August 25, 2016

Why digital technology is not necessarily the answer to your problem

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The darker the shade, the higher the Internet population

The darker the shade, the higher the Internet population

World Bank (2016) World Development Report 2016: Digital Dividends. Washington, DC: World Bank.

What is the report about?

This 359 page report, partly funded by Canada’s Department of Foreign Affairs, Trade, and Development and the International Development Research Centre, involved the work of several hundred people and was based on consultation meetings in 27 different countries (see here for more information on these consultations).
The report notes that more households in developing countries own a mobile phone than have access to electricity or clean water, and nearly 70 percent of the bottom fifth of the population in developing countries own a mobile phone. The number of internet users has more than tripled in a decade—from 1 billion in 2005 to an estimated 3.2 billion at the end of 2015.

The key question addressed by this report then is as follows:

Have [these] massive investments in information and communication technologies (ICTs) generated faster growth, more jobs, and better services? Indeed, are countries reaping sizeable digital dividends?
I can only briefly summarise this lengthy report, and if this post peaks your interest, please read the full report.

Main conclusions

Despite this vast investment in digital technologies, the digital dividend in terms of greater productivity, less inequality, more democracy, and greater wealth for all has not been gained. For instance:

  • global productivity growth has slowed;
  • labor markets have become more polarized and inequality is rising—particularly in the wealthier countries, but increasingly in developing countries;
  • while the number of democracies is growing, the share of free and fair elections is falling.

Digital divide Africa 2

Furthermore:

  • nearly 60 percent of the world’s people are still offline and can’t participate in the digital economy in any meaningful way;
  • many advanced economies face increasingly polarized labor markets and rising inequality—in part because technology augments higher skills while replacing routine jobs, forcing many workers to compete for low-paying jobs;
  • public sector investments in digital technologies, in the absence of accountable institutions, amplify the voice of elites, which can result in policy capture and greater state control;
  • because the economics of the internet favour natural monopolies, the absence of a competitive business environment can result in more concentrated markets, benefiting incumbent firms;
  • not surprisingly, the better educated, well connected, and more capable have received most of the benefits, circumscribing the gains from the digital revolution.

The fundamentals (‘complements’) of development are:

  • good governance;
  • a robust and open business market;
  • accountability (i.e. lack of corruption);
  • strong human capital (i.e. a well educated work-force)

In countries where these fundamentals are weak, digital technologies have not boosted productivity or reduced inequality. These poor trends persist, not because of digital technologies, but in spite of them. Thus while digital technologies have been spreading, digital dividends have not. On the other hand, countries that complement technology investments with broader fundamental reforms reap digital dividends in the form of faster growth, more jobs, and better services.

Thus the report’s main conclusion is:

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.

Barriers to success

For digital technologies to improve productivity and reduce inequality, there are important ‘analogue’ factors that must accompany or support (‘complement’) the introduction of digital technology in order to get the benefits:
  • digital technologies can make routine, transaction-intensive tasks dramatically cheaper, faster, and more convenient. But most tasks also have an aspect that cannot be automated and that requires human judgment, intuition,and discretion; the better educated the workforce the higher the quality of such human decision-making;
  • when technology is applied to automate tasks without matching improvements in other, non-digital social, economic and political activities, such as governance, accountability and education, technology can fail to bring broad-based gains;
  • the digital revolution can give rise to new business models that would benefit consumers, but not when incumbents control market entry;
  • technology can make workers more productive, but not when they lack the know-how to use it;
  • digital technologies can help monitor teacher attendance and improve learning outcomes, but not when the education system lacks accountability.

What should be done?

  • make the internet universally accessible and affordable. The internet, in a broad sense, has grown quickly, but it is by no means universal. For every person connected to high-speed broadband, five are not. Worldwide, some 4 billion people do not have any internet access, nearly 2 billion do not use a mobile phone, and almost half a billion live outside areas with a mobile signal.
  • access to the internet is critical, but not sufficient. The digital economy also requires strong regulations that create a vibrant business climate and let firms leverage digital technologies to compete and innovate; skills that allow workers, entrepreneurs, and public servants to seize opportunities in the digital world; and accountable institutions that use the internet to empower citizens.
The Internet promoted development through three mechanisms

The Internet promotes development through three mechanisms

A favourable business climate, strong human capital and good governance are standard requirements for economic growth. But digital technology has two particular roles to play in development:

  • digital technologies amplify the impact of good (and bad) policies, so any failure to reform means falling farther behind those who do reform. With digital technologies, the stakes have risen for developing countries, which have more to gain than high-income countries, but also more to lose;
  • digital technologies can enable and accelerate the impact of these standard requirements for growth, for example, by creating new jobs and business opportunities, through online learning raising the skills level of workers, and by enabling government to make evidence-based decisions.

Comment

This report is a powerful antidote to those who think digital technologies are the silver bullet for increasing equality, improving education, and reducing the gap between rich and poor. What becomes very clear is that digital technology amplifies change: if things are going badly, digital technology will make it happen worse and faster; if things are going well, digital technology will make it better. Thus digital technology is neither cause nor effect in development, but a catalyst that amplifies change.

This means of course that the hard work of making governments and business transparent and accountable, developing an educated workforce, and having an open, well regulated business environment all need to be done. Digital technology can facilitate this, but on its own it will not lead to a better world except for a very few.

One last point. There is a very interesting article in today’s Globe and Mail newspaper by Jim Balsillie, one of the founders of Blackberry, railing against the TPP, the Trans-Pacific Trade Agreement, because it protects incumbent intellectual property holders. This gives a huge advantage to the USA, by protecting them from innovation originating in other countries with a small number of patents, relatively speaking (such as Canada). Balsillie argues that one reason digital technology has led to a greater increase in inequality is because of the distortion of U.S. patent law which makes it very difficult for new entrants to the digital technology market – although China, interestingly, has been smart enough to work around these barriers by its sheer size and more closed culture. Another barrier we see here in Canada is the power of incumbent organizations such as the three telecommunications companies who, through their control of national network infrastructure, can freeze out new competitors.

It sure ain’t a fair world out there, and digital technology is not helping. We need better regulation, and patent reform, that’s for sure, if digital technology is to reap fully its promise.

Comments

  1. Ron Smallwood says:

    Thanks again Tony. Digital technology is only a tool, not a “silver bullet” and like any tool, it is only as good as the skill with which it is used. I wish people would start thinking in terms of a shotgun shell fill with a mix of “silver pellets” knowing that every situation may require a different mix. My chosen field is education but I know that education is only a part of the answer. There needs to be racial equally, economic opportunities, and all the rest to make a better world.

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