## The Digital Revolution — The Long and Short Of

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### Nature and historical parallels
- Characterized as a general-purpose technology with the power to continually transform itself and boost productivity across all sectors; previous general-purpose technologies: the steam engine, the electricity generator, and the printing press.
- Long-term benefits accrue from both adopting and adapting to the technology; examples:
  - Steam engine: from pumping water out of mines to railroads and industry.
  - Electricity: enabled precise delivery of power, improving manufacturing efficiency and enabling the modern production line.
  - Digital platforms (example): "Uber is a taxi company using digital technology to deliver a better service."

### Adoption, diffusion, and industry disruption
- Digital transformation depends on computers, the Internet, search engines, and digital platforms; widespread adoption is needed before full societal adaptation can occur.
- Diffusion is faster and more global than past revolutions because the workhorses—computers, the Internet, and artificial intelligence backed by electrical power and big data—are widely available.
- Examples of industry and country-level disruption and innovation:
  - In the United Kingdom, Internet transactions account for "almost one-fifth of retail sales, excluding gasoline, up from just one-twentieth in 2008."
  - Alibaba "already owns a bank" and uses customer knowledge to provide small-scale loans; Amazon.com is "moving in the same direction."
  - Less-developed countries leading in specific areas: mobile payments (Kenya), digital land registration (India), and e-commerce (China).

### Technology risks and enabling innovations
- Cryptocurrencies:
  - Anonymous cryptocurrencies such as Bitcoin pose challenges for anti–money-laundering and illicit-activity prevention; they can be used to trade illegal goods.
  - Underlying blockchain technology "will likely revolutionize finance" by making transactions faster and more secure and improving loan pricing via better client information.
- Quantum computing:
  - Potentially facilitates calculations beyond traditional computers and could "render current standards in cryptology obsolete," affecting communication and privacy.
- Cybersecurity:
  - Increasingly important as almost all essential public services and private information are online.

### Labor market impacts and skills
- Disruption to jobs and tasks:
  - "The jobs of up to one-third of the US workforce, or about 50 million people, could be transformed by 2020," according to the McKinsey Global Institute report cited.
  - The study estimates "about half of all paid activities could be automated using existing robotics and artificial and machine learning technologies."
  - Examples of tasks being automated: driving taxis; checking for signs of cancer (tasks performed by radiologists).
- Digital device penetration and latent capacity:
  - "More than 4 billion people have access to handheld devices that possess more computing power than the US National Aeronautics and Space Administration used to send two people to the moon."
  - The personal computer emerged "about 40 years ago."
- Future skills emphasis:
  - Education and training should equip workers for new roles (web engineering, protecting cyber security) and prioritize retraining for displaced workers.
  - Jobs emphasizing human empathy and originality (e.g., nursery school teachers, clergy, artists) are "deemed least likely to become obsolete."

### Economic structure, inequality, and competition
- Organizational change and inequality:
  - Inequality may rise as efficiency and market-value gaps widen between firms with new business models and those that have not reorganized; such gaps close only when old processes are largely replaced.
  - Oxfam International reported that "eight individuals held more assets than the poorest 3.6 billion combined."
- Competition policy challenges:
  - New entrants with rapid growth potential (small innovative companies) complicate traditional antitrust approaches oriented to large incumbents.
  - Policy question: how to prevent dominant firms from acquiring nascent competitors that could become the "next Google or Facebook."

### Policy priorities and recommendations
- General approach:
  - Accept and improve the digital revolution rather than ignore or repress it; "the answer lies not in denial but in devising smart policies that maximize the benefits of the new technology while minimizing the inevitable short-term disruptions."
- Specific policy areas to adapt:
  - Education and training: flexible systems to supply new skills to entrants and retraining opportunities for existing workers.
  - Labor policies and inequality: respond to job displacement and distributional effects.
  - Competition policy: adapt to rapid scale-up of small innovative firms and avoid winner-take-all outcomes.
  - Digital data and international taxation: regulate personal data treatment and address taxation challenges posed by intangible assets and cross-border digital activity.
  - Financial regulation and supervision: update to address peer-to-peer payments, cryptocurrencies, and cybersecurity risks while supporting innovation.
- International coordination:
  - Need for cross-border cooperation to avoid a "race to the bottom" on regulation of personal data, intangible assets taxation, and financial integrity.
  - Role for global international organizations (World Bank, International Monetary Fund) to provide a forum, suggest effective policy solutions, and outline policy guidelines tailored to countries' needs.

### Scenarios and outlook
- Short-term: Technological adoption causes disruption and job transformation; organizational reallocation and re-skilling take time.
- Long-term: Reorganizing the economy around revolutionary technologies "generates huge long-term benefits," analogous to prior general-purpose technologies.
- Pace and locus of adaptation will vary by country and sector; policy responses will be largely national or regional but benefit from international experience-sharing.

*Martin Mühleisen, "The Digital Revolution," FINANCE & DEVELOPMENT, June 2018.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2018/june/muhleisen.pdf_