If any modern economy wants to keep, or even add, value to their country as the digital economy grows it has to search for productivity in new ways. That means bringing together innovations from IT that are outside today’s core and combining them with solutions developed both locally and globally.
Global economies are experiencing a period of rapid change that has arguably not been seen before by anyone less than 80 years of age. Global drivers have been shifting from valuing the making of things to the flow of intellectual capital. This is the shift to an information economy which has most recently been dubbed “digital disruption”.
In just a few short years the digital economy has grown from insignificance to being something that politicians around the world need to pay attention to.
Unfortunately, most governments see the digital economy in terms of the loss of tax revenue from activities performed over the internet rather understanding the extent of the need to recalibrate their economies to the new reality.
While tax loopholes are always worth pursuing, the real focus should be stepping up to challenge of every country around the world: how to keep adding value locally to protect the local economy and jobs. There is absolutely no point, for instance, in complaining about there being less tax on music streaming than the manufacture, distribution and sale of CDs. The value is just in a different place and most of it isn’t where it was.
Although the loss of bookstores and music retailers has been one of the most visible changes, the shift in spending has come at an incredible pace. Just ask any postal service or the newspaper industry. As citizens we are keen to take advantage of the advances of smartphones, the integration of supply chains with manufacturing in China (giving us very cheap goods) and the power of social media to share of information with our friends. We are less keen when our kids lose their jobs as retail outlets close, manufacturing shuts down and the newsagent’s paper round gets shorter.
We all benefited dramatically as IT improved the efficiency and breadth of services that government and business was able to offer. Arguably the mass rollout of business IT was as important to productivity in the 1990s as the economic reforms of the 1980s. As a direct result there are now millions of people employed in IT around the world.
While this huge workforce has been responsible for so much, today it is not being applied enough to protect economies from leaking value offshore. Many companies regard technology as something they do just enough of to get on with their “real” businesses, even as their markets diminish. Even “old economy” businesses need to be encouraging their IT departments to innovate and apply for patents.
To protect their tax base, and future prosperity, each country has to search for productivity in new ways. That means combining innovations from IT that are outside today’s core and combining them with solutions developed by other organisations locally and internationally. It means looking beyond the core business and being prepared to spin-off activities at the edge that have real value in their own right. And it also means governments and large enterprises need to change the way that they procure so that they are seeding whole new economies.
Today when politicians and executives hear about IT projects they don’t think about the productivity gain, they just fear the inevitable delays and potential for bad press. That’s because large organisations have traditionally approached IT as a 1990s procurement problem rather than as an opportunity to seed a new market. A market that is desperately needed by small and medium enterprises who, while innovative, find it very hard to compete for big IT projects leaving many solutions being limited to less innovative and less efficient approaches. Every time this happens the local and global economy takes a small productivity hit which ultimately hurts us all.
Imagine a world of IT where government and large business doesn’t believe it has to own the systems that provide its citizens and customers with services. This is the economy that cloud computing is making possible with panels of providers able to delivery everything from fishing licences to payroll for a transactional fee.
Payment for service reduces government and business involvement in the risky business of delivering large scale IT projects while at the same time providing a leg-up for local businesses to become world leaders using local jobs.
Government can have a major impact through policy settings in areas such as employee share schemes, R&D tax credits and access to skilled labour. However the biggest single impact they can have growing their digital economies and putting the huge IT workforce to productive work is through the choices they make in what they buy.
Business can have a major impact on productivity by managing cost in the short-term by better integrating with local and global providers, but to repeat the benefits of the 1990s productivity improvements will require a willingness to invent new solutions using the most important tools of our generation: digital and information technology.