U.S. Leadership Must Continue in 5G Wireless Deployment

This week two reports were published that show why the United States’ leadership in 5G wireless deployment will be vital for the U.S. and global economies. The first report by Recon Analytics is titled “How America’s 4G Leadership Propelled the U.S. Economy,” and it emphasizes the sizeable economic benefits generated by the United States’ leadership in 4G wireless deployment.

The second report by Analytics Mason is titled “Global Race to 5G – Spectrum and Infrastructure Plans and Priorities,” and it finds that the United States has fallen narrowly behind China and South Korea in terms of 5G readiness.

These two reports show why U.S. leadership in 5G deployment is important for global trade and address how additional licensed spectrum and smart infrastructure policies will help advance U.S. 5G leadership.

Here are some of the key findings from the Recon Analytics report regarding the economic benefits that resulted from America’s 4G wireless leadership:

• U.S. leadership in 4G accounted for nearly $100 billion of the increase in annual GDP by 2016 as the trajectory of the wireless industry’s contribution to U.S. GDP shifted from a projected $350.3 billion in 2016 to a realized $445 billion.

• The launch of 4G in the U.S. increased total wireless-related jobs by 84% from 2011 to 2014.

• U.S. 4G leadership also meant roughly $125 billion in revenue to American companies that could have gone elsewhere if the U.S. hadn’t seized 4G leadership. U.S. 4G leadership also resulted in more than $40 billion in additional app store revenue flowing to U.S. companies and app developers.

The second report by Analytics Mason measures countries by their 5G “readiness,” which takes into account the amount and timeline of 5G spectrum availability, policies aimed at easing 5G infrastructure deployment, industry network and equipment trials, and industry commitment to 5G deployment. The report finds that the United States is third in 5G readiness behind China and South Korea and just ahead of Japan, the U.K., and Germany.

It is important that U.S. policymakers continue to promote policies that would enable the U.S. to lead the world in 5G readiness because the quicker 5G is deployed, the quicker U.S. consumers will experience the economic benefits of 5G - including improvements to healthcare, transportation, law enforcement, e-commerce, and education. Although 4G brought significant economic benefits, 5G, with at least ten times faster speeds than 4G, is projected to create $275 billion in investment, 3 million jobs, and $500 billion in additional economic activity.

As Free State Foundation President Randolph May wrote in a blog earlier this week, the “race to 5G” is not a zero-sum game. Americans benefit when other countries deploy next-generation wireless infrastructure in an efficient and timely manner. When more countries are connected, it increases the prospect of additional global communications and trade. But because the U.S. was a leader in 4G, it should continue to be leader in 5G not only to bring economic benefits to Americans, but also to encourage other countries to upgrade their wireless networks to 5G. At the global level, 5G is projected to create $12.3 trillion in economic activity in 2035 and support 22 million jobs worldwide.

As I discussed in a recent Perspectives from FSF Scholars, the FCC has adopted a handful of pro-consumer spectrum initiatives over the last year that will assign and allocate licensed spectrum for commercial use. Most recently, the FCC voted to adopt a proposal on spectrum frontiers auctions “to promote the development of 5G wireless.” Moreover, the adoption of Commissioner Brendan Carr’s March 2018 proposal to reduce regulatory burdens and costs will create an estimated additional $1.5 billion in 5G investment.

The FCC should continue to assign and allocate more licensed spectrum and reduce regulatory barriers that stifle 5G deployment in order for the United States to remain a leader in the 5G revolution. U.S. leadership in 5G deployment will create billions of dollars in economic benefits for Americans and also will encourage other countries to upgrade their wireless networks, increasing the prospect of additional global trade.

Strong Property Rights Lead to Economic Prosperity

In July 2017, the Property Rights Alliance at Americans for Tax Reform published the 2017 International Property Rights Index (IPRI), ranking 127 countries around the world based on the strength of both physical and intellectual property rights. The 2017 edition comprises over 98% of global gross domestic product (GDP) and over 93% of the world’s population. Importantly, the IPRI finds that property rights are a defining factor impacting a country’s investment, entrepreneurship, and economic prosperity.

The International Property Rights Index includes three core components (legal and political environment, physical property rights, and intellectual property rights) and ten corresponding categories. The legal and political environment component includes judicial independence, rule of law, political stability, and control of corruption. The physical property rights component includes the protection of such rights, the ability to register property, and the ease of access to loans. The intellectual property rights component includes the protection and enforcement of such rights, strength of patent protections, and the level of copyright piracy. Using data from other international indices, the IPRI compiles these scores into a 0-10 scale for each of the 127 countries.

New Zealand ranks highest with a score of 8.63, followed by Finland and Sweden with scores of 8.62 and 8.61, respectively. The United States ranks 14^th with a score of 8.07, moving up from 15^th in 2016 when it scored a 7.74. On the other hand, the bottom three countries are Bangladesh, Venezuela, and Yemen, with scores of 3.12, 3.06, and 2.73, respectively.

Significantly, the Index provides insight into correlations between IPRI scores and many economic outcomes. Free State Foundation scholars often have stated that strong protection of property rights, specifically strong protections of intellectual property rights, will foster creativity, innovation, and economic growth. The strong positive correlations found in the IPRI are consistent with those statements. For example, IPRI scores have a correlation coefficient of 0.814 with GDP per capita, 0.764 with gross capital formation per capita, and 0.878 with global entrepreneurship. Other strong positive correlations include a 0.857 coefficient with networked readiness/connectivity, 0.801 with civic activism, and 0.768 with overall economic freedom.

With these robust positive correlations, it should not be a surprise that the top 20% of countries in the IPRI have an average GDP per capita of over $57,000, while the bottom 20% of countries have an average GDP per capita of just over $4,500.

The IPRI, in addition to the U.S. Chamber of Commerce’s Global Intellectual Property (IP) Center’s 2017 edition of the International IP Index, provide U.S. policymakers a useful tool for assessing how to improve our country’s physical and intellectual property rights systems. (See this February 2017 blog.) Providing strong protections to property rights is a principle embodied in the U.S. Constitution and improving such protections will enhance creativity and innovation and foster economic growth. (For much more concerning foundational principles supporting IP rights protections in the United States, please read “The Constitutional Foundations of Intellectual Property: A Natural Rights Perspective” by FSF President Randolph May and Senior Fellow Seth Cooper.)

Additionally, policymakers in the countries which rank towards the bottom, such as Venezuela or Yemen, should use these indices to their advantage. From the correlations cited above, it is clear that strong physical and intellectual property rights foster innovation and economic prosperity. As undeveloped and developing countries continue to improve their property rights protections, U.S. companies will be more inclined to expand international trade into those countries, creating economic opportunities in impoverished parts of the world. Robust property rights reduce poverty by incentivizing economic activity because entrepreneurs understand that their innovations and earnings will be protected.

Finally, the U.S. must continue to be a leader throughout the world by participating in trade agreements that contain effective provisions that support protection of property rights. As more countries adopt strong property rights through trade agreements, the global economy will grow substantially because mutual gains from international trade are much higher when participating countries adopt and enforce laws that protect physical and intellectual property rights.

It's Up to President-elect Trump to Revive TPP

The Tran-Pacific Partnership (TPP), a trade agreement between the United States and 11 other Pacific Rim countries, seemingly is dead, at least for now. It will not be approved by the current Congress. Therefore, it is up to President-elect Donald Trump to revive it during his Administration.

It’s true that President-elect Trump has said that TPP is a “disaster” and he has declared that he will withdraw from the agreement on his first day in office. But other than a few bullet points on his website, the President-elect has never publicly explained why he does not like this particular trade deal, which looks to be a win for entrepreneurs, creators, consumers, and the global economy.

As I discussed in a June 2016 blog, TPP would expand global trade by eliminating roughly 18,000 tariffs that member countries have imposed on imports from the United States, lifting millions of people out of poverty around the world. By removing these trade barriers imposed by foreign countries and others imposed by the United States, TPP would allow consumers and entrepreneurs in all member countries to enjoy more economic activity and lower prices than what the status quo offers.

From an intellectual property (IP) perspective, TPP appears to require adherence to strong protections of IP rights in member countries. This would help artists and entrepreneurs around the globe to earn a return on their creative works and the labor that makes them possible. According to a September 2016 report by the Department of Commerce and the Patent and Trademark Office, in 2014, 45 million jobs (or 30% of the jobs in the U.S. economy) either directly or indirectly were generated by IP-intensive industries. In the same year, IP-intensive industries added $6.6 trillion of economic activity, which is roughly 38% of GDP.

TPP addresses all aspects of IP, including copyright, patents, trade secrets, and trademarks. The IP chapter of TPP aims to do the following:

• Improves strong and balanced protection of rights and enforcement of laws;

• Bolsters incentives for the development of, and trade related to, IP-intensive products;

• Addresses common threats, including piracy, counterfeiting, and other related infringements, as well as misappropriation (including cyber theft) of trade secrets;

• Promotes transparent, efficient, and fair regulatory systems, including for patent and trademark application and registration;

• Promotes development of and access to innovative and generic medicines;

• Facilitates legitimate digital trade, including in creative content; and

• Prevents the spread of overly-restrictive geographical indication policies, including by safeguarding the rights of prior trademark owners and rules clarifying the use of generic terms.

Establishing strong IP safeguards among countries in the Pacific Rim would diminish theft of American IP, which totals $320 billion annually. U.S leadership regarding strong IP rights protections will incentivize more investment, innovation, and economic growth at home and abroad.

A 2014 report from NDP Analytics estimates that TPP would increase U.S. exports by $26 billion, U.S. GDP by $11 billion, and American jobs by 48,000 with roughly two-thirds of these benefits coming from IP-intensive industries. This increase in U.S. exports would have direct spillover effects for the other 11 member countries, leading to an estimated $6.4 billion increase in GDP and 68,240 additional jobs. Of course, these figures do not include the increases in economic activity and job creation that will occur among member countries nor do they include the increases in U.S. imports.

Additional economic activity and development within member countries would not be the only benefit flowing from a stronger IP framework; mutual gains from trade are much higher with transactions that contain strong protections of IP rights rather than weak protections. Therefore, member countries which currently have weak IP protections according to the Chamber of Commerce’s Global IP Center International Index, such as Peru, Chile, and Mexico, will incentivize creation and innovation within their own countries. And also, other developing economies, which trade with TPP countries, will recognize the gains from trade and be encouraged to adopt similar IP rights protections.

Gains from trade are mutually beneficial but not necessarily equal. If TPP is adopted, the United States would benefit from the positive externality of robust IP rights protections in other countries and from lower trade barriers with countries in the Pacific Rim. When more countries around the world have strong IP rights protections, American creators and entrepreneurs have a greater incentive to innovate because their creations are less likely to be stolen overseas. However, developing countries, which, on the whole, would substantially upgrade their IP rights protections with the adoption of TPP, likely will enjoy an even higher marginal benefit than the U.S. because their economies have not experienced as much innovation as countries with strong IP rights protections in place. In general, and all else equal, developing countries grow faster than developed countries when there is an expansion in global trade. 

Perhaps, the President-elect views the trade agreement as problematic because he considers global trade as an “us versus them” phenomenon. In other words, he may consider global trade as a zero-sum game, when, in actuality, it is a variable-sum game. For example, even if Vietnam benefits more from TPP than the United States, this does not mean the U.S. loses. Both countries are better off, even if the marginal benefit might be greater for one country over another.

President-elect Trump should revive TPP during his administration. It is vital that this trade agreement be adopted to encourage the creation of jobs and to foster greater innovation and investment in the United States and in the Pacific Rim. Mr. Trump’s campaign primarily focused on creating jobs in the United States. TPP is a win for American workers and consumers because it would expand economic activity around the world, increasing American imports and exports.

In 2014, U.S. imports and exports from IP-intensive industries were valued at $1.4 trillion and $842 billion, respectively. Those values likely would increase if IP rights are enhanced around the world. (NDP Analytics projects that TPP will increase annual U.S. exports by up to $26 billion.)

With the adoption of TPP, President-elect Trump could help spur the economy, which is clearly a top priority. Let’s hope that Mr. Trump changes his mind about TPP.