The Impact of Digital Technology on Society and Economic Growth - IMF F&D Magazine - June 2018 | Volume 55 | Number 2
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Bibliographic details
- Authors: MARTIN MUHLEISEN
- Published: June 1, 2018
- Volume: 55
Overview
- Digital transformation is a general-purpose technology that can continually transform itself and boost productivity across all sectors and industries.
- The digital revolution is under way, transforming jobs, skills, and industries such as retailing, publishing, trucking, and banking.
- Smart policies can alleviate short-term technological disruption and enable long-term gains.
Nature of the digital revolution and historical parallels
- General-purpose technologies previously identified: the steam engine, the electricity generator, and the printing press.
- Historical timing examples:
- James Watt marketed a relatively efficient engine in 1774.
- The first commercially successful steam locomotive appeared in 1812.
- British output per capita clearly accelerated in the 1830s.
- The personal computer emerged only about 40 years ago.
- Key dynamic: adoption must precede broad societal adaptation; lags in reorganization delay realization of productivity gains.
Economic impacts and empirical examples
- Digital platforms are recasting relationships among customers, workers, and employers.
- Examples:
- In the United Kingdom, Internet transactions already account for almost one-fifth of retail sales, excluding gasoline, up from just one-twentieth in 2008.
- Alibaba owns a bank and uses customer knowledge to provide small-scale loans to Chinese consumers.
- Amazon.com is moving into finance using data capabilities.
- Cryptocurrencies (e.g., Bitcoin) pose challenges to anti–money laundering and illicit-activity controls but the underlying blockchain could make finance faster and more secure and improve loan pricing through better client information.
- Potential future disruption from quantum computing:
- Could facilitate calculations beyond traditional computers’ capabilities.
- Could render current standards in cryptology obsolete, affecting communication and privacy.
Risks and regulatory challenges
- Digitalization raises cyber security threats as almost all essential public services and private information are online.
- Anonymous cryptocurrencies can be used to trade illegal drugs, firearms, hacking tools, and toxic chemicals.
- Cross-border characteristics of digital activity complicate:
- Regulation of the treatment of personal data.
- Taxation of intangible assets.
- Financial supervision of peer-to-peer payments and funding of crime.
- Risk of a “race to the bottom” without international policy cooperation.
Policy recommendations and roles for institutions
- Accept and improve the digital revolution rather than ignore or repress it.
- Policymakers should:
- Adapt policies on digital data and international taxation.
- Adapt labor policies and address inequality.
- Adapt education and competition policy to emerging realities.
- Respond nimbly to changing circumstances, integrate experiences across countries and issues, and tailor advice to countries’ needs.
- Regulatory frameworks should ensure financial integrity and protect consumers while supporting efficiency and innovation.
- Global cooperation is needed, with a role for international organizations:
- The World Bank and the International Monetary Fund can provide forums to address challenges, suggest effective policy solutions, and outline policy guidelines.
Concluding assessment
- While general-purpose technological revolutions are highly disruptive in the short term, reorganizing the economy around revolutionary technologies generates huge long-term benefits.
- Sensible public policies are essential during periods of great technological change, similar to past regulatory responses to the factories of the steam age (e.g., regulations on hours of work, juvenile labor, and factory conditions).
- With good policies and cross-border cooperation, digital technologies can be harnessed to improve well-being without diminishing the energy and enthusiasm of the digital age.
The Impact of Digital Technology on Society and Economic Growth - IMF F&D Magazine - June 2018 | Volume 55 | Number 2
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