Digital Dividends and Development

"Digital technologies have spread rapidly in much of the world. Digital dividends—the broader development benefits from using these technologies—have lagged behind. In many instances digital technologies have boosted growth, expanded opportunities, and improved service delivery. Yet their aggregate impact has fallen short and is unevenly distributed." Those are the opening words of the 2016 World Development Report from the World Bank, which focuses on the theme of "Digital Dividends." The report does a nice job of wrapping its arms around this big unruly topic, with lots of concrete facts and examples. Here's a quick overview of some points that caught my eye.

The evidence on the spread of digital technologies around the world in the last decade or so is quite remarkable. The dark solid line rising sharply in this figure shows the spread of mobile phone technology to more than 80% of the population. Internet and mobile broadband are growing too, as the lines at the bottom of the figure show, but access to mobile phones has actually outstripped access to improved water, electricity, improved sanitation, and secondary schools.

But one can view digital access as half-full or half-empty. As the report notes: "First, nearly 60 percent of the world’s people are still offline and can’t participate in the digital economy in any meaningful way. ... 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."

In what ways can the spread of digital technologies benefit the process of economic development, or economic growth more broadly? Digital technologies are what economists sometimes call "general purpose" technologies; they can be broadly applied in a very wide variety of contexts.

"Perhaps the greatest contribution to growth comes from the internet’s lowering of costs and thus from raising efficiency and labor productivity in practically all economic sectors. Better information helps companies make better use of existing capacity, optimizes inventory and supply chain management, cuts downtime of capital equipment, and reduces risk. In the airline industry, sophisticated reservation and pricing algorithms increased load factors by about one-third for U.S. domestic flights between 1993 and  2007. The parcel delivery company UPS famously uses intelligent routing algorithms to avoid left turns, saving time and about 4.5 million liters of petrol per year. Many retailers now integrate their suppliers in real-time supply chain management to keep inventory costs low. Vietnamese firms using e-commerce had on average 3.6 percentage point higher TFP [total factor productivity] growth than firms that did not use it. Chinese car companies that are more sophisticated users of the internet turn over their inventory stocks five times faster than their less savvy competitors. And Botswana and Uruguay maintain unique ID and trace-back systems for livestock that fulfill requirements for beef exports to the EU, while making the production process more efficient."

What about specifically helping the poor in developing countries?

"The biggest gains from digital technologies for the poor are likely to come from lower information and search costs. Technology can inform workers about prices, inputs, or new technologies more quickly and  cheaply, reducing friction and uncertainty. That can eliminate costly journeys, allowing more time for  work and reducing risks of crime or traffic accidents. Using technology for information on prices, soil  quality, weather, new technologies, and coordination with traders has been extensively documented in agriculture ... In Honduras, farmers who got market price information via short message service (SMS) reported an increase of 12.5 percent in prices received. In Pakistan, mobile phones allow farmers to shift to more perishable but higher return cash crops, reducing postharvest losses from the most perishable crops by 21–35 percent. The impacts of reduced information asymmetries tend to be larger when learning about information in distant markets or among disadvantaged farmers who face more information constraints. ..."

"In 12 countries surveyed in Africa, 65 percent of people believe that their family is better off because they have mobile  phones, whereas only 20 percent disagree (14.5 percent not sure). And 73 percent say mobile phones help save on travel time and costs, with only 10 percent saying otherwise. Two-thirds believe that having a mobile phone makes them feel more safe and secure."

To me, one intriguing application of digital technologies is to offer people a proof of identification. One of the most remarkable efforts along these lines is India’s Aadhaar system, in which about 900 million people have a 12-digit number which is linked to biometric information.

"Identity should be a public good. Its importance is now recognized in the post-2015 development agenda, specifically as a Sustainable Development Goal (SDG) target to “promote peaceful and inclusive societies for sustainable development, provide access to justice for all, and build effective, accountable, and inclusive institutions at all levels.” One of the indicators is to “provide legal identity for all, including birth registration, by 2030.” The best way to achieve this goal is through digital identity (digital ID) systems, central registries storing personal data in digital form and credentials that rely on digital, rather than physical, mechanisms to authenticate the identity of their holder. ...

"India’s Aadhaar program dispenses with the card altogether, providing remote authentication based on the holder’s fingerprints or iris scan. Online and mobile environments require enhanced authentication features—such as electronic trust services, which include e-signatures, e-seals, and time stamps—to add confidence in electronic transactions. Mobile devices offer a compelling proposition for governments seeking to provide identity credentials and widespread access to digital services. In Sub-Saharan Africa, for example, more than half of the population in some countries is without official ID, but more than two-thirds of the residents in the region have a mobile phone subscription. The developing world is home to more than 6 billion of the world’s 7 billion mobile subscriptions, making this a technology with considerable potential for registration, storage, and management of digital identity.  ...  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. Digital technologies also enable the poor to vote by providing them with robust identification and by curtailing fraud and intimidation through better monitoring."

The report also discusses potential dangers of the spread of digital technology, including risks of greater concentration of large firms, a possible rise in economic inequality, and potential for government control of information. For example, there is some evidence of a "hollowing out" of jobs in a number of developing economies. The countries in the figure below are ranked from left to right by the annual change in the share of medium-skill jobs, shown by the medium-green bar. The darkest bars show the change in high-skilled jobs, while the lightest bars show the change in low-skilled jobs. A number of economies (although not China, shown on the far right) are seeing a drop in the share of jobs that involve medium skills.

A couple of final thoughts:

First, the upside thing about digital technologies is that they are general purpose, and have such broad application. The corresponding downside is that such technologies need to be applied, and wisely applied, in a broad variety of contexts to have their most powerful effect. As the World Bank report notes:

Access to the internet is critical, but not sufficient. The digital economy also requires a strong analog foundation, consisting of 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.

I confess that part of this explanation just made me laugh. Only international bureaucrats at a place like the World Bank could un-selfconsciously write that what's first needed is "regulations," because apparently we all know that regulations are what "create a vibrant business climate."  Well, at least we can agree that a favorable business climate is what's important! Along with human capital and good governance, or course.

The other point is that although the report is understandably focused on how digital technologies affect productivity and output, it also raises in a number of places the insight that many of the benefits of digital technology may not be captured very well by the economic values alone. For example, the report notes:

The digital revolution has brought immediate private benefits—easier communication and information, greater convenience, free digital products, and new forms of leisure. It has also created a profound sense of social connectedness and global community.

The connectedness and information flows of digital technology provide a very wide range of benefits. In economic terms, we measure those benefits by what users pay for the service. But like many innovations, what is provided was literally not possible to receive--or only possible at an extremely high price--before the innovation occurred. On a personal level, I receive very large benefits from access to the internet, by which I include use of computer, phone, and television. Thanks to the magic of somewhat competitive markets and their ongoing drive for innovation, what I actually pay for those services seems considerably less to me than the value of the benefits I receive.