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The Myth of an Emerging Information Underclass

New Technologies Don't Need Subsidies to Spread to Consumers

APRIL 01, 1998 by GARY DEMPSEY

For the past few years, egalitarian pundits and politicians have argued that people without Internet access will be at a serious social and economic disadvantage. Subsidies, one Clinton administration white paper claims, are required to connect lower-income households. Otherwise, we risk becoming a society of information “haves” and “have-nots.” Similarly, advocacy groups like the Alliance for Public Technology and the Center for Media Education fear that without Internet subsidies an “information underclass” will emerge in the digital age.

Yet proponents of Internet subsidies make two false assumptions. The fact that some people do not log on does not necessarily imply that they cannot afford to do so. They may simply have other priorities. And having an Internet connection does not necessarily imply that someone is “information rich.” Just as living next door to a public library doesn’t by itself make a person more knowledgeable, there is nothing automatically informative about being wired.

Moreover, there are several compelling reasons to doubt that an “information underclass” will emerge in the absence of government-mandated Internet subsidies. First, the number of low-income households with Internet access continues to grow each year. In the last quarter of 1996, for instance, a survey by Wirthlin Worldwide found that Internet use by people earning less than $15,000 a year may have increased by as much as 160 percent. A recent Business Week poll found that as many as 18 percent of today’s Internet-using households earn less than $25,000 a year. Such trends have led Novell’s Eric Schmidt to predict that “At the current rate of growth every man, woman, and child on the earth will be connected to the Internet by 2007.”

Second, researchers at Carnegie Mellon University have found that people use the Internet primarily for amusement. This suggests that entertainment, not information services, will drive the Internet’s commercial development. As an entertainment technology, the Internet will likely penetrate households just as VCRs and color televisions have, into 88 and 98 percent of households, respectively.

Third, recent technological innovations, like cable modems and wireless local multipoint distribution systems (LMDS), will expand the availability and lower the cost of Internet access. Cable is now available to 97 percent of U.S. homes, according to the National Cable Television Association, and several companies are currently developing cable modems that will allow 24-hour access to the Internet at speeds unmatched by telephone lines. For instance, transmitting a five-megabyte file over a typical telephone modem takes approximately 22 minutes. To send the same file through a cable modem would take four seconds.

Cellular technology is also advancing. Wireless LMDS will allow simultaneous high-speed interactive voice, video, and Internet services without the expense of laying costly new wires. What both cable and LMDS technologies will provide is Internet access that is diversified, faster, and, with competition, cheaper.

Fourth, charitable organizations can offer low-cost or free Internet access as part of their programs. That is precisely what the Plugged In organization does. The East Palo Alto-based nonprofit group is committed to extending network access to low-income people. The group also offers more than 30 classes designed to give community members basic Internet and computer skills.


Help from the Profit Sector

Private companies around the country are also stepping forward and offering free Internet access. DIGEX Inc., for example, donates Internet access to the Robert Taylor housing project in Chicago, and Imperium Internet donates access to the Eternal Light Church’s public computer lab in urban Canton, Ohio. Microsoft, too, currently supports 215 libraries in low-income urban and rural areas by providing free hardware, software, and training.

Finally, one obvious reason lower-income households lag in Internet access is that they do not have computers. But that is changing. According to a survey by DataQuest, 43 percent of American homes today have computers. Furthermore, one-fifth of computer-owning households earned less than $30,000 a year, 30 percent more households than the previous year, according to a 1995 survey by Computer Intelligence Infocorp. One reason for the rapid growth of computer ownership among lower-income households is the ever-increasing supply of used computers. Fifteen to 19 million used business computers go on the market each year, according to the Gartner Marketing Group, plus an estimated one million used government computers. It’s not surprising, then, that 29 percent of first-time buyers recently reported that they bought their computers used.

Added to the growing pool of hardware will be new, low-cost, network computers designed especially for Internet use. Such “information appliances,” as they are sometimes called, are now being introduced into the marketplace. Oracle advertises a $299 version, and Hewlett-Packard and Sun Microsystems plan to introduce sub-$500 models.

What all of this suggests is that an “information underclass” is far from inevitable. Rather, information technology is on course to spread everywhere without government subsidies. The voluntary institutions of civil society—markets and charitable giving—are expanding access on their own.


Subsidies Do Harm

Giving Internet subsidies to low-income households would, of course, have several negative consequences. For one, it would cost telephone customers a bundle. The federal government already requires all telecommunications carriers that provide interstate telecommunications services to contribute to a universal service fund to subsidize Internet access for schools and libraries. These carriers receive bills from the universal service administrator based on their interstate and intrastate end-user telecommunications revenues. This year, the price tag for Internet subsidies could reach $2.25 billion for schools and libraries alone. This cost is passed on to telephone customers in the form of higher fees—approximately $6 per customer according to Internet News. Extending Internet subsidies to low-income households would make telephone service still more expensive.

Increasing Internet subsidies would also further expand the dominion of the federal government. Indeed, whenever a new government program comes along, so does a whole raft of supplementary regulations. In the case of the current Internet subsidies program, schools and libraries are barred from reselling services purchased with the subsidy. This has created a whole new category of federal crimes—selling subsidized Internet access——and a new domain for federal law-enforcement officials to operate. Further extension of Internet subsidies would surely increase the scope of federal authority.

The better policy choice would be to allow markets to function as they have historically in spreading new technologies. Consider the automobile. According to historian John Hicks, “In 1919 there was only one automobile for every 16 Americans. . . . But by 1928 there was one car for every six Americans,” a nearly threefold increase in the per capita number of cars in just nine years.

Radios and televisions provide other examples of how, without subsidies, new technologies spread to consumers. According to historian Alan Brinkley, “The first commercial radio station in America . . . began broadcasting in 1920. . . . By 1923, there were more than 500 radio stations, covering virtually every area of the country; by 1929, more than 12 million families owned radio sets.” As for televisions, Brinkley explains that “In 1946, there were only 17,000 television sets in the country, by 1957 there were 40 million sets in use—almost as many as there were families” after just 11 years.

The lesson is clear: government-mandated subsidies are not necessary to spread the technologies that consumers demand.

Gary Dempsey is a researcher at the Cato Institute in Washington D.C.

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April 1998

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