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Does the United States Invest Enough in Technology?

The Financial Times had an interesting story this morning  on broadband connectivity and how it relates to economic competitiveness (see “Leaders Look to Future in Broadband Race“).  The FT writes,

South Korea, Sweden, Bulgaria and the Netherlands all share a common attribute. As do China, Saudi Arabia, Brazil, Indonesia and South Africa.

The first set of countries are all described as “ready for tomorrow” in a recent study of broadband quality, placing them in the vanguard of countries prepared to take advantage of high-speed digital connections and the applications that run on them.

The second set are found to be “below today’s applications threshold” – meaning that businesses and citizens in these countries are unable even to take full advantage of current web-based opportunities.

Where is the US? In a second tier, along with Germany and Hong Kong – all “comfortably enjoying today’s applications”.

The OECD compiled a list that ranks countries by broadband speed, and he reproduced it here.

It’s interesting to see the United States, the birthplace of the Internet Revolution, ranked so low.  It’s fair to ask: are we, as a country, investing enough in communications technology?

To answer that question, we take a look at a second chart, “Equipment and Software Investment as a Percentage of GDP.”

This is not a “pure” measure of spending on IT, of course, but it will have to suffice for now.

We can see that American tech-related spending is down from its highs in the late 1990s/early 2000s, but this should be expected.  That time period saw abnormal levels of investment in preparation for the Y2K bug and a bubble in Nasdaq tech shares to boot.  But taking out that spike, we see that American technology spending has been in a solid uptrend since the end of World War II, with investment becoming an increasingly large percentage of GDP.  So, to answer our question, yes, it would appear that the US spends quite enough on technology.  Japan, South Korea, and France may enjoy faster download speeds, but it should be remembered that all are also much smaller countries and much more densely populated, making it cheaper and easier for them to offer this.  It also remains to be seen what their return on this investment will be.  Yes, Japan has more bandwidth…but how much did they have to pay for it, and how might that money have been better spent on more immediate needs?

At any rate, it will be interesting to see how these rankings change in the years to come and if the countries near the top of the list recognize any noticeable economic outperformance as a result.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy