Foreign Policy

Did Big Tech Save the World from an Even Greater Economic Collapse?

It has been a little over a year since the World Health Organization declared a “Public Health Emergency” when the new coronavirus struck the world. Even as the virus took its grim toll, governments responded with a lockdown and the world economy turned around. The past year has been a year of unprecedented acceleration – of the digital kind. Work, school, doctor visits, entertainment, weddings, farewells and much more “real life” have gone online. The adoption of digital tools has accelerated by five years in eight weeks – and many believe this has saved us all from an even more devastating economic collapse.

This point is particularly relevant as newly published data from the International Monetary Fund predict a global economic trend reversal of around 5.5 percent growth in 2021. Every country in the G-20 is expected to grow. According to the Congressional Budget Office, the U.S. economy is expected to return to its pre-pandemic size in mid-2021. Part of that optimism is undoubtedly based on effective vaccine adoption, but much of it depends on digital ecosystems playing their part.

It is true that digital connectivity has helped maintain a semblance of normalcy. Internet usage increased in line with the increased COVID-19 case rates. The introduction of digitization and automation accelerated in 85 percent of the companies surveyed by McKinsey. In March 2020, Netflix had to downgrade its streaming resolution to make room in the pipes. However, in most parts of the world, internet speeds have stabilized at pre-pandemic levels. This is evidence of the remarkable resilience of the technological infrastructure despite the traffic peaks.

Remote work and schooling were inconsistent. In some cases, however, behavior changes can bring positive benefits over time. For example, when schools were remote across India, nearly 70 percent of respondents said they got community help with remote education for children. Such a collective educational approach in school, family and community is likely to be one of the longer-term dividends of the digital school system even after the reopening of sports schools.

For ordinary users, all hours spent online were a mixed bag. The fact that “office work” was virtual for so many was reflected in Zoom’s revenue, which increased 367 percent year over year through October 2020. Other work and education related websites like Wikipedia and shopping like Amazon were the eighth and twelfth most visited websites in December 2020, which is good business news. Of course, both were overtaken in popularity by an adult website, which might put this statistic in context. Meanwhile, meditation and sleep apps, arguably promoting mental health and productivity, rose, fell, and rose again in 2020.

Another notable result of the longer periods of online time has been an unprecedented increase in basic activity, mostly through social media. These digital movements spanned a dizzying array of organizational forces and goals – from a summer of protest calling for racial justice following the assassination of George Floyd, to misinformation campaigns that transcended both pandemic and politics, to masses of amateur investors who convinced others to buy stocks in subpar companies. The movements weren’t just limited to digitally savvy young people on TikTok or Twitch. Even illiterate people in India organized and supported protests by learning how to go live and like “Like” and share buttons on social media. The economic effects of such movements will take some time to complete, but suffice it to say that they reformulate the idea of ​​productivity in ways that cannot be ignored.

Of course, not everyone has had the luxury of relying on digital technology to replace the “real” economy. Although around 60 percent of workers in countries such as Singapore, Switzerland and Sweden can telework, this percentage has fallen to below 30 percent in Mexico, Thailand and India. Even within a country there are big differences. In the United States, being in Nebraska or New York makes a difference if you are willing to work from home. It also makes a difference whether you’re black, Latin American, white, or Asian.

And so a natural question arises: did the nations with better digital readiness experience greater economic resilience during the COVID-19 meltdown? The Digital Planet research initiative, which I lead at Tufts University’s Fletcher School, found that an advanced level of digital evolution was certainly helpful for most economies, but the potential to cushion the economic blow depended on several additional factors: the The composition of the economy, the effectiveness of public order and the public’s confidence in officials. We have developed a measure of the state of digital evolution for 90 countries and mapped the values ​​against the percentage decline in GDP growth from the second quarter of 2020 compared to the same quarter of 2019, adjusted for inflation. We found that digital evolution can explain at least 20 percent of the reduction in the gap between 2019 and 2020 growth numbers. There are several things that can help explain this connection.

First, the more digitally evolving economies tend to derive more of their GDP from high-tech and information services sectors, the more parts of their workforce could move from office to home work.

Second, digitally developed economies tend to be better able to deliver public services online because of the superior infrastructure, track record of digital transformation for large parts of the public sector, and accessible, affordable internet. Such skills are beneficial even during normal times – especially in the context of a lockdown, a public health emergency, and socially distant activities.

Third, many digitally developed countries used their advanced status in different ways, which contributed to economic resilience. Look at the falls of Ireland and South Korea. The Irish economy, more than any other Member State in the European Union, has scored high on the integration of digital technologies into the economy and the digitization of businesses in general. 35 percent of businesses sell online, 20 percent use big data, and a strong track record of digital public services. This created significant economic continuity even as the country closed.

In South Korea, digital advancement and one of the world’s highest smartphone penetration rates have been key to a highly effective COVID-19 response. Authorities and businesses used multiple digital tools, from a government-issued contact tracking app, to a smart city database, to credit card transaction data, closed-loop video recording, and location data from smartphones to track exposure and transmission of COVID-19 . It was even possible to publish anonymized patient routes. This gave South Koreans confidence to maintain economic and social activity with fewer restrictions than has been the case in other countries. With recent memories of Middle Eastern Respiratory Syndrome (MERS) outbreaks and Severe Acute Respiratory Syndrome (SARS) outbreaks, there has been greater public willingness to trade privacy for more aggressive measures to combat the pandemic. This widespread use of technology in dealing with the pandemic helped cushion the negative economic impact.

The positive associations between advanced digital evolution and economic resilience are remarkable, but not universal. Among the exceptions, the UK shows a remarkable contrast. It is highly digitally developed. High-tech and information services are significant contributors to GDP, and a high percentage of the workforce can work from home. However, the economic decline has been substantial, as quarterly GDP growth declined nearly 22 percent between the second quarters of 2019 and 2020.

The UK’s unfortunate economic state matches the deadly effects of the virus: more people have died there than anywhere else in Europe since the pandemic began. Part of this failure can be attributed to poor government response. Although the government was digitally better prepared for the lockdown, it didn’t decide on it until late March, weeks after other European countries. In addition, the service sector makes up around three quarters of the UK economy. The economy is disproportionately dependent on personal activities in the service sector. Around 13 percent of total output is attributable to activities such as eating out, going to the cinema, transport or participating in live sporting events, as opposed to 10 percent for Europe. The slow government response and the composition of the UK economy had a serious economic impact despite high digital advances.

At the other end of the digital evolution spectrum, some less digitally advanced countries have found ways to cushion the economic shock. Consider the cases of Indonesia and Vietnam – two economies that fare relatively poorly on our digital evolution scorecard. Both avoided the worst economic reversals. The Indonesian government increased government spending by almost 10 percent. In Vietnam, the government has been able to keep the virus under control through aggressive restrictions. Both government and citizens, who have recent experience in dealing with infectious diseases, were willing to tolerate preventive measures such as closing borders, closing schools, and investing in a resource-intensive contact tracing program. It also helped that Vietnam was a major beneficiary of the exodus of production from China.

There is no question that the crisis was an expansion phase for big tech. Microsoft picked up three cloud computing companies. Amazon hired hundreds of thousands of new employees and added 12 Boeing 767s to its fleet. Apple bought a weather app, a virtual reality company, and a digital assistant and speech recognition software company, among other things. Facebook started work on an underwater fiber optic network that surrounds the African continent. $ 5.7 billion flowed into India’s Reliance Jio, while Google allocated $ 10 billion to general expansion in India despite one of the world’s most devastating economic reversals. Mark Zuckerberg, CEO of Facebook, said it was their “responsibility and duty to invest,” adding, “We are fortunate to be able to do so.”

Indeed, Zuckerberg spoke without a trace of irony and was in a happy position. There’s no question that Facebook and Big Tech have been generally successful over the past year. But has the good news from Big Tech raised all ships? There is no question that it helped soften the blow. But wealth was not evenly distributed around the world. It all depended on what we were doing online at that time and where we lived while we were logged in.

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