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Digital Economy’s Wealth Creation: “A Tale of Two Countries – the USA and China”

The first-ever Digital Economy Report explains the workings of the world’s digital economy and the ensuing inequalities in the distribution of its benefits.

Young people in Malaysia use their cell phones to stay connected. (Photo by: UNICEF?Fara Zahri)

However, according to the Report, “The United States and China account for 75% of all patents related to blockchain technologies, 50% of global spending on the Internet of Things (loT) [and] more than 75% of the cloud computing market.” Even more alarming is that “The United States and China account for as much as 90% of the market capitalization value of the world’s 70 largest digital platform companies.” UNCTAD’s [Division on Technology and Logistics Director, Shamika] Sirimanne ... stated, “In terms of wealth creation, it is basically a tale of two countries – the United States of America and China.”

On Wednesday, September 4, 2019, the UN Conference on Trade and Development’s (UNCTAD) Division on Technology and Logistics released its first-ever Digital Economy Report 2019 entitled, “Value Creation and Capture: Implications for Developing Countries.” The Report was launched at a Breakfast Roundtable with the press and was presented by UNCTAD’s Division on Technology and Logistics Director, Shamika Sirimanne.

Chantal Line Carpentier (at dais), Chief of the UN Conference on Trade and Development (UNCTAD) New York office, briefs press on the launch of the Digital Economy Report 2019. (photo by:
UN Photo/Manuel Elias)

The Digital Economy Report “maps the flow, data, and funds in the world’s digital economy.” The Report, formerly known as the Information Economy Report, deals with a different theme every year. According to UNCTAD’s Technology and Logistics Director, last year the Report dealt with what new technological frontiers could do for sustainable development and how it pertained to achieving the Sustainable Development Goals (SDGs). This year, the Report deals with what these new technological frontiers mean for developing countries and what the implications are.

In the past, new technological advances were addressed regarding developed countries, like the US, leaving developing countries marginalized in the digital world. Furthermore, as the 2030 Agenda for Sustainable Development is about making sure no one is left behind, the Digital Economy Report 2019 takes this issue head-on within the digital world.

The new technological frontiers of today’s digital world include, blockchains, data analytics, artificial intelligence, 3D printing, Internet of Things, Automation & Robotics, and Cloud Computing. However, according to the Report, “The United States and China account for 75% of all patents related to blockchain technologies, 50% of global spending on the Internet of Things (loT) [and] more than 75% of the cloud computing market.” Even more alarming is that “The United States and China account for as much as 90% of the market capitalization value of the world’s 70 largest digital platform companies.” UNCTAD’s Sirimanne summed it up succinctly during her presentation of the Report in a press briefing later that afternoon. She stated, “In terms of wealth creation, it is basically a tale of two countries – the United States of America and China.”

According to Sirimanne, “data is monopolistic.” Indeed, data is being dominated by global digital platforms and its wealth is being accumulated in the hands of a few. We wanted to know why only the US and China dominated almost the entirety of the market and according to Sirimanne, the primary reason was attributed to network effects. Essentially, the more people that use the platform, such as Facebook, the less likely we are to use a new or alternate platform in that market. Another reason is that China has the numbers. With a population closing in on 1.5 billion people that translates into 1.5 billion users, whereas the US has the home advantage of having the internet invented there.

The study shows that there are seven ‘super platforms’ – Microsoft, followed by Apple, Amazon, Google, Facebook, Tencent and Alibaba, and they “account for two thirds of the total market value of the top 70 platforms.” In 2017, “the combined value of the platform companies with a market capitalization of more than $100 million was $7 trillion.” The Report shows that data doesn’t have economic value until it is processed into digital intelligence. Once that happens, it can then be monetized by these platforms, such as Google, who currently dominates 90 per cent of the internet search market, Amazon who controls one-third of the world’s online retail activity, and Facebook, who monopolizes 66 per cent of the global social media market.

So, the question becomes: is there any room for competition from small and medium-sized enterprises (SMEs), and if so, how? According to Sirimanne, the answer is yes and the how is “market niches.” It means finding a new product or category that specializes in something that “global operating platforms are unable or unwilling to address.”

However, it becomes apparent that the opportunity to benefit from the wealth created by the digital world is not available to everyone. According to the Report, half the world remains offline. In least developed countries (LDCs), only one in five people is online, and the gender gap is the widest in the poorest economies. Secretary-General Guterres concurs, with his statement that, “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.”

As a result, the UNCTAD’s Division on Technology and Logistics also released a “Global Call for Action.” It stressed the need for global efforts to “spread the rapidly expanding digital economy’s gains to the many people who currently reap little benefit from it.” That means affordable access to the internet and that everyone has the basic digital skills to be able to analyze the data they are accessing. It also means that there needs to be an enabling environment, meaning that both men and women need to have equal access to the internet and its benefits.

The other pressing issue is that developing countries continue to be marginalized as the digital world continues to expand.  In order to have a place in the digital world, developing countries need to have a seat at the table during discussions about regulations and other pertinent matters concerning the digital world. If this is to be done, then the best place for it to start is at the UN, according to UNCTAD’s Sirimanne.

Funding is one of the main reasons why developing countries are being left behind. According to the UNCTAD’s Technology and Logistics’ director Sirimanne, funding has been shifting to the social sectors.  The issue with that is achieving the 2030 Agenda for Sustainable Development requires an equal investment in the economic, social, and environmental sectors. However, as a majority of aid is directed to social sectors, developing countries continue to be dependent on developed countries. If more funding was invested in the economic sectors, then developing countries would be able to develop independently and take a place in the digital world.

Sirimanne opined that we are at the beginning of a new technological revolution –a data one. According to the Report, “the world is only in the early days of the data-driven economy.” In 2017, global internet protocol (IP) traffic – a proxy for data flows – was 46,600 GB per second. This number is expected to reach 150,700 GB per second in 2022. This Report’s findings fall in line with the Report of the UN Secretary-General’s High-level Panel of Digital Cooperation, entitled the Age of Digital Interdependence. The Report poses the question of where the cooperation is necessary, and when you consider that only one in five developing countries have access to internet, it becomes apparent that cooperation needs to occur between developing and developed countries. If you don’t have access to the internet, then you’re not a part of the digital revolution.

Therefore, still according to Sirimanne, we need to keep in mind that regulations are not a bad thing. Yes, regulations tend to favor big companies and impede the progress of smaller enterprises, and this is something that has to be worked on. However, regulations done properly keep bigger companies under control and in check. Taxation is not a bad thing either, in Sirimanne’s estimation, because “if you are a company making money in my country then you should be paying taxes in my country.” As the director pointed out, Google is a prime example of this issue. Sixty per cent of Google’s profits are created outside the US, yet ninety per cent of their taxes are paid within the US.

Therefore, the Report suggests that governments begin a dialogue with other stakeholders, such as the private sector, civil society, and academia to shape the digital economy and define the rules of the game. It also emphasizes once again that, “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.” What’s more, we need to go beyond enlisting the help of developing countries, and “enable the building of domestic capabilities to create and capture value.”

In conclusion, there is a dire need for international support and cooperation in order to fix the host of inequalities that threaten to leave behind developing countries in the digital world. Without accessible internet and all that stands to benefit from that access available across the globe, we have no hope of achieving the Agenda for Sustainable Development by 2030.

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