The Legacy of the Rural Electrification Act and the Promise of Rural Broadband

PUBLISHED

Christopher (@Ali_Christopher) is an Associate Professor of Media Studies at the University of Virginia, where he focuses on media & telecommunications policy and regulation.

PUBLISHED

Christopher (@Ali_Christopher) is an Associate Professor of Media Studies at the University of Virginia, where he focuses on media & telecommunications policy and regulation.

This post is based on the first chapter of Farm Fresh Broadband: The Politics of Rural Connectivity (MIT Press, forthcoming September 2021).

When President Biden announced plans for the $2 trillion American Jobs Plan in March 2021, he singled out broadband internet access as a cornerstone of modern infrastructure. Broadband is neither a luxury or a commodity but rather essential infrastructure: “Broadband internet is the new electricity,” the President’s message read.

The analogy between broadband and electricity is often invoked in popular rhetoric, as is the 1936 Rural Electrification Act, which cemented in place the Rural Electrification Administration (REA) as the agency responsible for rural connectivity. In this post I explore the legacy of the REA and discuss its applicability to the present issue of rural broadband. I argue that for the legacy of the REA to be replicated it will take more than federal investment into broadband infrastructure. Instead, any new federal initiatives will need to capture the spirit of the REA that empowered communities to connect themselves in the absence – if not the dismissal – of private capital

The digital divide, signifying the matrix of haves and have nots of broadband availability, affordability, and digital skills, has been painfully apparent during the COVID-19 pandemic, where broadband access became a matter of life and death. The divide is particularly acute in rural communities, where the divide separates those who have access to broadband infrastructure and those who do not. Broadband, defined by the Federal Communications Commission (FCC) as an “always on” internet connection with a minimum of 25 Mbps download, 3 Mbps upload is necessary for everything from healthcare to education, business, and binging Netflix. At least of 17% of rural Americans (11.26 million people), and 20.9% of those living on Tribal lands (846,000 people), lack access to broadband infrastructure. This includes 18% of rural school children. Millions more across the country in both urban and rural areas lack broadband because of cost and affordability. When it is available, only 72% of rural Americans report having a home broadband subscription. Rural subscribers also pay upwards of 37% more for service than their urban counterparts. Worse, these are all conservative estimates and may be 50% higher. Despite a decade of federal intervention and billions of dollars in subsidy, the rural-urban digital divide not only persists, but deepens.

Electrification and broadband share many similarities – most notably, their large-scale absence in rural America. But what of the Rural Electrification Act and the agency it spawned: the Rural Electrification Administration (REA)? Elected officials, including the President, are quick to reference the REA as precedent for government intervention into rural broadband deployment. The sentiment seems to be that if we just replicate the REA, the digital divide will be erased! To the detriment of rural Americans, however, many who praise the REA seem to forget that it was so much more than a bank. To understand the applicability of the REA to broadband inequalities, we need to understand why the REA was so successful, and, more importantly, understand what has changed in the political economy of infrastructure.

Rural electrification through local power

In the 1920s, electrification in the United States was at an impasse. Urban areas were well served, as were business and industry. In contrast, rural communities, most notably farming communities, were largely ignored by “Big Power.” The reason for this neglect is found in political economy. Power companies thought rural America too spacious and sparsely populated to provide the necessary returns on investment. They argued that rural Americans did not want electricity, no matter how low the price. In the language of economics, rural electricity was thought to be inelastic. According to historian Richard Hirsh, Big Power also refused to serve rural America “because they viewed farmers with derision – as backward, unmodern, and unsophisticated.” The private market, in other words, failed to deliver this crucially important club good.

Despite the neglect of power companies, farmers were innovative in their push for electrification. Finding inspiration in the public power plants of Ontario Canada, some created municipal power lines, while others used generators, or wind and hydro-electric power. Indeed, rural Americans desperately wanted electricity, they just wanted it at fair prices, and would go to great lengths to electrify themselves in the absence of monopoly capitalism.

The debate over public power began in the 1920s but gained significant momentum after the election of President Roosevelt in 1932. Upon assuming office, Roosevelt created the Tennessee Valley Authority (TVA) which took over the Muscle Shoals Dam in Alabama and provided wholesale power to local electric cooperatives. Crucially, the TVA experiment proved industry wrong, power was not inelastic: rural Americans wanted power and would subscribe to it at reasonable prices. The next step for the Roosevelt Administration was a national rural power plan. This initial pitch was authored by Morris Cooke, who would go on to lead the REA, in a memo titled This Report Can be Read in 12 Minutes. Cooke’s vision became reality in 1935 when Roosevelt signed Executive Order 7037 which created the Rural Electrification Administration as a relief agency with a one-year budget of $100 million ($1.8 billion today).

The question immediately arose as to which entities should be funded. Big Power wanted the full allotment to itself, but Cooke, Roosevelt, and rural electrification champion Senator George Norris of Nebraska preferred public entities and local cooperatives. The cooperatives won out thanks to their long history of helping rural farming communities. This moment is not to be overlooked: Cooperatives prevailed over Big Power in the eyes, and pocketbook, of the REA.

In 1936, the REA was made permanent through the Rural Electrification Act. It was granted an initial budget of $50 million for the first two years, then $40 million a year for the following decade ($550 million in 1936 is approximately $10.3 billion today). Its primary mission was to make loans to rural electric companies. More than a bank, however, it also assumed the responsibility of promoting rural electrification and the creation of rural electric cooperatives. A hallmark of this responsibility was the “REA Circus,” a traveling exhibition that crisscrossed the country from 1939 to 1941 to promote the advantage of the electric home and farm.

Not to be left out, Big Power launched its own offensive, which included the construction of “spite lines” that pinched off the most lucrative rural areas, thus depriving the fledging co-ops of customers. Despite these mercenary attempts, the cooperatives and the REA triumphed. By 1956, 927 rural electric cooperatives had been created and 2.5 million customers served. Rural electrification went from 33 percent in 1940 to 96 percent in 1956. For these reasons, economist John Malone praised the REA as “one of the most immediate and profound successes in the history of federal policy-making.”

So successful was the REA that the Rural Electrification Act was amended in 1949 to include rural telephony. Again, the agency looked to local cooperatives to connect the countryside. Historian Robert MacDougall calls these the “people’s networks.” Like electricity before it, the rural telephone program was immensely successful, with farm telephone connectivity rising from 25 percent in 1940 to 65 percent in 1959.

The legacy of the REA is not only one loans, but of rural community championship. With the support of the REA, local cooperatives connected the countryside first with electricity, then with telephony. Today, over 900 electric cooperatives and 226 telephone cooperatives are a testament to this foresight, initiative, and support. Over 100 of these electric cooperatives and most of the telephone cooperatives offer retail broadband and the number is growing.

The lessons of the REA for broadband

There are many ways in which broadband deployment in rural America today resembles electricity deployment in rural America a century ago. First and foremost, the explanation for the rural-urban electric divide in the 1930s is echoed in rural broadband today: market failure. Power companies were unwilling to serve rural America for lack of return of investment: not enough customers and too much space to connect. The same is true today. The history of rural electrification and the present state of rural broadband, therefore, demonstrate how vital public utilities cannot be left solely to the machinations of the private market, lest rural Americans (amongst so many others) go unconnected. Both electricity and broadband also share a history of community resilience, as community members have come together to connect themselves in the absence of the commercial market. This occurs in the form of municipal provision, cooperatives, and private-public partnerships.

Broadband and electricity depart, however, in three crucial ways, which REA enthusiasts seldom recall but which are crucial to acknowledge if policymakers are to prioritize what Oliver Sylvain has called “broadband localism:”

First, it was cooperatives, not Big Power that garnered the favor of the REA. In contrast, today, the largest providers like AT&T, CenturyLink, Frontier, and Charter dominate the policy and funding arenas. In the second round of FCC broadband funding in 2015, for instance, over $7 billion ($1.5 billion a year for five years) was given to the 10 largest telecommunication companies. In return, they had minimal build-out requirements and had to guarantee speeds that were already obsolete. Even still, some of these companies failed to deliver on their commitments. Policymakers must learn from these mistakes when crafting the new funding mechanisms for broadband deployment suggested by the President’s American Jobs Plan. Failing to do so means a history repeating, with the largest providers gobbling up the bulk of subsidies and rural communities being left un- and under-connected for another decade.

Second, the REA was nothing if not a champion of rural localism. Today, policymakers need to envision a solution to the rural-urban digital divide that exists outside the conventional private market. This means recognizing and celebrating municipally-funded broadband projects, which time and time again have proven to provide faster speeds at lower costs to consumers. Vexingly, 18 states have prohibited or inhibited municipalities from developing their own retail broadband services. These prohibitions were enacted in large part due to the intense lobbying efforts of cable and telecommunications companies who detest actual competition in local markets. In Fort Collins, Colorado, for instance, a group associated with Comcast spent over $900,000 to block a proposed municipal network (they failed).

Third, is the role of cooperatives. The REA promoted local cooperates and public plans, but contemporary policymakers have been slow to support cooperative broadband. The exciting thing about cooperatives, aside from their foundations in local communities, is that their member-owned structure means they do not require the rapid quarterly return on investment demanded by shareholder-owned companies. They often see broadband deployment as a community service first, and business second, willing to wait years for an ROI. As a result, it is the cooperatives connecting the countryside (or “fiberizing” the countryside) more so than the largest providers.

Unfortunately, until 2018, electric cooperatives were shut out of FCC funding programs (although they were eligible for USDA loans and grants). Telephone cooperatives have their own FCC broadband fund, but whereas the 10 largest (and shareholder-owned) providers shared in $1.5 billion/year in funding, over 100 smaller telecommunication companies, many of them cooperatives, share $1 billion/year and have stricter build-out requirements. In sum, the regulatory deck has been stacked against local and cooperatives broadband providers.

Broadband’s new deal?

To invoke the REA is not only to call for large-scale federal investment to achieve universal service, but also to support a spirit of localism that emphasizes municipalities, counties, states, local providers, and cooperatives. It also underscores a belief that connectivity is not a consumer good but vital infrastructure. The largest providers, those agents of neoliberal capitalism, failed to connect this country. It’s time to privilege the local providers and reduce allegiance to private capital. In the American Jobs Plan announcement, President Biden seemed to have heard that message:

[The American Jobs Plan] prioritizes support for broadband networks owned, operated by, or affiliated with local governments, non-profits, and co-operatives—providers with less pressure to turn profits and with a commitment to serving entire communities. 

As lawmakers debate the future of President Biden’s infrastructure package, they must not abandon the localism ethos in the inevitable political compromises (which already reduced the financial commitment from $100 billion to $65 billion). To do so would fail to capture the full legacy of the REA. Worse, it would jeopardize the first meaningful opportunity in years to rectify the digital divide at a critical juncture in which all but most incalcitrant recognize broadband as the lynchpin of contemporary infrastructure in a post-COVID world.

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