This past January, the World Bank issued the Digital Dividends report, a comprehensive study of the state of digital developments around the world. All in all, it’s a mixed picture. Digital technologies have been rapidly spreading in just about all nations, but their expected digital dividends, - i.e., their broad development benefits, - have lagged behind and are unevenly distributed.
“We find ourselves in the midst of the greatest information and communications revolution in human history,” notes the report in its Foreword. “More than 40 percent of the world’s population has access to the internet, with new users coming online every day. Among the poorest 20 percent of households, nearly 7 out of 10 have a mobile phone…” But, while this is great progress, much remains to be done. Many are still left behind due to their limited connectivity, and are thus unable to fully benefit from the global digital revolution.
While universal connectivity is necessary, it’s far from sufficient, the report adds. “[T]raditional development challenges are preventing the digital revolution from fulfilling its transformative potential… the full benefits of the information and communications transformation will not be realized unless countries continue to improve their business climate, invest in people’s education and health, and promote good governance.”
Let me attempt to summarize the salient findings and recommendations of this comprehensive (over 300 pages) report.
Promoting economic development
Digital technologies promote economic development by greatly lowering the overall costs of economic and social transactions. Such lower transactions costs translate into economic development through three key mechanisms:
- Inclusion: Digital technologies have empowered consumers around the world, giving them more choices than ever in virtually every category of products and services as well as in the channels used to acquire them. In addition, ubiquitous communications, low transaction costs and highly scalable platforms are giving rise to a new on-demand economy, enabling individuals to exchange goods and services with each other.
- Efficiency: By enabling the automation and coordination of business processes across the organization, digital technologies have significantly promoted efficiency across the whole economy. Companies can thus provide lower prices and better services to their customer, and governments can offer more convenient online services for a wide range of tasks.
- Innovation: Digital technologies help develop and bring to market all kinds of innovative offerings. This is evident in the many new kinds of products and services we’ve seen over the past 20 years, including e-commerce platforms, digital payment systems, e-books, streaming music, social media, and on-demand companies.
The report introduces the concept of digital dividends. These are essentially the analog complements of the digital revolution, that is, the broad development benefits that countries should expect from deploying digital technologies. Three major such digital dividends are identified: business growth, individual opportunities, and public services.
Business growth: Digital technologies, and the Internet in particular have promoted the inclusion of small firms in the world economy by expanding trade and productivity.
About two years ago, the McKinsey Global Institute published an excellent study, - Global Flows in the Digital Age, - which took an in-depth look at the expansion of cross-borders flows in the economy. It carefully analyzed these flows in 5 different categories: goods, services, finance, people and data and communications.
The study noted that in the not too distant past, global flows were concentrated in the more advanced economies, as well as in large, global companies. But, digital technologies and rising prosperity are combining to significantly disperse global flows, making it possible to include a larger number of countries as well as a larger number of participants across all countries.
“The network of global flows is expanding rapidly as emerging economies join in. Rising incomes in the developing world are creating enormous new centers of consumer demand, global production, and commodities trade, as well as sending more people across borders for business and leisure. Existing routes of flows are broadening and deepening and new ones emerging as more countries participate…”
“Governments and multinational companies were once the only actors involved in cross-border exchanges. But today, digital technologies enable even the smallest company or solo entrepreneur to be a micromultinational, selling and sourcing products, services, and ideas across borders. Individuals can work remotely through online platforms, creating a virtual people flow. Microfinance platforms enable entrepreneurs and social innovators to raise money globally in ever-smaller amounts.”
Individual opportunities: Digital technologies have had a major impact in improving the overall standard of living in emerging and developing economies. Their reduced transaction costs have helped to lower the job barriers for hundreds of millions, going to billions, around the world.
A few years ago, the US National Intelligence Council conducted a study to identify the key global trends in the 2030 timeframe. Its report, Global Trend 2030, identified individual empowerment as its top megatrend.
“Significant numbers of people have been moving from well below the poverty threshold to relatively closer to it due to widespread economic development. Absent a global recession, the number of those living in extreme poverty is poised to decline as incomes continue to rise in most parts of the world. The number could drop by about 50 percent between 2010 and 2030, according to some models. . . Under most scenarios - except the most dire - significant strides in reducing extreme poverty will be achieved by 2030. . .”
“Middle classes most everywhere in the developing world are poised to expand substantially in terms of both absolute numbers and the percentage of the population that can claim middle-class status during the next 15-20 years. Even the more conservative models see a rise in the global total of those living in the middle class from the current 1 billion or so to over 2 billion people. Other see even more substantial rises with, for example, the global middle class reaching 3 billion people by 2030.”
Public services: Digital technologies are also making governments more capable and responsive. Given that governments are not subject to market competition, they have generally lagged business in the efficiency and quality of their service. However, there are quite a number of critical services that only governments can provide to all their citizens. The World Bank report cites India’s Aadhaar digital identification system and Nigeria’s e-ID initiative as examples of government-sponsored programs that expand the participation of all citizens.
“Lack of identity is an impediment for poor people to exercise their basic democratic and human rights. Where civil registration systems are weak or non-existent, many of the poor are simply not counted. Digital identification can help overcome barriers to participation. Many countries have introduced general-purpose digital identity (ID) schemes or specific systems for elections or to manage postconflict transfers - with numerous benefits, including making the public sector more efficient.”
“Nearly 900 million Indians have been issued digital IDs in the past five years, which they are using to open bank accounts, monitor attendance of civil servants, and identify recipients of government subsidies. Nigeria’s e-ID revealed 62,000 public sector ghost workers, saving US$1 billion annually. But the most important benefit may be in better integrating marginalized or disadvantaged groups into society.”
Risks and challenges
The report argues that these important digital dividends are not spreading fast enough for two main reasons. The first is limited connectivity, which makes it difficult for over 50% of people around the world to adequately participate in the digital economy. Persistent digital divides exist between advanced and developing nations, as well as across income, geography, gender and age within nations.
In addition, the benefits of digital dividends are being challenged by new risks:
- Excessive concentration: The Internet’s economies of scale can lead to harmful concentration of market power in many sectors, inhibiting competition and innovation.
- Automation and inequality: Automation can leave behind workers without the necessary skills, hollowing out labor markets and leading to greater inequality.
- Government control: Without the proper accountability, governments can leverage digital technologies to exercise greater control over their citizens, rather than to empower them.
Beyond connectivity and access to digital devices, countries must strengthen the analog foundations of the digital revolution to help them realize the benefits of their technology investments. These include:
- Regulations that promote competition: Lowering the cost of starting firms, avoiding monopolies, removing barriers to adoption of digital technologies, ensuring the efficient use of technology by businesses, enforcement of existing regulations, …
- Education and skill development: Basic IT and digital literacy, helping workers adapt to the demands of the digital economy, preparing students, managers and government officials for an increasingly digital world, facilitate life-long learning, …
- Institutions that are capable and accountable: Empowering citizens through digital platforms and information, e-government services, digital citizen engagements, increased incentives for good governance both in public sector and private firms, …
“Digital development strategies need to be broader than ICT strategies. Connectivity for all remains an important goal and a tremendous challenge. But countries also need to create favorable conditions for technology to be effective. When the analog complements are absent, the development impact will be disappointing. But when countries build a strong analog foundation, they will reap ample digital dividends - in faster growth, more jobs, and better services.”