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How Digital Transformation Drives Economic Change

 


We live in an era of exciting innovation. Digital technology is driving change. The economic paradigm is changing. New technologies are reshaping the market for products and elements, transforming businesses and jobs. The latest advances in innovation related to artificial intelligence are expanding the frontier of the digital revolution. The pandemic of COVID-19 has accelerated digital transformation. The future is arriving earlier than expected.

A recently published book, Shifting Paradigms: Growth, Finance, Jobs, and Inequality in the Digital Economic, examines the impact of evolving digital transformation on economic and public policy agendas.

Digital transformation: promises and pitfalls

New technology has great expectations. They create new paths and opportunities for a richer future. But they also pose new challenges. Digital technology is dazzled by the splendor and superior capabilities of its applications, but so far it hasn’t provided the full potential benefits of increased productivity. In fact, in many economies, total productivity growth has slowed in recent decades. As a result, economic growth is on a downward trend.

To realize the potential of today’s smart machines, policies also need to be smarter.

At the same time, income inequality and related inequality are widening, especially in developed countries, causing social dissatisfaction and political fermentation. Throughout the economy, participation in the new opportunities created by digital transformation is uneven. Many are left behind across different segments of industry, businesses, workforce, and society.

Technology frontier companies are breaking away from other companies, gaining an edge in increasingly concentrated markets and earning most of the revenue from new technologies. While productivity growth in these companies is strong, others are stagnant or slowing, pushing down total productivity growth. As the automation of low-skill to medium-skill tasks progresses, labor demand shifts to higher levels of skill, and wages and jobs are compromised at the lower end of the skill range. New technologies that prioritize capital, business outcomes where winners win everything, and higher levels of skills tend to make both capital and labor income distributions more unequal, and income is shifting from labor to capital. increase.

One of the key reasons for these results is the time it takes for policies and institutions to adapt to the unfolding changes. To realize the potential of today’s smart machines, policies also need to be smarter. They must be more sensitive to change in order to fully capture the potential benefits of productivity and economic growth and to deal with the increasing inequality as technological turmoil creates winners and losers.

As technology reshapes the market and changes the dynamics of growth and distribution, policies must ensure that the market remains inclusive and supports wide access to new opportunities for businesses and workers. .. The digital economy needs to expand in order to spread new technologies and opportunities to SMEs and the wider segment of the workforce.

Businesses, workers and policy makers face many questions. While digital technology offers great rewards for productivity, it poses new challenges for businesses as production processes, sources of competitive advantage, and market structures change. Is the increased concentration of industry inevitable with these technologies, as reflected in the growing market power of the technology giants? How can we capture the promise of digital innovation in finance while managing risk with respect to the rapid changes seen in financial markets? Should workers be afraid of new automation as the nature of work and skill needs changes and many old jobs and tasks disappear? How should they adapt? How are technology-driven business and job changes widening economic inequality? How should public policy be addressed?

Policy reform in the digital age

The paradigm shift addresses these questions by showing that the policy is important. Realigning policies and institutions with the digital economy requires new thinking and adaptation. Areas of interest include competition and regulatory systems, innovation ecosystems, digital infrastructure, workforce development, social protection frameworks, and tax policy.

Competition policy needs to be renewed for the digital age. Antitrust laws and their enforcement need to be strengthened. The digital economy will have to deal with issues surrounding data regulation (the lifeline of the digital economy), competition issues related to digital platforms that are emerging as the gatekeeper of the digital world, and market concentration caused by technology. Raises various regulatory issues. A giant that resembles a natural or quasi-natural monopoly because of the economies of scale and network effects associated with digital technology. As with product markets, policy makers need to ensure that financial markets remain sufficiently competitive and address regulatory challenges associated with the new world of digital financial products, platforms, and algorithms. .. In addition, new frameworks are needed for international cooperation in areas such as cross-border data flow regulation and cross-border digital business taxation.

The innovation ecosystem needs to be improved. The aging patent system needs to be updated to match the dynamics of new innovations in the digital economy, balancing existing benefits with the promotion and dissemination of broader technologies. Public R & D programs should be revitalized to promote technological progress that serves broader economic and social goals, rather than the interests of a narrow group of investors. Policy makers must correct the tax bias that prioritizes capital over labor, which creates incentives for over-automation that destroys work without increasing productivity.

To increase access to new opportunities, you need to strengthen the foundation of your digital infrastructure. This requires increased public investment and frameworks to encourage more private investment to improve digital access for poorly serviced groups and regions. The digital divide remains particularly widespread in developing countries. As technology changes force a transition from a growth model that relies on low-skill, low-paying manufacturing, stronger digital infrastructure and literacy are essential for these economies.

We need to boost and change our investment in education and training programs to highlight skills that complement new technologies. This will require innovations in the content, provision and financing of these programs, including new models of public-private partnerships. With the rapidly changing demand for skills and the increasing need for skill upgrades, skill re-learning, and lifelong learning, the availability and quality of continuing education needs to be significantly increased. You need to take advantage of the potential of technology-enabled solutions such as online learning tools. Persistent inequality in access to education and (re) training must be addressed. While the basic functional gap between income groups has narrowed, the high-level functional gap that drives success in the digital economy has widened.

Labor market policies and social protection systems should be readjusted for changing economies and the nature of work. Policies need to shift to a more positive focus, focusing on improving workers’ ability to move to new and better jobs, rather than trying to protect existing jobs that are obsolete by technology. .. The unemployment insurance system should better help workers adapt to change, retrain and move to new jobs. Worker benefits programs that cover benefits such as pensions and medical care, which were traditionally based on formal long-term employer-employee relationships, include more frequent job changes and more diverse job arrangements (including expansion). You need to adapt to the employment market with gig economy). Institutions that give workers the right voice are also important, as technology changes the balance of market power. How social contracts provide opportunities, risk sharing and security needs to be rethought for the digital age.

It enables stronger and more comprehensive economic growth by allowing companies to participate more widely in the innovation economy, expanding the spread of new technologies and building complementary capabilities to the workforce. Reforms in these areas can reduce inequality and economic instability more effectively than with fiscal redistribution alone. The agenda of growth and inclusion is the same in capturing the full promise of digital transformation.

Sources

1/ https://Google.com/

2/ https://www.brookings.edu/blog/up-front/2022/01/18/how-digital-transformation-is-driving-economic-change/

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