I came across this interesting discussion in which digital economy is analyzed. I have tried to review and present my thoughts on four broad themes of the discussion.

Theme 1: Scope of Digital Economy

Martin Wolf, in his opening remarks, dismisses the term ‘digital economy’ as a useless name as he says that knowledge and information processing is an input into all economic and social processes and it’s not a separate part of economy. Be that as it may, I think this view of the utility of the ‘digital’ is limited and perhaps negligent. The assumption embedded therein is that, unto itself information has negligible or no value i.e. all it does it to transform the existing sectors of the economy albeit in profound and uneven ways. However, as we have seen with cloud computing, targeted advertising, social media etc., information is an intangible raw ‘material’ with multitude of utilities both in traditional sectors and in new areas of the economy.

Although as Joseph Stiglitz mentions that production of information is not a separate part of the economy and is intertwined with the entirety of it, I would argue that processing, aggregation and monetization of information is a separate part of the economy and is happening despite what conventional economics would call sub-optimal economic outcomes in terms of profits. For example, companies like Uber and Amazon have expanded with long periods of unprofitability with huge reserves of data on their servers. The expectation is that this data will be used for profits in the future in ways that we do not sufficiently understand right now. To be provocative, one can say that this ‘digital economy’ is being actively shaped to make it the backbone on which the rest of the economy is tethered. Of course, the digital is not standalone in any way. In fact, it is being configured such that the rest of the economy stands on it.

Theme 2: Effects on Developing Countries:

Both Mr. Wolf and Prof. Stiglitz offer interesting analysis of the effect of these changes on developing countries. For example, the competitive advantage to countries like India, China, and Bangladesh etc. in terms of lower labor costs can shift back to the developed countries as the routine processes that were earlier outsourced are automated. This, according to them, can reverse the growth in these developing countries. Although this is a trend that can materialize, it does not have to be this way. Their view assumes that most skills developed in these countries are those that can be easily automated and that the lack of large domestic markets for goods and services currently being exported will continue. If skills developed are diversified and a big domestic market gradually comes to the picture, it may not be the case that the changes in competitive advantage will hurt the developing countries.

However, this still leaves the question of distribution and inequality that digital economy may further exacerbate. In this shift from labor intensive to highly capital intensive technology, even if developing countries manage to create a big domestic demand despite reduction in competitive advantage, the producers of goods and services as well as source of well-paying jobs may be only a few powerful entities. This may lead to transformational shift in the asymmetries of labor-capital dynamics within both developing and developed countries. For example, the digital economy has brought large number of part-time workers that were otherwise not in labor market, eliminated the fixed costs of social security, with a few monopolists running these platforms. This changes the bargaining power of the earlier permanent workers like taxi drivers who now have to compete with part time cab drivers without any collective organization for bargaining for either.

This has both a political and distributional effect as ‘Uberization’ makes employment more and more precarious. While the challenges this poses to the social fabric of nations is unprecedented and spectacular, the difference in effects of this on developing and advanced economies will depend on the regulatory and governance response to these change rather than inadvertent gloom for developing and poor countries and relative normality of the rest.

Theme 3: Productivity in Digital Economy

Mr. Wolf argues that the impact of digital technologies on the economy is trivial compared to post-industrial revolution improvements in energy, transport, health etc. On a similar note, Prof. Stiglitz notes that the value of a better advertising agency (like Google or Facebook) is fundamentally is incomparable with the value of electricity or a car or an airplane. While this seems very convincing, it does not consider the fundamental changes that information and digital tools is bringing to the accessibility of health, energy and transport. It assumes that the facilities of energy, health, transport etc., although quite old, have become ubiquitous. That is definitely not the case and digital technology can provide tools to extend these essential services to the remotest corners worldwide.

Even if we make the tenuous assumption that productivity does not increase much in terms of outputs from digital technology, it cannot dismiss the fact that it has made possible the availability of services like education and finance in places where they hadn’t reached. There is definitely an argument to be made against the wasteful and destructive applications of digital technologies, for example, fake news, tax avoidance etc. However, this does not mean that digital technologies are themselves less productive or unproductive. What should not be forgotten is that post-Industrial revolution provision of electricity and transport was configured not just for the profits of industries but also for the welfare of the people. If there is to be a ‘digital revolution’ that realizes its productive potential, the public value needs to be re-imbedded in the policy frameworks that guide its development.

Theme 4: Stuck in ‘Industrial Capitalism’ Framework

While Prof. Stiglitz notes that the law of diminishing returns does not apply to information, he still evaluates the digital economy from the framework of firm competition that defined ‘industrial capitalism’. This will change both how the market economy functions, in terms of concentration, efficiency etc., and how government functions, in terms of taxation, regulation etc. That much is evident. What I think is missing from this discussion is the timeless surpluses that information storage, as an activity distinct from the production process, bestows onto the aggregator – a raw ‘material’ that does not need to be re-extracted if compared to the industrial inputs which vanished on use and whose supply had to be renewed constantly. While in this new networked capitalism, informational databases also have be updated and expanded constantly, they do not vanish on use. In fact, they become more valuable to the platform, the more they are used.

While the old frameworks still explain some parts of the new digital economy, they are fundamentally unsuitable as analytical tools to understand how, why and for whom the economy is changing. This is not just because of the built-in assumptions of neo-classical economics but also the political configurations that nurtured that view of managing social progress. The challenges posed by uninterrupted private surveillance, uberization, cross-sector monopolization, precarious employment and the like render the old economic theories, our individualistic political morality and our notions of social progress manifestly inadequate in the realm of the digital world.