The growing pains of the digital economy 2.0 (9-4-2020)

Written by: Jan Luiten van Zanden

A few days ago I introduced the project we have will JLI about the transition towards a digital economy. The current corona crisis adds a lot of weight to the debate referred to as it is speeding up this transition in a spectacular way. Perhaps the big issue from our perspective is the European response, the possible European strategy It is clear that the process is dominated by US-based tech companies such as Google, Microsoft, Facebook, Apple and Amazon – the ‘big five’ – who are primarily driven by commercial interests. The other big played is China, where the state leads a coalition of basically also profit-driven large firms (such as Ali-Baba, Huawei, Baidu). Europe does not have anything similar. On a recent list of the 20 largest tech companies in the world, 9 were Chinese firms and 11 American. If we are indeed moving towards a world economy in which power and wealth is based on data, then Europe is rapidly becoming marginal.

The problems this leads to, are many; let me just mention an important one. Even in the most neo-liberals days of the 1990s, we agreed that the infrastructures of an economy – the railway network, the electricity grid, etc. – had to remain in public hands. These infrastructures were considered essential for the functioning of the economy, and, as they were ‘natural monopolies’ (there is only one railway network or electricity grid), they have to be controlled by the state. But the internet grid is largely in private hands; its governance structure is quite complicated, and based on a so far very robust form of cooperation between a number of big companies. In times that all forms of cooperation are subject to increased international tensions, this may become problematic, however. Suppose, just for a moment, that an American President will try to use the fact that these companies are all US-based, for his own political agenda. A very unlikely scenario, of course, as American Presidents are rational politicians who will not consider such a move, but nevertheless, you cannot predict the future, and we are clearly enormously dependent on the internet. Moreover, many of the services the platform economy supplies have a similar ‘infrastructural’ character. Think of the crucial role Google Maps plays in society – what would happen if Google terminates this service? China was able to cope with the withdrawal of Google from the country, and build up an independent powerhouse of technology and enterprise that now rivals the US. Europe seems almost defenceless

There has been some talk in the last few years about a European ‘Third Road’ to the digital economy – between the state-led Chinese model and the commercial model of the US. The problem is, what do we have to work with? Does Europe have certain assets, advantages, to base a strategy on? The problem is that – as I explained in the previous blog about this topic – we do not have a clear idea about the landscape of the digital economy. We do not know what to count and how to count, as there are no clear units of measurement which would make it possible to make a detailed international comparison of the digital economies concerned. There are lists of big tech companies, but they reflects only the commercial part of the picture. A historical parallel might be: in the 19th-century people in the west knew that there was a process of economic growth going on, but nobody estimated GDP so the real contours were clouded in darkness.

The next step in our project is to try to find the necessary information about the size and structure of the Dutch digital economy. What we think we need, is a kind of national bookkeeping of the production, ‘exports’ and ‘imports’ and storage of big data. We know for example that Google or Facebook are collecting huge amounts of data here, which ‘leak’ abroad. How does this compare with the production of data for domestic users, such as the government, banks, pension funds, care institutions etc? We think that the relative strength of the Dutch data economy might well be found in the (semi)public sector, which covers almost the entire population of the country and has data about aspects of our lives (income, health, transactions) which are even more important than the data generated by Youtube or Spotify. Dutch banks know (certainly now we have abolished cash money) almost everything about our commercial transactions, and are much more digitized and centralized than banks in the US (for example). Care institutions, including insurance companies, similarly know everything about our health ‘transactions’ (whereas in the US large part of the population does not have access to the care system). Potentially, the Dutch and perhaps the European digital economy can draw strength from this semi-public sector. However, the constraints here, in terms of privacy considerations, are huge. Strangely, people seem to worry much more about the use of their data by (semi)public institutions, than by the big tech companies – who really studies the details of the ‘general conditions’ which specify the rights and duties of users of new internet toys like Facebook?  And we need to discuss the purpose of this all – if that is not profit (as in the USmodel) or control (China). Quality of life and citizenship can be the alternative ‘European’ goals, and are also the raison d’etre of the semi-public sector that would feed the data economy. A Dutch or European tracing app, to deal with the problems of the continued threat of the coronavirus, might be a good start.

I am not sure what we can contribute to this, but the idea that we should measure the digital economy, that some kind of new data bookkeeping system is required to study this systematically, is new (as far as we know), and connects with our (historical) expertise. It is necessary to try to do now what in a way Kuznets began doing for national accounts in the 1930s. Thanks to our student Johan van Hall, who is member of the Raad van Advies of CBS, I could make an appointment with Bert Kroese, Director General of CBS, to explain the idea. I’ll keep you posted about the progress of the project.

Continue reading: J.S.Bach, Jack Goldstone, and numbers (10-4-2020)