Where are the ‘Digital Dividends’ from the ICT Revolution? The new World Development Report

February 22, 2016 3 By Duncan Green

OK, book done, back from recuperative holiday, time to get back to daily blogging.

Earlier this month I headed off for the London launch of the 2016 World Development Report, ‘Digital Dividends’. WDR 2016 coverThe World Bank’s annual flagship is always a big moment in wonkland, and there has been a lot of positive buzz around this one.

Here’s how the Bank summarizes its content:

‘What is the Report about? It explores the impact of the internet, mobile phones, and related technologies on economic development.

What are the digital dividends? Growth, jobs, and services are the most important returns to digital investments.

How do digital technologies promote development and generate digital dividends? By reducing information costs, digital technologies greatly lower the cost of economic and social transactions for firms, individuals, and the public sector. They promote innovation when transaction costs fall to essentially zero. They boost efficiency as existing activities and services become cheaper, quicker, or more convenient. And they increase inclusion as people get access to services that previously were out of reach.

Why does the Report argue that digital dividends are not spreading rapidly enough? For two reasons. First, nearly 60 percent of the world’s people are still offline and can’t fully participate in the digital economy. There also are persistent digital divides across gender, geography, age, and income dimensions within each country. Second, some of the perceived benefits of the internet are being neutralized by new risks. Vested business interests, regulatory uncertainty, and limited contestation across digital platforms could lead to harmful concentration in many sectors. Quickly expanding automation, even of mid-level office jobs, could contribute to a hollowing out of labor markets and to rising inequality. And the poor record of many e-government initiatives points to high failure of ICT projects and the risk that states and corporations could use digital technologies to control citizens, not to empower them.

Cup Half Full version

Cup Half Full version

What should countries do to mitigate these risks? Connectivity is vital, but not enough. Digital investments need the support of “analog complements”: regulations, so that firms can leverage the internet to compete and innovate; improved skills, so that people can take full advantage of digital opportunities; and accountable institutions, so that governments respond to citizens’ needs and demands. Digital technologies can, in turn, augment and strengthen these complements—accelerating the pace of development.

What needs to be done to connect the unconnected? Market competition, public-private partnerships, and effective regulation of internet and mobile operators encourage private investment that can make access universal and affordable. Public investment will sometimes be necessary and justified by large social returns. A harder task will be to ensure that the internet remains open and safe as users face cybercrime, privacy violations, and online censorship.

What is the main conclusion? Digital development strategies need to be broader than ICT strategies. Connectivity for all remains an important goal and a tremendous challenge. But countries also need to create favorable conditions for technology to be effective. When the analog complements are absent, the development impact will be disappointing. But when countries build a strong analog foundation, they will reap ample digital dividends—in faster growth, more jobs, and better services.’

I found the tone of the launch actually more downbeat than the report. Deepak Mishra, its lead author, told me he was surprised by how depressing the picture was – he was expecting more evidence of a positive impact of ICT.

The findings on inequality were particularly worrying – ICT has an inherent disequalizing tendency and needs strong

Cup Half Empty

Cup Half Empty

institutions to counteract winner-takes-all market concentration rapidly followed by political capture (Google anyone?) and its impact in automating jobs in the the soft, replaceable centre between high skill and manual labour. Feels like we’re running up a down escalator on that one.

Everyone was very excited by the recognition of the importance of ‘analog complements’ (what most of us refer to as real life – skills, institutions, power, politics etc). I both shared that, and thought ‘well duh, what did you expect?’ The cycle is endlessly repeated: a new magic bullet, rapidly turned into a straw man (‘solving poverty one app at a time’ – does anyone really think that?). Then someone takes a cold hard look at the evidence and concludes that it’s all about the institutions, governance etc.

phone dangerTwo areas where the report could have taken this further, in my view.

  1. Where’s the history? The report is stuffed full of ‘positive deviants’ in the shape of companies, governments and campaigners who have used ICT well. I would have liked some more historical perspective though – why did some countries become outliers on this; what’s different about Estonia (home of skype and a digital hub)? I asked Deepak and his reply was fascinating: In 1991, after the collapse of the Soviet Union, Estonia resembled Korea, Japan, Germany after World War 2 – it was creating institutions from scratch so able to incorporate new ones without opposition from vested interests. It also had neighbourhood effects, namely ‘Finland envy’. OK, but why Estonia, rather than the other post Soviet states?
  2. Learning from the governance debate. The report reminds me of the evolution of the governance debate, but hasn’t gone as far. It seems to have gone from a simplistic supply side (build it and they will come) to a more sophisticated supply side (add skills, institutions and regulate). But it didn’t discuss the demand side – what makes citizens or business pick up ICT and use it? What role for social norms, levels of trust etc? And it didn’t discuss the governance approaches that try to supersede the supply-demand division such as PDIA (get everyone together to work on a commonly recognized problem) or creating hybrid institutions between traditional/informal and modern. It feels like there must be digital equivalents of those conversations – a bit more cross-disciplinarity would have helped there.

Here’s Ben Ramalingam’s take on the launch event and the report. Any other thoughts or recommended reviews?

And here’s one of the five promo videos accompanying the report, a great account of how the internet allowed a disabled entrepreneur to set up a business in China