A few weeks ago I attended the 12th annual Brookings Blum Roundtable on Global Poverty. Organized by the Brookings Institution, the Blum Roundtable brings together policy and technical experts from government, academia, business, investors and NGOs from all over the world. This year’s event, - Disrupting Development with Digital Technologies, - explored the impact of the digital economy on the ways business and development organizations now engage with emerging and developing countries.
In a pre-Roundtable blog, Kemal Derviş, - Brookings VP, Global Economy and Development, - identified three major trends with the potential to redefine global development over the next 10 years: the growing adoption of digital payments serving people everywhere with near-frictionless transactions; the spread of Internet connectivity and digital literacy; and the harnessing of data to better serve the poor and to generate new knowledge.
Discussions were organized around six different sessions over three days. Each session looked at the impact of digital technologies on economic development through a different lens, including electronic payments, access to information and the future of work. Prior to the Roundtable, Brookings commissioned a policy brief for each session to help set the stage for the ensuing presentations and discussions.
Let me summarize what I wrote.
For the past 20 years, the Internet has been a remarkable platform for innovation, enabling the creation of products and services that have transformed many of our everyday activities, - e.g., the way we work, communicate, socialize, organize, shop, learn, bank, pursue leisure, and deal with government.
However, to get online in the 1990s and early 2000s required a personal computer and an account with a service provider, and e-commerce transactions required a credit card or bank account. Major new inequalities arose because so many around the world could neither afford a PC or an Internet account and had no bank account or credit card. While the Internet was truly empowering for those with the means to use it, it led to a growing digital divide both within countries and across the world.
This digital divide is now disappearing as we transition to our increasingly hyperconnected economy of ubiquitous mobile devices, broadband wireless networks, and cloud-based applications. Internet access and mobile phones are being rapidly transformed from a luxury to a necessity that more and more people can now afford. Technology advances keep expanding the benefits of the digital revolution across the planet. Over the coming decade, a 2013 McKinsey study estimates that up to 3 billion additional people will connect to the Internet through their mobile devices, thus enabling them to join the global digital economy. As a result, we can expect the acceleration of three important trends that should significantly improve the quality of life of the world’s poor:
- Businesses are developing products and services specifically aimed at lower-income customers, given their rising standard of living, and the decreasing costs of reaching them;
- Governments are improving access to public and social services including education and health care;
- Mobile money accounts and digital payments are expanding financial inclusion.
But, along with its many benefits, the digital revolution brings along serious challenges. We must not forget that technological revolutions are highly disruptive to economies and societies. In particular, few subjects are as important as the future of jobs. “The economic challenge of the future will not be producing enough. It will be providing enough good jobs,” wrote Harvard professor and former Treasury Secretary Larry Summers in a July, 2014 WSJ article. “Job availability is already a chronic problem in the U.S,… the challenge for economic policy will increasingly be generating enough work for all who need work for income, purchasing power and dignity.”
Access to good jobs is becoming a serious issue not only in advanced economies but also across the world. In a 2014 Foreign Affairs article, MIT’s Erik Brynjolfsson and Andy McAfee, and NYU’s Michael Spence wrote: “Even as the globalization story continues, however, an even bigger one is starting to unfold: the story of automation, including artificial intelligence, robotics, 3-D printing, and so on. And this second story is surpassing the first, with some of its greatest effects destined to hit relatively unskilled workers in developing nations… offshoring is often only a way station on the road to automation… In more and more domains, the most cost-effective source of labor is becoming intelligent and flexible machines as opposed to low-wage humans in other countries.”
The digital revolution will help raise the standard of living and quality of life of billions around the world. But its promising potential must be balanced with the fears that our increasingly powerful technologies will lead to serious economic dislocations and not enough good jobs to go around. And, because these two powerful forces are highly interrelated, they’re giving rise to a new round of complex questions.
- Could the economic inclusion of billions of more educated and financially empowered consumers become the engine that powers the creation of new industries and new jobs, both in emerging and developing nations?
- Given the rise of an increasingly talent-centric knowledge economy, will emerging economies be able to keep up with advanced economies or will we see the emergence of a new knowledge divide?
- Remembering that we’re still in the early stages of a historical transformation the likes of which we may not have seen in over two centuries, are we being overly impatient?
The Brookings Blum Roundtable proved to be an excellent forum for exploring such highly complex questions, - for which we really have no answers. Many opinions were expressed throughout the various sessions. I came away having learned a lot about the key requirements for advancing digital development in emerging economies, from the importance of digital identities to safeguard the myriads of transactions that are now part everyday online life, to the human foundations needed to realize the benefits of the digital revolution in our increasingly knowledge-based economy.
But, for me, the overriding lesson from the three days of discussions was that a country’s economic development is highly dependent on the state of its institutional environment.
This is not surprising. A number of recent studies have reached similar conclusions. Last year, for example, Tuft’s Fletcher School of Law and Diplomacy, - in collaboration with MasterCard, - published a report on the digital journey being pursued by each of 50 advanced and developing countries. The report introduced the Digital Evolution Index, a data-driven analysis of the unique digital trajectory being followed by each of the 50 countries. Institutional Environment, - the government policies and regulations facilitating the creation of digital ecosystems, - was one of the key economic drivers of each country’s Index, as measured by political stability, rule of law, corruption, investment and trade regulations, ease of doing business, e-government services and other indicators.
Countries with high institutional environment scores tended to also rank high in innovation, another key driver of each country’s Index as measured by investments in digital ecosystems, business focus on customer service, adoption of new technologies, ease of creating startups, and venture capital availability.
By contrast, the study found that the lack of effective institutions were stymieing the digital growth potential of some of the biggest emerging economies, including China, India, and Brazil. In addition, a major reason for the low Digital Evolution Index scores of a number of countries was that much of their energies were expended in working around their institutional constraints. “Unclogging these bottlenecks would enable these countries to direct their innovations where they matter most.”
Well-functioning economies have long been dependent on mutual trust and confidence in public and private institutions. But, unlike technology advances, the transformations required to increase trust in institutional environment tend to be slow and gradual. While the digital economy promises to help us improve the lives of people around the world, realizing its potential is one of the most important and exciting challenges of the 21st century.