A United Nations agency says concerted global effort will be required to ensure that the benefits of the rapidly expanding digital economy are shared with the millions otherwise destined to miss out.
In its first Digital Economy Report, the UN Conference on Trade and Development (Unctad) maps the global flow of data and funds and outlines the enormous potential gains and possible development costs as more people connect and make purchases online.
Wealth creation is highly concentrated in the United States and China, it notes, with the rest of the world trailing considerably far behind, especially countries in Africa and Latin America.
The US and China account for 75 per cent of all patents related to blockchain technologies, 50 per cent of global spending on the internet of things, more than 75 per cent of the cloud-computing market and as much as 90 per cent per cent of the market capitalisation value of the world’s 70 largest digital-platform companies.
Under current policies and regulations, this trajectory is likely to continue, further contributing to rising inequality, warned UN Secretary-General António Guterres.
“We must work to close the digital divide, where more than half the world has limited or no access to the Internet. Inclusivity is essential to building a digital economy that delivers for all,” Guterres writes in the report.
Unctad Secretary-General Mukhisa Kituyi said people in developing countries must be allowed “to take part in the new digital world, not just as users and consumers, but also as producers, exporters and innovators, … on their path towards inclusive prosperity”.
Global internet protocol (IP) traffic has seen dramatic growth, the report says, from 100 gigabytes of traffic per day in 1992 to more than 45,000 per second in 2017. And yet the world is only in the early stages of the data-driven economy. By 2022, global IP traffic is projected to reach 150,700GB per second.
The surge reflects growth in the sheer number of people using the internet and the uptake of frontier technologies such as blockchain, data analytics, artificial intelligence, 3D printing, automation, robotics, cloud computing and the internet of things.
An entirely new “data value chain” has evolved among firms that support data collection, the production of insights from data and data storage.
Businesses that build digital platforms have a major advantage by acting as both intermediary and infrastructure. They are positioned to record and extract data related to online interactions and transactions.
The report notes that 40 per cent of the world’s 20 largest companies by market capitalisation have a platform-based business model.
Seven “super-platforms” – Microsoft, Apple, Amazon, Google, Facebook, Tencent and Alibaba − account for two-thirds of the total market value of the top 70 platforms.
The combined value of the platform companies with market capitalisation of more than US$100 million was estimated at more than $7 trillion in 2017 – 67 per cent higher than in 2015, according to the report.
Some digital platforms have grown to dominate key niches. Google has some 90 per cent of the market for internet searches, while Facebook accounts for two-thirds of the global social-media market and is the top social network in more than 90 per cent of countries.
In China, WeChat, owned by Tencent, has more than one billion active users. Its payment solution and Alipay, owned by Alibaba, have captured virtually the entire Chinese market for mobile payments. Meanwhile, Alibaba is estimated to have close to 60 per cent of the Chinese e-commerce market.
These companies are aggressively consolidating their competitive positions, including by acquiring potential competitors and expanding into complementary products or services, lobbying in domestic and international policymaking circles and establishing strategic partnerships with leading multinationals in traditional sectors, such as automotive, semiconductor and retail industries.
The dominance of global digital platforms and their control of data, as well as their capacity to create and capture the ensuing value, accentuates concentration and consolidation rather than reducing inequalities between and within countries, the report notes.
It warns that developing countries risk becoming mere providers of raw data, while having to pay for the digital intelligence generated using their data.
If left unaddressed, the yawning gap between the under-connected and the hyper-digitalised countries will widen, and inequalities be exacerbated.
The report suggests finding an alternative configuration of the digital economy that leads to more balanced results and a fairer distribution of the gains from data and digital intelligence.
Governments have a critical role in shaping the new economy by defining the rules, it says. This involves the adaptation of existing policies, laws and regulations, and the adoption of new ones in many areas.
“A smart embrace of new technologies, enhanced partnerships and greater intellectual leadership are needed to redefine digital development strategies and the future contours of globalisation,” Kituyi said.
Policy responses need to consider increased difficulties of enforcing national laws and regulations with respect to cross-border trade in digital services and products, the report recommends.
Further, they should explore new pathways for local value creation and capture, and structural transformation through digitalisation.
National development strategies should also seek to promote digital upgrading (value addition) in data value chains, and to enhance domestic capacities to “refine” the data.
“Digitalisation affects different countries in different ways, and individual governments require policy space to regulate the digital economy to meet various legitimate public policy objectives,” the report states.
At the same time, several policy challenges associated with value creation and capture in the digital economy can only be effectively addressed at the regional or international level, with the full involvement of developing countries. This includes competition, taxation, cross-border data flows, intellectual property, trade and employment policies.
To secure a digital future for the many, rather than the few, domestic and international policies should go beyond enlisting more developing-country users and consumers online; they should also enable the building of domestic capabilities to create and capture value.
According to the report, the development community needs to find more comprehensive ways to support countries that are trailing in the digital economy.
It recommends that more assistance should aim at reducing the digital divides, strengthening the enabling environment for value creation and building capacities in the private and public sectors.
Further, policy actions should seek to enhance trust by supporting the adoption and enforcement of relevant laws and regulations to promote value creation and capture in the data-driven digital economy, says the report.
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