will have broadband infrastructure that reaches every house in our state. In fact, according to the Vermont Telecommunications Authority, almost 95 percent of Vermont buildings already fall within broadband coverage.

The bad news is that building infrastructure alone doesn’t solve the problem of the digital divide. Closing the digital divide isn’t only a matter of technology reaching everyone – it’s also how Vermonters are able to use that technology. We aren’t building access to broadband for its own sake, we’re building access to broadband so that Vermonters can take advantage of the opportunities this tool brings, whether that’s growing a business, furthering your education, finding government services or simply staying in touch with friends and family.

While it is true that the problem is not just one of infrastructure, the bad news may go a little deeper than the article points out.  The approach we are currently using could very well end up as a very expensive exercise in creating an obsolete structure.  This is a problem I covered for True North Reports in an August 22 2011 article for True North Reports entitled ‘America’s “Broadband Miracle” and the Law of Unintended Consequences’:

In the midst of politicians clamoring for yet more government backed stimulus money to be spent on infrastructure projects, it is time once again to consider what economists call “the law of unintended consequences”. Often great breakthroughs, are totally unforeseen and therefore very hard to plan for. This is one of the biggest reasons why a centrally planned economy does not work. Earlier this year I wrote an article suggesting that we leave the implementation of “Smart Meters’ up to the free market.

In that article I noted the panic back in the early 1980′s when Japan jumped out to a lead in an analog version of High Definition Television. The suggestion was that the government needed to get behind a similar effort if it hoped to catch up. Instead. The American lead digital revolution ended up making the analog version of HDTV obsolete. Fortunately we did not go down the road of subsidizing an approach that new technological developments rendered obsolete.

Our current debate about the need to upgrade our broadband infrastructure is leaving me with a sense of deja-vu. This time, instead of high definition television, other countries jumped out ahead of America in the adoption of a broadband infrastructure. America’s lagging behind in this area was seen as an obstacle to competitiveness in an Information Age economy. Once again the finger was pointed at our relatively less centrally planned approach to our economy as the culprit. (Regulations inhibiting such projects did not get much of the blame) The proposed answer in some circles was to have the government get behind more broadband projects. The futility behind this approach was the subject of an article I wrote for True North last year.

Fortunately, recent technology developments have put America back in the broadband lead again and rendered expensive government backed infrastructure programs obsolete.  Here is an excerpt from an interview between Steve Forbes and economists/futurist George Gilder that was quoted in my article:

“STEVE FORBES: With all this pessimism around, at least give us one good thing that’s happened in the last ten years. You’ve talked about the broadband miracle.

GEORGE GILDER: Well, we sure did. The irony about it is this broadband miracle that’s happened in the U.S. over the last five years or so was totally unanticipated by the people who wanted massive government programs to lay fiber to every remote farmhouse.

Instead we had a 553-fold increase in wireless bandwidth deployed over this period–completely unexpected–that thrust the U.S. into the world lead again in communications. It shows these upside surprises that are the essence of capital creativity. Creativity always comes as a surprise to us. If it didn’t, we wouldn’t need it, and socialism would work. You could plan these great new technologies.”

Unfortunately, the political class here in Vermont does not seem to be aware that the private sector and its new technologies has already made, and continues to make, great strides in closing the digital divide.  As with numerous other areas, there is an ideological blindness among a significant number of our political class that prevents them from affirming the wonder of the free market.  The regulatory environment in this state makes it a poor choice to invest n the kind of new technologies that are closing the digital divide elsewhere across the U.S.

Another big obstacle to developing the kind of cutting edge technology that could push Vermont forward into competitiveness in the digital age economy is the highly unproductive and continuous speculation on enacting a cloud tax.  Cloud computing is a crucial leading edge technology that is spearheading the digital age economy.  I can hardly think of a surer way to drive away investment in such technologies than to continue such speculation.  After Speaker of the House Chap Smith had mused about making a tax on cloud services a fall campaign issue back in May, the Dems backed off from such ideas like Count Dracula recoiling from a cross.  Of course this reverse course was partly motivated by ads opposing the expansion of a sales tax to services.  Not even two weeks after the election is completed, they seem to be putting the idea back on the table by arguing that a cloud tax is not a tax on services.  Here is an excerpt from a November 19th Vermont Digger article:

Members of a special study committee don’t appear much closer to consensus on a tax on cloud computing, even though they must make a recommendation to the Legislature in January.

A moratorium on cloud computing taxes is set to expire in July 2013. Cloud computing includes digital software accessed via a remote network of computers, rather than digital services accessed on site.

Rep. Janet Ancel, D-Calais, says it’s unclear whether the committee will greenlight a cloud computing tax. Ancel said the cloud computing tax isn’t the same thing as taxing a service, which could open the door to a larger question of expanding the state’s sales and use tax from goods to services.

Anyone who knows anything about cloud computing, knows that it is by definition a service:

Cloud computing is the use of computing resources (hardware and software) that are delivered as a service over a network (typically the Internet). The name comes from the use of a cloud-shaped symbol as an abstraction for the complex infrastructure it contains in system diagrams. Cloud computing entrusts remote services with a user’s data, software and computation.

With Vermont’s political class engaging in their own version of Bill Clinton’s ‘It depends on what the definition of “is” is’, on an issue as important to the digital age economy as cloud competing, how can we expect to attract the kind of technological investment that is already bridging the digital divide elsewhere across the U.S.?