Digital Tipping Point: Policy Implications of Digitisation
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Digital technologies are transforming the global economy and society in fundamental ways: 1) Mobile broadband and digital technologies have enabled supercomputers to be carried in people's pockets, generating huge data flows and fueling disruptive innovation. 2) Digitization allows value creation to be decoupled from geography as digital firms are able to globally scale without requiring large numbers of employees in any single location. 3) The Internet, through open standards and decentralized architecture, enables global interoperability, permissionless innovation, and new platforms that facilitate many-to-many interactions instead of traditional one-to-many models.
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Digital Tipping Point: Policy Implications of Digitisation
- 1. DIGITALISATION AND THE FUTURE OF WORK: A DIGITAL TIPPING POINT? OECD’s Global Parliamentarian Network Andrew Wyckoff Director of Science, Technology and Innovation 12 October 2016
- 2. IBM 360 (1964) – the first mainframe Why all the attention now?
- 3. 0 25 50 75 100 125 Terrestrial mobile wireless Satellite Terrestrial fixed wireless All technologies, 2009 Subscriptions per 100 inhabitants 3 out of 4 OECD inhabitants now have mobile wireless broadband… Mobile wireless broadband penetration, by technology, December 2009 and 2013 Subscriptions per 100 inhabitants Source: OECD (2014), Measuring the Digital Economy. A New Perspective, OECD Publishing. http://dx.doi.org/10.1787/888933147973
- 4. …and people carry supercomputers (circa 1990) in their pockets. 0 50 100 150 200 250 300 350 Millions Smartphones Other mobile phones Quarterly shipping trends of smartphones, 2010-13 Sources: NBC News, St Peter’s Square: http://instagram.com/p/W2FCksR9-e/ and OECD Broadband Portal
- 5. 5 This is just the beginning of the data-driven economy & society…
- 6. 6 Monthly global IP traffic, 2005-16 In exabytes (billions of gigabytes) Average data storage cost, 1998-2012 In USD per gigabyte (log scale) Source: OECD based on Pingdom (2011) Source: OECD based on Cisco (2012) …that generate huge data flows...
- 7. 7 …which is fueling a new type of disruptive innovation. Algorithmic trading as share of total trading Note: 2013-14 based on estimates.Source: OECD based on The Economist (2012) and Aite Group Driverless car Siri
- 8. Notes: average employment growth of small (0-49) units. Digital sectors are IT and other information services and Telecommunications. Average over available years. Sectors covered: manufacturing, construction and non-financial business services. Owing to methodological differences, figures may deviate from officially published national statistics. Source: DynEmp v.2 database. Embrace the Change: digital firms bring dynamism and jobs Small Firm (0-49) net Job Growth, various years between 1997-2013
- 10. Two tech mega-trends that affect nearly all public policies • Digitisation • Internet Atoms to Bits Interconnection 10
- 11. Digitisation • Transformation of an image, sound, document or signal into binary form, which enables computer processing; • Unlike analog data, digital data can be propagated indefinitely… • …and this digital state allows recombined, versioned and tailored at low cost… • …and stored and delivered anywhere at a low price. 11
- 12. http://sanfrancisco.cbslocal.com/2016/05/24/french-police-raid-googles-paris-offices-in-1-7-billion-tax-fraud-money- laundering-probe/; http://www.androidauthority.com/european-commission-google-antitrust-charges-687982/ Digitalisation: A decoupling of value creation from geography
- 13. Whatsapp, 300M active users, 20B message/day, 45 employees Netflix, 30% peak Internet traffic, 2000 employees, USD3.5B revenue Snapchat, 350M photos per day, 30 employees; Dropbox, 175M users, 250 employees Digitalisation: the ability to (globally) “scale” without “mass”
- 14. Expand our understanding of “data” • More than just “personal” data: 21st C infrastructure • The growing importance of data “analytics” • Ability to transform / manipulate = multi-sided markets De-coupling of value creation from geography • Rise of nomadic workers; • Rise of irregular workers; • Emphasis on creativity, problem solving skills – not routine work; Sale without Mass • Small units of employment with global reach; • independent or combined into a “networked” firm POLICY IMPLICATIONS
- 15. The Internet • Uses standards that are commonly developed, voluntarily adopted, and openly available global interoperability and efficiency • Decentralised and open architecture: no government or monopolistic private control permission-less usage: innovation and competition 15
- 18. …enabling new intermediaries: platforms.
- 19. De-concentration • Blurring of consumer vs. business; employee and contractor; • Enables platform jobs, piece work and on- demand scheduling • Data flows enable micro-targeting. Re-concentration • New methods of labour organisation; • New intermediaries for policy POLICY IMPLICATIONS
- 20. 20 OECD’s new “Horizontal” project on the Digitalisation of the Economy and Society
Editor's Notes
- The process of digitalisation is not new – underway for at least 50 years… So why all the attention and increased policy focus now?
- The coming together of two important technology “inflection points.” The first: Connectivity has become the norm for the OECD with almost 3 out of 4 individuals in the OECD having wireless broadband subscription (72% is the OECD average) Old 2013 data – as 2015 – now 80%
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- These devices and our growing reliance on the Internet A common attribute of all these new production technologies and KBC investments is that they produce and feed-off-of data; On the LEFT: you can see that the cost of storing data has plummeted especially since 2009; On the RIGHT – you can see that the volume of data has soared, especially since 2009. More data in a week than in the last mellenium…. All predications are that this is only the beginning –
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- This is really the fundamental basis: the transformation of information from analog to digital, a trend that started with the first computers and the advent of the Internet, which created global interconnectivity.
- - a basic property of the Digital era: impart value to intangible products which can be digitised like data or software. enables products to be stored, or value creation to occur nearly anywhere, decoupling it from a physical location or nexus. - not only Tax but also: -- competition policy which tends to depend on geographically bound, narrowly defined markets; -- trade policy and which is predicated on something crossing a border and -- education policy much of which is defined by physical things like classrooms, schools and districts.
- If the product also benefits from network externalities where more users enhance the utility of the product, the resulting scale effects can contribute to so-called winner-take-all markets, raising competition issues. More generally, this “scale without mass” effect of digital businesses is another manifestation of transformation of businesses from producing atoms to bits. This will present challenges to policies that are currently oriented towards “big” or “small” businesses because these new digital businesses may be big in terms of revenue and influence but not by measures of mass: people, capital equipment or buildings. Many policies – labour laws, innovation policies, are differentiated by the size of the firm. More generally the shift from Atoms to Bits will raise issues not only in tax and competition policy, but also in trade policy and which is predicated on something crossing a border and education policy which is defined by classrooms, schools and districts.
- and the ability to use the Internet to do more things (e.g. start a business, raise capital, express opinions, conduct research, share knowledge). And this digitised state, fuelled by the global reach of the Internet enables “policy arbitrage” which is at the heart of BEPS
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- This is transformative and instead of the old systems that forced a “one to many” , the Internet with smart devices allows “many to many” This has several implications for policy, including dismantling of complex hierarchical structures meant to process and funnel data up to decision makers and The adoption of flatter, “mesh” network structures that are more flexible and semi-autonomous; That enable peer-to-peer platforms like Uber, AirBNB and UpWork and the so-called “gig” economy
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- From atoms to bits From centralised to distributed (from ‘command and control” to “organic”) Disintermediation and re-intermediation Control over mass communication and changing sense of community: a broadening and transfer The global nature of the Internet - and the erosion of the Sovereignty of the State The changing nature of capital Growing economies of scale and scope The nature of markets and their regulation, e.g. P2P Speed and temporal shifts