strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: August 28, 2012
 / Autumn 2012 / Issue 68

 
 

Digitization and Prosperity

Assessing the social impact of digitization is more complicated because no metrics apply to all geographies in the same way. Many studies have tracked income disparity as a proxy for social inequality, using the Gini coefficient (a measure of statistical dispersion), but in emerging economies that are in the process of elevating millions of people out of poverty, the relationship between economic growth and inequality is complex. Therefore, we focused our study of the social impact of digitization on two measures: quality of life and equality of access to basic services. We used the widely published Gallup Wellbeing Index and the Organisation for Economic Co-operation and Development (OECD) Better Life Index to measure the former, and the United Nations Development Programme’s (UNDP’s) Human Development Index to measure the latter.

In developed economies, increasing digitization significantly boosts quality of life: OECD countries gain an average of 1.3 points on the Better Life Index for every 10-point increase in the digitization score. However, in countries with lower levels of economic development, the impact of digitization is less pronounced, most likely because quality-of-life factors beyond digitization — food, housing, clothing, water, energy, health, and transportation — are in shorter supply and thus more critical. In other words, digitization improves a country’s quality of life only when the basic needs of its population have been met.

Yet when we examine access to basic services, we see the opposite effect. Digitization’s impact is greatest in constrained and emerging economies. A 10-point increase in the digitization score leads to an increase of approximately 0.13 points in the Human Development Index. In more developed economies where basic human needs are more easily met, digitization plays a less pronounced role in expanding access to education, sanitation, water, and healthcare.

To assess government effectiveness, we used three metrics: the 2010 Corruption Perceptions Index published by Transparency International; the e-government development index created by the United Nations Public Administration Network to gauge the provision of electronic services by governments; and the Inequality-Adjusted Education Index, measured by the UNDP to show the extent of public education, a key government service. We found that greater digitization led to improvement on all three counts. Digitization enables a society to be more transparent, increasing public participation and the government’s ability to disseminate information effectively: A 10-point increase in digitization increases the Transparency International index by approximately 1.2 points. Digitization raises e-government effectiveness by approximately 0.1 points (and kick-starts another virtuous cycle, as greater e-government effectiveness accelerates digitization). And digitization gives the population more insight into government policies and functions, which might, in turn, lead to more active political participation and support the development of human rights.

Finally, digitization supports better delivery of public education and other government services. Here again, digitization’s impact is more pronounced in the case of developing countries, where a 10-point increase in digitization results in an average 0.17-point increase in the Inequality-Adjusted Education Index. This trend has less effect in developed countries because they already have greater access to universal basic education.

What Can Governments Do?

The digitization index can be an invaluable tool for countries seeking to advance their place in the world. Investment in broadband infrastructure has helped ensure widespread high-speed access to the Internet and communications services. But this investment is not enough. Nor is the next step to simply invest more money — even if the money is available. Instead, policymakers can play a pivotal role by focusing on five key imperatives.

1. Elevating digitization on the national agenda. To realize the wide-ranging benefits that digitization offers, countries need support from the highest levels of government. Every country, whatever its digitization maturity level, needs a national agenda, with oversight at the executive branch of government. Otherwise, the ICT sector can devolve into a “tragedy of the commons” in which too many competitive stakeholders, fighting to sell products and services online, impede progress. Some governments, especially those in the constrained and emerging stages, also need to change their approach to ICT-related taxation. They must stop viewing the sector as a source of tax revenue and recognize it instead as an enabler of socioeconomic development. Countries that have made this transition have been rewarded. In 2007, Qatar reduced the royalties paid by the telecommunications sector to the government. The resulting incentives for entrepreneurship have helped the ICT sector’s contribution to Qatar’s GDP grow by approximately 16 percent in the five years since. Qatar’s share of total ICT activity in the Middle East has doubled.

 
 
 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store

 

Resources

  1. Roman Friedrich, Michael Peterson, and Alex Koster, “The Rise of Generation C,” s+b, Spring 2011: How digitization is fostered by people born after 1990: a connected, communicating, content-centric, computerized, and community-oriented cohort.
  2. Art Kleiner, “Philip Bobbitt: The Thought Leader Interview,” s+b, Spring 2004: A long-range view of the evolution of the concept of government, with immense implications for digitization and business leadership in general.
  3. Karim Sabbagh, Roman Friedrich, Bahjat El-Darwiche, and Milind Singh, “Maximizing the Impact of Digitization,” Booz & Company white paper, 2012: The paper from which this article was adapted, with more detail on the relationship between digitization and measures of quality of life and economic growth.
  4. For more thought leadership on this topic, see the s+b website at: strategy-business.com/technology.
 
Close