Inside the Digital Society: What’s in the digital economy?

UNCTAD is the United Nations’ Conference on Trade and Development – with a special focus on developing countries.  

Most years since 2005 it's published an Information Economy Report, focusing on one aspect or another of the potential and the challenges of ICTs for e-commerce, enterprise development, cloud computing, software and the like. They’ve been among the best reports on ICTs emerging from the UN system. (Full disclosure: I worked on two of them.)

This year, like this column, UNCTAD’s changed the name from ‘Information’ to ‘Digital’. Henceforth, they’re Digital Economy Reports.  The 2019 report is on Value Capture and Creation, which sounds dull and specialist. It’s not. I’ll comment on some bigger issues and focus on some key insights.

What’s the digital economy?

Everyone agrees the digital economy’s important but not everyone’s agreed on what it is. Twenty years ago, it might have meant only the ICT sector itself. Ten years ago, that and some sectors that were taking most advantage of it.  

Today, all major sectors, and all firms of any size, in all countries, are becoming digital to some significant degree. That doesn’t make what’s digital about them more important than other aspects of those sectors, firms, economies; but it makes what’s digital integral to how they work and how they’re likely to perform.

UNCTAD suggest we might look at three types of business in the digital economy:

  • those in hardware and infrastructure 

  • those in digital and IT services, including platforms; 

  • and those in ‘digitalising’ sectors – like finance, media and transport – where digital products and e-commerce are increasingly important.

I’d maybe add a fourth: those in which digitalisation’s not yet as mission-critical as that third category, not such a big part of the business model but clearly still growing in importance: small-scale agriculture, for example, or (at the bigger scale) mining and raw materials.

What’s happening?

The digital economy is growing, and two things, UNCTAD believes, are driving this.

First, data. ‘An entirely new value chain has evolved,’ it says, ‘around firms that support the production of insights from data, including data acquisition (to provide new sources of data), data storage and warehousing, data modelling and analysis, and data visualization.’ Monetising the resulting data is the source of value.

Second, platforms – like Google, Facebook, Amazon, Uber, Alibaba – acting as intermediaries and providing infrastructure for transactions and for innovation. Global enterprises whose access to massive data volumes gives them a huge competitive advantage both globally and locally.

The questions for UNCTAD, and for many readers of this blog, are therefore: who benefits? and what’s the impact likely to be for developing economies?  

Where’s the economic power?

First, these trends are concentrating economic power. It’s very hard for smaller businesses or the economies of smaller countries to compete with global corporations that have access to far more data, immense economies of scope and scale, and the ability to buy up any potential new competitors they spy.

But the geography of this is different from what’s gone before.  It’s not the old North/South divide that’s characterised most post-colonial economic relationships. Two countries, one developed, one (in UN terms) developing – the USA and China – dominate the digital economy, with (between them) more than 75% of the world market for cloud computing, 50% of global spending on the Internet of Things, and 90% of market capitalisation for the world’s top seventy platforms. Even Europe’s share, by contrast, is puny.

What does this mean for developing countries?

One obvious risk of this, in UNCTAD’s words, is that ‘countries at all levels of development risk becoming mere providers of raw data’ to digital platforms based beyond their national boundaries, ‘while having to pay for the digital intelligence' that is produced with their own national data through those platforms.

Dependency lurks as data become increasingly important both in leveraging economic value within a country and in optimising public services.  It’s not surprising that some sees echoes in this of the arguments over media dominance that characterised proposals for a New World Information and Communication Order in the 1970s. It’s also an important aspect of debates concerning data sovereignty and data localisation – one that’s underestimated by big data corporations and their government supporters.

So what to do? I’d suggest the following, drawing on the report.

Recognise that gains aren’t guaranteed

The first’s to recognise that the digital economy will have complex and variable impacts, which will depend substantially on the established character of different economies. Some national economies will find it easier to adjust than others: those with substantial service and manufacturing sectors, for example, will find it easier than those whose prosperity depends upon commodities.  

Least developed countries (LDCs), many of which are commodity-dependent, are often poorly placed to take advantage and at greater risk of disadvantage. UNCTAD fears they will fall further back.

Impacts are likely to be different, too, between first movers and those that come later to the party. First movers – whether companies or national economies – can establish dominant positions which latecomers will find difficult to challenge, giving another advantage to economies that are already more developed.

Some developing countries should be able to establish substantial niches within the digital economy which can enable rapid growth – as Singapore and South Korea did in trade and manufacturing during the latter half of the last century. But they’re more likely to be few than many.  

So the question’s how the majority of developing countries can maximise potential opportunities within the digital economy and minimise potential disadvantages. That task’s long been the aim of Information/Digital Economy Reports.  

Identify the most appropriate niches

First, they need to find the niches that might work to best advantage for specific countries. ‘The greatest potential,’ UNCTAD says, ‘may lie in digital products that are hard to be replicated elsewhere, that are needed locally, and that can be transported or duplicated in a certain location at relatively low cost.’

That means looking for (and building) local strengths – identifying what local firms can do that global competitors won’t find so interesting or easy that they outcompete them, or that take advantage of special local circumstances. This is a theme already seen in IERs on cloud computing and software development. It requires focus on building relevant local capabilities and partnerships, with an emphasis on the capacity not just to gather and store data but to make use of it higher up the value chain.

Identify the most appropriate policies

Second, they need the right policy and regulatory frameworks that enable businesses within those niches and help other firms in national economies to make the most of such digital opportunities as come their way.

‘It is up to governments,’ says UNCTAD, ‘in close dialogue with other stakeholders, to shape the digital economy by defining the rules of the game.’ This requires shaping strategies to promote national digital economies that meet national economic needs, rather than simply accepting priorities set by powerful actors in the global digital economy, whether governments or businesses.  

It requires evidence- and policy-led intervention; industrial policy rooted in national requirements. There are lots of policy questions involved in this, not least concerning data privacy and data management, market structure and competition, consumer rights and cybersecurity. What suits one country may/will not suit another. What suits national environments may very well not suit the interests of global platforms.

Global powerbrokers in the industry to date have not been keen on national policy development that they think will constrain their opportunities. They'd rather their approach would do for all. But building a digital economy that – in the language of the Sustainable Development Goals – ‘leaves no-one behind’ is going to require fresh thinking on their part as well as that of governments.  

Next week: some thoughts on the ethics of artificial intelligence.

David Souter writes a weekly column for APC, looking at different aspects of the information society, development and rights. David’s pieces take a fresh look at many of the issues that concern APC and its members, with the aim of provoking discussion and debate. Issues covered include internet governance and sustainable development, human rights and the environment, policy, practice and the use of ICTs by individuals and communities. More about David Souter.
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