The Economics of Disruption: $96 Billion Annually at Risk

July 1, 2011  - By

The Economic Benefits of Commercial GPS Use in the United States and the Costs of Potential Disruption” was presented by Nam D. Pham, Ph.D., of NDP Consulting, during a June 21 webinar sponsored by the Coalition to Save Our GPS.

The author stated that his study concentrated on GPS use in precision agriculture, construction, and surveying. It explicitly does not encompass GPS use in aviation, nor in the consumer sector, nor in timing or financial infrastructure.

The report states: “The direct economic benefits of GPS technology on commercial GPS users are estimated to be over $67.6 billion per year in the United States. In addition, GPS technology creates direct and indirect positive spillover effects, such as emission reductions from fuel savings, health and safety gains in the work place, time savings, job creation, higher tax revenues, and improved public safety and national defense. Today, there are more than 3.3 million jobs that rely on GPS technology, including approximately 130,000 jobs in GPS manufacturing industries and 3.2 million in the downstream commercial GPS-intensive industries. The commercial GPS adoption rate is growing and expected to continue growing across industries as high financial returns have been demonstrated. Consequently, GPS technology will create $122.4 billion benefits per year and will directly affect more than 5.8 million jobs in the downstream commercial GPS-intensive industries when penetration of GPS technology reaches 100 percent.

Further, “the GPS industry directly creates jobs and economic activities, which spur economic growth. Evidence shows that innovative industries, such as the GPS industry, create both high- and low-skilled jobs during economic expansions and downturns, pay their employees higher-than-national-average wages, raise output and sales per employee, increase U.S. competitiveness, which is reflected in increased exports and reduced U.S. trade deficits, and spend large sums on R&D and capital investment. In addition to creating these direct economic benefits, innovative industries create productivity benefits to the downstream industries, including increased sales, profits, and investment returns. Empirical studies have shown sustained productivity benefits support further growth and job creation in downstream industries and the U.S. economy as a whole.”

Finally, “The direct economic costs of full GPS disruption to commercial GPS users and GPS manufacturers are estimated to be $96 billion per year in the United States, the equivalent of 0.7 percent of the U.S. economy. This annual total cost is the sum of $87.2 billion and $8.8 billion imposed on commercial GPS users and commercial GPS manufacturers, respectively. GPS user costs consist of $67.6 billion per year in foregone GPS benefits — increased productivity and input cost savings — and another $19.6 billion book value of investment losses in GPS equipment. GPS manufacturer costs consist of $8.3 billion per year in foregone commercial GPS equipment sales and an additional $0.55 billion per year in R&D spending and associated costs to attempt to mitigate the so-called LightSquared Problem.Systemn

“If the operation of LightSquared will disrupt 50 percent of commercial GPS equipment, the direct economic impacts are expected to be $48.3 billion per year. Except the R&D spending and the opportunity cost of R&D spending performed by GPS manufacturers to find attempt to mitigate interference, direct economic costs to commercial GPS users and foregone GPS equipment sales are assumed to be half of total direct costs under the scenario of 100 percent degradation. In addition to direct economic impacts, there are other forgone direct and indirect economic and social benefits that are threatened by the LightSquared Problem. On the macroeconomic level, GPS disruption would reduce productivity and, consequently, hinder the competitiveness of GPS downstream users.”


Figure 1. Revenue shares of GPS equipment in North America, 2005–2010, according to Bone, Dominique and Stuart Carlaw, 2009, “Global Navigation Satellite Positioning Solutions,” ABI Research; and authors’ estimates.



Figure 2. Commercial GPS equipment revenues in North America, 2005–2010, according to Bone, Dominique and Stuart Carlaw, 2009, “Global Navigation Satellite Positioning Solutions,” ABI Research; and authors’ estimates.



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