Tag Archives: technology

Digital Economy, Society and Governance

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I came across this interesting discussion in which governance of the digital economy is analyzed. I have tried to review and present my thoughts on this lecture by Prof. Rainer Kattel.

Rainer Kattel: Governing the digital economy | University College London (UCL) Institute for Innovation and Public Purpose (IIPP)

Prof. Kattel begins with some facts about the digital economy and its effects on privacy, productivity, employment, market concentration and global trade. He only uses these as a plane to discuss some more fundamental changes in our society brought about by digital technologies and its version of capitalism.

Features of the digital economy:

  • Not just automate but informate: Citing Zuboff, the lecture notes that today’s technologies learns not just about processes but also about users, their abilities and deficiencies such that it improve itself – a fundamental shift from earlier machines which performed routine, automated tasks. This presents questions for management of firms and organization behavior. Although this is a transformation, Zuboff’s work also notes the imperatives of what she calls ‘surveillance’ capitalism are different from managerial capitalism that the lecture focuses on.
  • Collective production of innovation: Citing Benkler, the lecture notes that production has always been a social process and in the digital age, this is more so as people willing give information into networks that becomes channels of innovation. For example, Open Source Software like Linux which has been amended and improved by myriad developers without profit motive. The question is, why have organized firms if innovation can be peer-produced? This process, according to Benkler, is varied in terms of granularity and modularity such that peer-production happens according to convenience and expertise of the developers.
  • Intangible Capital: Citing Haskel and Westlake, the lecture notes the increases relevance of brands, teamwork, social networks of employees, ability to source ideas from outside the firm etc. present challenges of measuring value of people as well as products and processes.

Digital Innovation and Competition

While classical economics argues for perfect competition, innovation happens via imperfect competition, as Schumpeter had proposed. The rapid expansion of market share which happens if technology itself learning to do things it is designed to do, can only be viewed as imperfect competition. This leads to reinvention of capitalism as technology changes every few decades, with an emergent new common sense, new products and new opportunity of profits – not of which have the ideal market of perfect competition.

For this, the lecture cites Prof. Carlota Perez’s work on the history of innovation, which shows that for every technological revolution, there is an installation period with bubbles and mania for initial investors, followed by turning point of collapse and recessions, which eventually leads to the general deployment of the technology for general prosperity with the intervention of the state.

Carlota Perez

While this may be the general trend of technological development and innovation deployment, the length of the frenzy, turning point and start of ensuing deployment period varies across societies and technologies. It is not inherent in the technology but a socio-political decision as to how and when the state responds to intervene such that the technology is used for general welfare. Similarly, the new common sense is also socially constructed.

Challenges:

The lecture also presents multiple interdependent challenges for economists, society and governments that digital technologies present:

Economics:

  • Why have firms when products and services can be crowdsourced or peer produced? Will their purpose only be rent extraction from this production? What would it mean for national accounting systems, if tasks that create economic value are so dis-aggregated?
  • What does this means for markets? Why do we need privately owned platforms when peer-production can be just as or more efficient?
  • If production of information is collective, why not have commons type ownership? What does it mean for the notion of property?

Society:                                                                                                                             

  • Welfare state vs personalized services – universality of government policies vs individual-focused customization
  • Statistical self vs automated self – following norms set by government vs going along with personalized feedback from devices
  • Countervailing institutions vs digital nomad – unionized labor vs gig workers

Governance:

  • Stability and predictability vs agility and experimentalism
  • From reaction to anticipation – predictive policing
  • Automation, platforms and inclusion – governments thinking like platforms e.g. payments systems, identity systems and automated services

Criticism:

While these comparisons and contrasts are important, the state and the firms seems to be understood here in the same fashion i.e. as centralizing institutions compared to the individual. Although they may have centralizing tendencies, there economic and political functions are fundamentally different – something we should never lose sight of. Even if the government provides some services or acts like platforms in a digital economy, its political identity has to be understood as separate from firms.

Similarly, the juxtaposition of universality and personalization may be less antagonistic and more about balance,as against what is presented in the lecture. While the automated self with personalized services becomes more prominent, it might not be wise for the state to lose sight of some universality and statistical averages in terms of policy making even as it focuses on the calibrating itself to individual citizens. Moreover, governance that has agility, is experimental, is automated or anticipates policy issues has to be always looked through the lens of inclusive democratic norms before institutionalizing these changes, which may not themselves yield inclusive or constitutionally sound results.

Notwithstanding these concerns, the lecture is an insightful analysis of the challenges and opportunities of the coming digital economy, what we need to think about, where to intervene and how to understand and shape the changes taking place around us.

Inter-generational Decline of Indian Villages: A Hypothesis of Migration

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India is predominantly a rural country with two third population and 70% workforce residing in rural areas. Rural economy constitutes 46 per cent of national income. Despite the rise of urbanisation more than half of India‟s population is projected to be rural by 2050. Thus growth and development of rural economy and population are a key to overall growth and inclusive development of the country.

…about two third of rural income is now generated in non agricultural activities…more than half of the value added in manufacturing sector in India is contributed by rural areas. However, the impressive growth of non agricultural sector in rural India has not brought significant employment gains or reduction in disparity in worker productivity.

Changing Structure of Rural Economy of India: Implications for Employment and Growth, Report by Niti Aayog, Government of India

Development and growth in rural India has concerned all state and national governments, and it continues to do so. Rural economy in India is supported by agriculture, it allied occupations, small industries and ‘remittances’ from migrant labor.

In the agriculture setup with large rich landowners and poor tenant farmers along with small, fragmented land holdings, there is a wide disparity in the earnings of the large land-owning rich families and the rest. Similarly, the owners of small industries earn a lot more than the workers they employ. The families that depend on earners in far-off cities are also tend to hardly get by. This has huge impacts on the opportunities available for the next generations.

The decline in the agrarian economy and slowdown in industries have led to low wages, irregular employment, unemployment and labor migration (See here). The labor migration has been documented well in the Economic Survey of India 2016-17. The pattern of labor migration suggests movement of people from already poorer, rural states or districts to richer, more developed states or districts. This movement of people may not be limited just to those seeking better employment opportunities. It also extends to educational opportunities and lifestyle improvement.

The rich, even if uneducated parents, in poor villages decide to send their kids to good schools in faraway places. The younger generation that moves away for studies do not always return and contribute to the local economy. If their family has deep ties in the village, they might stay back. Otherwise, they move away. This generation then decides to get a job in the slightly better town or a city, get married to a working partner and send their kids to even better schools and provide a supportive stable place to grow – maybe provide more assistance than their parents did with better resumes, tutors etc. This ensures that the next generation will inherit their place in the emerging socioeconomic elite.

The land-owning rich do not just employ agricultural labor but also employ servants and other workers, in however oppressive social conditions. The local masons, carpenters, car mechanics etc. have a better chance of having their services deployed with these rich staying back in the village. They also have clout with local politicians to influence expenditure on nearby schools or hospitals even if they themselves travel to cities for these services.

Meanwhile, the poor, even if educated, parents in villages have to keep their kids in local schools which have crumbling infrastructure and absentee teachers. The child may also have to work in the evening or worse, work while being enrolled in the school. This younger generation of poor families do not have access to the resources to move up the ladder, no substantial inheritance to push them into the ’emerging meritocracy’.

As public schools in villages deteriorate and local infrastructure crumbles, due to budget cuts and corruption, there is a ‘sorting’ of families in these areas not just economically but also spatially and in terms of inter-generational widening of inequality of opportunity. The erratic nature of agricultural productivity and disparity in share of earnings mean that any hardships are borne disproportionately by the poor. This means that services of carpenters or masons or beavers are not needed for small incremental works in poor households. The leaving rich further ensure that these occupations are hit even worse. This leaves the region poorer.

As the same time as rural areas become poorer, the richer enclaves in cities become costlier to live. As more people flock to the cities, real estate prices rise to limit movement of the poor into these cities – even if just for manual labor, let alone for staying with families and affording child’s education. Just as villages hollow out, urban gentrification has its own vicious cycle of walled enclaves of opportunities and shanty slums of despair.

Over time, the rich in rural areas move into towns and cities while poor have to stay back and bear the hardships, depend on government support while their communities crumble – an intergenerational decline of villages that threatens to exacerbate the already steep inequality of India. This also leaves behind an inter-generational residential and spatial sorting that creates inequality of opportunity – making a mockery of the rhetoric of meritocracy.

The myopic policy perspective of successive governments and successive budget cuts in social spending have withered away the already puny infrastructure of social mobility, skill development and safety nets available in Indian villages. With unprofitable agriculture, technological changes threatening automation and an unstable employment market, the challenges for revival of rural economy seems unlikely if the neglect continues. Industry will not automatically flock to these places without human capital to ably support them. And human capital will not develop automatically, left to the ‘invisible hand’ of the market. The state, one that has constantly promised and failed its rural constituency, has to intervene and design policies that not just restores the vitality of rural India but also rejuvenates it such that it stands in step with the nation.