Can the Digital Economy Deliver on its Promise?

If it is to do so, we need to put ordinary people back at the centre as the drivers and recipients of economic change.

The proposition that the digital economy is going to deliver development, prosperity and growth has become almost conventional wisdom among policy makers, economists, and innovators alike.

Unsurprisingly, the theme for the India Economic Forum underway this week in Delhi is the role of digital transformations, particularly a digital economy, in promoting inclusive growth. A recent Deloitte report suggests that if the Modi government’s ‘Digital India’ plan can increase broadband penetration across India by 50% and mobile penetration in rural India by 30% in the next two years, this could contribute towards a 9% increase in GDP; by 2025, the Digital India plan could boost GDP to $1 trillion. The World Bank similarly argues that a 10 % increase in mobile and broadband penetration can increase the per capita GDP by 1.38% in developing countries.

Can the digital economy deliver on its promise? Undoubtedly, a digital economy can lead to more trade, better capital use, and greater competition. It can promote efficiency and innovation as well as provide an inclusive platform for economic participation. Too often however, narratives on the role of the digital economy are characterised by technological determinism – a sense that technology is the natural and necessary solution to a number of complex social problems, a quasi-natural force, impervious to human choice and action, that will autonomously deliver social change.

At a conference last year, minister for communications and information technology, Ravi Shankar Prasad, stated that ‘India is developing on its own’ – the how and why of this was attributed to increased internet penetration. Silicon Valley entrepreneur Elon Musk’s promotional video for the SpaceX-Mars mission narrates how life has evolved from a single cell organism to complex multi-cellular beings, from amphibian to mammal and that the next necessary step in this evolutionary process is the technology enabled inhabitation of Mars – to stand in the way of man, technology, and Mars, would be to stand in the way of evolution. Technology is then seen as an almost magical force whose wide-spread application and use can automatically contribute to development and progress. But, this kind of deterministic narrative blinds us to the very real and tangible human interventions that must be made for the digital economy to promote inclusive growth.

The digital economy can accelerate development and growth, but it can equally exacerbate existing social and economic inequities. This is borne out by the numerous digital divides that exist today. Currently only 40% of the globe has digital access. A McKinsey report suggests that about 75% of the offline population is concentrated in 20 countries, and is disproportionately rural, low income, elderly, illiterate, and female.  A study by the World Economic Forum highlights that in India, only 15 of every 100 households have access to the internet and there are only 5.5 mobile broadband connections for every 100 people. Unless we can provide universal access to all, the digital economy will benefit only a few, exacerbating inequities between the digital haves and have-nots.

But the digital divide is not only about access. It is also about the degree and quality of participation among those who are already online. According to a Boston Consulting Group study, the percentage of women internet users in India is approximated at only 29%; the remainder 71% is men. A paper analysing Twitter feeds in India concluding that women were significantly underrepresented in political conversations. Almost 85% of the user generated content indexed by Google comes from the US, Canada and Europe. This mirrors the trends in academic journals; knowledge  production in the digital world is thus led by a select few, belonging to specific geographies. It should be clear then that the digital world is in fact mirroring the inequities of the physical world.

Free, Free Basics?

Addressing this divide requires providing universal and affordable access to all. The private sector has a necessary role to play as it invests in the backhaul infrastructure for digital connectivity. But the emphasis must be on promoting government backed structural solutions rather than private sector commercial ventures alone. This would include dismantling the monopoly control over international gateways, liberalising domestic markets for building and operating physical infrastructure  networks, and creating robust regulatory frameworks that check for policy capture by private sector monopolies. Commercial solutions such as Facebook’s Internet.Org can provide affordable access, but with a high cost to net neutrality; whether Google’s Project Loon that uses wi-fi balloons will impose the same kind of restrictions is yet to be seen. Access also must be balanced with concerns about data integrity, privacy, and security. While questions about data usage and privacy, the uses and misuses of big data, and the threat of cyber-crime are poorly understood even by the average internet user, the challenge for navigating the complex web of terms and conditions and availing of adequate privacy measures is likely to be even more pronounced for those with little basic education.

Digital access alone also does not lead to digital empowerment. In the Indian context, addressing the digital divide requires that we pay attention to what the World Development Report calls the analog components of the digital economy – particularly, education and skilling. Education statistics in India remain worrying – the 2016 Annual Status of Education report argued for example that children in Class III who can read at least a Class I text has dropped consistently from about 50% to about 40% and children in Class III who can do at least subtraction has dropped from 40% to 25%. It is not enough to claim that  people who lack formal education but are mobile literate are adequately prepared for success in the digital economy.  Too often we hear anecdotal stories about how farmers and carpenters are using whats-app and that this is a sign of their digital fluency and preparedness for the digital economy. On the contrary, in an information age it is more important than ever to have the critical and analytical skills that allow one to make sense of the vast amount of information available, make informed choices, and safeguard ones security and privacy.

For the digital economy to contribute to inclusive development we also need to consider the distribution of gains in the digital economy. The digital economy promotes efficiency, competition, and trade and is thus capable of generating more wealth. GDP and wealth creation however have not resulted in an increase in worker wealth and wages. The 2016 World Development Report argues for example, that the share of national incomes that have gone to labour, especially routine labour has fallen sharply in many developing countries. And this is true historically as well – a 2015 Harvard Business Review article argued that over the last 200 years technological change has often been associated with stagnant wages and rising inequality, at least for a time. Not only has the share of national income for labour gone down, but corporations in the new digital economy are able to generate immense wealth with fewer and fewer people. Corporations used to need roughly 100,000 employees to create $1 billion in value.  In 2014, the value of WhatsApp, with 55 employees, was estimated at $19 billion. Facebook had 5000 employees in 2012, compared with 145,000 Kodak had at its peak in the 1990s; Facebook’s market value however is much more than Kodaks’ ever was. Google, the platform economy giant, has annual revenues over $50 billion, but only  50,000 employees.

The question of distributive gains can also be asked of the emerging platform economy – think Uber, Amazon Mechanical Turks or Air BnB. Undoubtedly, new digital platforms facilitate more flexible working arrangements, permitting for example many more women to enter the work force. But the platform economy can also contribute to a degradation of labour, i.e. when workers move from occupations in which they are highly productive and well compensated to those in which they are less productive and poorly compensated. Sceptics thus point out that platform economies are built on the idea of driving down wages, while at the same time reducing the chances of collective bargaining through labour unions.  To participate in a platform economy, workers need to invest both their capital and labour; their continued work however is dependent on a series of external factors beyond individual control. Even more supportive accounts thus note that risks in a platform economy are transferred from the business to the individual worker.  For example, Uber drivers often borrow money to buy their own vehicles; if however, the market gets over-saturated with Uber drivers or there is a change in domestic law, an Uber driver is burdened with debt.

Auto-employment

With increased automation and advances in artificial intelligence, there is also a very real risk of job dislocation. According to a recent study, around 47% of U.S. employment may be susceptible to automation as a result of ongoing technological improvements. The World Bank recently estimated that the share of jobs at risk of automation is even higher in developing countries — 77 % and 69% of all jobs in China and India respectively. Automation also means that the cheap labour advantage no longer lies with developing countries – a process of premature de-industrialization is underway in which manufacturing shrinks in poor countries that never had much industrialisation in the first place. The clearest example of this is the re-locating of the textile industry back to industrialised countries. The number of direct jobs created through ICT technologies is also modest – the ICT sector accounts for only 1% of workforce on average in developing countries. One additional technology job does however create around five new jobs in other sectors, but this is not going to be enough, particularly in a country like India where, by some estimates, the requirement is to create 12 million jobs every year.

Some of these jobs are arguably going to emerge from the platform economy, with more and more people working freelance and part-time. As noted earlier, the platform economy undoubtedly creates numerous new and flexible opportunities. But the question that needs to be addressed is whether individuals engaged in so-called ‘gig labour’ are to be considered employees or contractors. Platforms prefer to treat them as contractors, but this mean that workers lose the social protection and benefits – such as insurance or protection against workplace discrimination – that come with formal employment. The freelance economy is in a sense not new to India at all – in 2011-12, over 92% of Indian workers were informal. If automation and artificial intelligence is going to mean job dislocation and if future job creation is going to come from the platform economy, the implication for India is that informal employment is going to be a persistent feature of the Indian economy.The question then is, both for India and globally, how we can guarantee social protection in an informal economy. This would mean we need to find ways in which social protection schemes can be separated or de-linked from formal employment.

The idea of a basic income is gaining popularity in response to concerns about job dislocation and social protection. A basic income would mean that all citizens or residents of a country regularly receive a specified sum of money from either government or another public institution, financed through forms of taxation or profits of publicly owned enterprises. A  basic income could encourage and secure entrepreneurial and self-employment ventures, incentivise part-time work, and provide social safety nets. The difficulties in financing and implementation aside, what is intriguing about the basic income discussion is that there seems to be a convergence between on one hand, progressives, socialists, and, feminists and on the other hand, Silicon valley entrepreneurs. For the former, a basic income could increase bargaining power for workers, change the distribution of domestic tasks between men and women, as well as provide a stimulus to political participation and voluntary work. A post-work society could restore human dignity, freeing the worker from the clutches of capital, and creating opportunities for people to develop interests outside employment. For the latter Silicon Valley entrepreneurs however, a basic income is a way to create demand for their innovations in a job-less economy. Some even criticise that Silicon Valley’s support for a basic income is a mostly a reflection of their guilt at ousting people from their jobs.

Can the digital economy deliver on its promise? Perhaps. But for this we need to avoid technological determinism and put people back at the centre as the drivers and recipients of economic change.  Sound policy frameworks need to be evolved to shape the trajectories and governance of emerging digital technologies. The digital divide must be addressed, through both universal and affordable access, and by equipping people with the necessary education and skills to safely navigate the digital space. Equally important, and often not adequately considered, is the distribution of gains in the digital economy – as it stands the wealth created by the digital economy is creating neither more employment, nor higher wages, nor better social protection. In fact there is a risk that it can result in job dislocation and increase the risk to workers, without robust and adequate social protection schemes in place. This is not to say that the future is bleak. On the contrary, the digital economy carries with it great promise. But this promise can only be realised if we take these issues into serious consideration;  the early days of the digital economy is the time to get the architecture right, particularly in India where the roadmaps towards inclusive development are still under construction.

Urvashi Aneja is associate professor at the Jindal School of International Relations and Research Fellow at the Observer Research Foundation.