The digital economy is undeniable. But not well defined, understood, or easily measurable. The digital economy is also not evenly distributed around the world. There are digital haves and have nots between countries and within them as well. These disparities cross gender and other demographics and exist throughout the companies that operate within them as well.
Tufts University has recently updated its research on the state of digital economies across 90 countries. I interviewed the Principal Investigator of the study, Dr. Bhaskar Chakravorti, Dean of Global Business at The Fletcher School of Tufts University, on the findings.
The Tufts Digital Intelligence Index produces two scorecards: Digital Evolution and Digital Trust. Together they collect and analyze over 358 indicators across 90 countries. The Digital Evolution scorecard focuses on the competitiveness of the country’s digital economy by looking at their current digital state and their rate of digital evolution, or momentum towards the digital future.
But building a digital economy doesn’t guarantee that citizens will come, which is where their Digital Trust scorecard comes. Misinformation, cybersecurity, and other issues are degrading the potential for economic digital value creation. This second scorecard examines trust in the digital ecosystem amongst the citizens in each of 42 countries.
Their research focuses on the importance of the system within these economies that are driving its digital economy forward or holding it back. This system needs to facilitate both the growth in information and communication technology (ICT) supply and create demand for widespread adoption, use, and trust.
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Issues such as cybersecurity and misinformation can hold back a digital economy. Dr. Chakravorti describes this by saying, “We are living through an information crisis. That’s the headline. The idea of misinformation has become central to the way we think about information. We’ve retreated behind our screens out of the need to socially distance because of COVID, and there’s a crisis where we are concerned about technology playing such an important role in our lives. At the same time, we can’t quite put our finger on what that complaint is.”
Definitions for the digital economy vary, but they generally focus on the contributions that direct and indirect digital investments and outputs have on GDP. Direct contributions are the ICT firms that build the foundation of the digital economy, i.e., its infrastructure. The next layer is the firms building purely digital products and services on this foundation. And the third layer, which is the hardest to quantify in terms of GDP impact, reflects the indirect effect of non-digitally native firms adopting these tools and technologies to transform their businesses.
Leading global research firm IDC estimates that 65% of global GDP will be digitalized by 2022. With almost $7 trillion in direct digital transformation investments being made between 2020 and 2023.
Other researchers have estimated that the indirect benefits of digital transformation outweigh their direct benefits by a ratio of 3:1. And over the last three decades, it’s estimated that US$20 has been added to GDP for every US$1 invested in digital technologies — a rate of economic impact that is 6.7x the rate for non-digital investments.
The U.S. Bureau of Economic Analysis (BEA), which has a narrower view of the digital economy, has estimated that in 2019 the U.S. digital economy represented 9.6% ($2.051 trillion) of the U.S. current-dollar gross domestic product of $21.433 trillion. Their narrow view doesn’t yet factor in the third level of economic impacts driving the digital economy, the transformation of non-digital natives. But even so, the U.S. digital economy trails only real estate, rental and leasing (13.4%), government (12.3%), and manufacturing (10.9%) sectors in the share of total U.S. gross domestic product. The U.S. BEA also indicates that the U.S. digital economy’s real value-added grew at an average annual rate of 6.5% compared with 1.8% for the total U.S. economy during 2005-2019.
The digital economy is clearly on the move, but not for all countries, and some countries are moving much faster than others. Tuft’s research makes a clear distinction between those leading today and those who have the momentum to drive and define the digital future. They also identify those stalling out and those at risk of being stuck in place, such as Mexico, South Africa, Italy, the Philippines, and Brazil.
The “stall outs” or those who have reached a reasonably mature digital level but are at risk of losing momentum include Denmark, the Netherlands, Australia, Canada, and France.
The United States almost makes this list but is still showing signs of momentum and barely makes the list as a “stand out.” But rising threats in the U.S., such as misinformation and poor institutional levels of cybersecurity in the private and public sector, are significant threats to America’s digital progress made to date.
Singapore, Hong Kong, South Korea, Malaysia, Qatar, and the United Arab Emirates “stand out” as leaders who have built strong digital economies with systems powering strong positive outlooks for their digital future.
Most notably, China “breaks out” out by far, as the country with the most digital momentum together with a solid existing digital base. When I asked Dr. Chakravorti about China as this significant outlier in the research, he said, “China is moving at a speed that is not only unprecedented, it’s unparalleled anywhere in the world. Just in terms of the sheer velocity and the mass of the movement. There is an ability to scale up in China that is hard to replicate anywhere. There’s a combination of a handful of big tech companies in China that work hand in glove with the state, and the hand has now become an iron fist inside the glove because the state has doubled down on the tech companies.”
His comments and the Tufts research reflect the importance of the private and public systems needed to successfully drive digital economies forward. The macro-level forces and systemic structure that create the environment for digital success at the country level are also mirrored within companies from the boardroom on down.
Dr. Chakravorti commented here that, “Leaders need to recognize that technology is an asset, but it can be a trap and a divider for companies and society. Most of us don’t think in systems. We think linearly.
The last year and a half is the purest test of technology in living memory, in giving us a sense of how resilient this technology is. It’s pretty amazing how the [ICT] system held up. There’s much more happening beneath the technology than what we realize, and we need to be paying attention to the details. It’s not the big advancements around hardware and software. It’s the invisible creep and smaller changes that are changing things. Good technology is technology you don’t think of — good technology is seamless. It’s like dancing with Fred Astaire; someone with two left feet looks great when paired up with Fred Astaire.”
China is separating from the pack in its journey to the digital future, while many others, including the U.S. risk stalling out. The same can be said for many companies.
The digital economy holds promise for economies, companies, and citizens alike. But only if the right environment and system for success exists to enable it. Everybody can dance, but not everybody can dance like Fred Astaire.