Friday, September 14, 2012

Nesta's PLAN I: the case for innovation–led growth

Earlier this week, Nesta, the National Endowment for Science, Technology and the Arts, published PLAN I: the case for innovation–led growth. From the related press release:
"Plan I outlines how all sectors in the UK - public, private, third sector and higher education - have a critical role to play in restoring economic growth. With no additional public spending requirements, Plan I makes recommendations that will quadruple the government's discretionary investment in innovation, give the UK the most cutting-edge technological infrastructure in Europe and tear down barriers that discourage businesses from investing."
Further investment in broadband infrastructure is one of the plan's key recommendations. From the executive summary:
"The upcoming 4G spectrum auction is expected to raise £3 to £4 billion, which should be committed to innovation. And some of the £40 billion infrastructure fund should be earmarked for the infrastructures of the twenty-first century, in particular smart electricity grids and super-fast broadband. These measures should be the first steps in a longer-term rebalancing of government spending from consumption to investment."
See this previous post for more on the Government's infrastructure fund plans, with more on the Infrastructure (Financial Assistance) Bill available here. The plan suggests that half of the £40 billion fund should be channelled into superfast broadband and smart grids, significantly more than the level of funding committed by the Government to date, as broadband is one of the "types of infrastructure that do most to increase innovative capability".

Broadband infrastructure is considered in detail on pages 64-67 of the plan:
"We argue that any infrastructure investment programme should not just focus on nineteenth and twentieth–century infrastructure in the form of road, rail and airports...Some of the most exciting breakthroughs we might expect to see in the decade or two to come depend on other types of infrastructure: in particular, superfast broadband, smart grids for power, and more housing and office space around emerging clusters."
Broadband is described as the "twenty-first century equivalent of the motorway system":
"When the first wave of broadband was deployed in the 1990s and 2000s, it enabled great leaps in productivity as businesses, especially in the retail and business services sector, changed their processes and supply chains to take advantage of a steadily increasing flow of data about their operations. Technologists like Brian Arthur and George Gilder have argued that this is just the beginning: increasing bandwidth will drive a new industrial revolution, as far more technology is delivered remotely and far more ‘real–life’ economic activity is mediated by computers, driving demand for ever more bandwidth."
The plan reports the frustrations experienced by start-ups in East London in relation to broadband, where bandwidth limitations and long lead times have caused problems (more on this here) and cites developments in Korea and Australia as examples of what can be achieved. Public investment in broadband is crucial and should not be held back because we can't precisely define all the uses that superfast broadband will be put to:
"Public investment in broadband should be seen as strategic investment. If superfast broadband is rare, it is unlikely that any individual business will adapt its ways of operating to take advantage of it, and few producers will bother to create services that exploit its potential. If it is widely available, the benefits increase significantly. We do not fully know what applications superfast broadband will give rise to: at the moment, few applications make use of the gigabit–per–second connectivity that fibre–to–the–home provides. But if the history of the last 30 years has taught us anything, it is that people and businesses find ingenious uses for more memory, more processing power, and more bandwidth. It was not so long ago that Bill Gates opined that 640k of memory would suffice for most computer users. Looking further back, the American Interstate system and the German Autobahns were built long before there were enough cars to fill them. Like these projects, superfast broadband is an investment in the future."
The plan also acknowledges the difficulty of precisely measuring the impact of broadband:
"It is difficult to compare directly the benefits of these types of infrastructure. Transport projects have the convenient and comforting characteristic that their economic benefit can be neatly measured by clever economic consultants: Crossrail will supposedly bring £42 billion of value, HS2 £43 billion. The effect of housing development that allows clusters to thrive, or of deploying broadband that allows new business models to take hold, or of rolling out smart grids that may transform the way we use energy, is much harder to model. Indeed, there is considerable controversy even over the benefits of existing investments in broadband, with some economists arguing the effects have been vast, others that they have been relatively small. But in all three cases, the potential upside is considerably higher than the mostly incremental effects of upgrading existing transport routes. If our aim is economic transformation, this is an important consideration."
Hopefully the broadband impact study currently being commissioned by Broadband Delivery UK (BDUK) will go some way to addressing this. The plan goes on to suggest that broadband has an advantage over other infrastructures in that it "starts to yield a productivity benefit almost as soon as work begins (as the first houses or offices are connected), unlike new rail lines, which cannot be used until they are finished."

The plan's specific recommendations in relation to superfast broadband are as follows:
"The government should borrow to invest in the creation of a superfast broadband network around the UK. The costs of deploying fibre–to–the–home broadband to the whole of the UK has been estimated at £15 billion, less than half the cost of High Speed 2. A parsimonious option would be to start the deployment in a limited number of urban and rural areas, at a cost of perhaps £5 billion, to reduce initial costs and learn lessons for wider deployment. This investment should take the form of contracts issued to the private sector to develop broadband infrastructure to an agreed speed on an area–by–area basis. This will avoid the problem of government choosing a single, perhaps inappropriate or obsolescent technology, and will involve a range of providers in the deployment (including, we hope, emerging community broadband providers). Government will then lease access to the infrastructure to service providers on a competitive basis. This should be combined with small business support from the Technology Strategy Board for the development of applications to make the most of superfast broadband. Nesta’s Hyperlocal Media programme, which is being matched by the TS B, is an example to build on."
Some similarities here with the recent House of Lords broadband report perhaps (more here), particularly in relation to the recommendation that Government should set a more detailed specification for suppliers to meet? Nesta and partner organisations will be following up Plan I with more detailed proposals.

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