Digital platforms – such as Apple, Google, Microsoft, Facebook, Amazon, Alibaba and Tencent – are transforming the way we work, socialize, and create economic value. In the time of Covid-19, these platforms have proven to be useful and provide necessary tools to monitor and manage the crisis.
Throughout Asia, online payment systems, and other digital solutions, have surged during the pandemic. Photo: Edi Kurniawan |
Digital platforms have also been used to find solutions to the pandemic, to protect people, and get societies back up and running. For example, Google and Apple collaborated to use Bluetooth technology to launch a Covid-19 contact tracing app. E-commerce, food delivery, and digital payments have also stepped up.
Tight restrictions on mobility have triggered an abrupt shift to remote work, online video conferencing, massive open online courses for education, and online streaming for entertainment. As of mid-April 2020, the International Labour Organization noted that 59 countries had implemented teleworking for non-essential publicly employed staff.
In terms of schooling, worldwide more than 1.2 billion children in 186 countries are affected by school closures and most are studying remotely. Online education platform Tencent Classroom saw a meteoric rise of users after the government of the People’s Republic of China instructed a quarter of a billion full-time students to go online.
As countries around the world respond to the Covid-19 outbreak with huge fiscal stimulus packages, many governments in developing economies also face the challenge of quickly and safely disbursing large amounts of cash to vulnerable people. Globally, 30% of all government packages after Covid-19 are cash transfers and for some countries such as Argentina, Pakistan, and Peru, transfers go to a third of their populations. For others, such as the Philippines, transfers cover 70% of households. And the use of biometric identification and digital payment could help make these transfers more efficiently.
There is no denying that digitalization is a critical component of building a pandemic-resilient world. Presently, depending on the definition, the size of the digital economy can range from 4.5% to 15.5% of global GDP. Within the digital economy, the digital sector may account for between 1% and 6% of GDP and 0% to 5.5% of direct exports. Use of digital technology and the size of the digital sector will likely increase further as physical connectivity is replaced with digital connectivity to makes our lives safer.
A 20% expansion of the global digital sector could spur a productivity increase that would reduce global consumer prices by 2%, stimulate a US$400 billion rise in global exports, and increase global GDP by US$2 trillion, according to a forthcoming ADB study, “Technology, Digital Platform, and Productivity Growth in a Post-Covid World.” Depending on the scenario used, this is about a third or a quarter of the estimated short-term impact of the Covid-19 pandemic on the global economy. These gains come from both the direct expansion effect from the digital sector and the indirect productivity enhancement effect that would reduce prices across the board.
While digital platforms continue to emerge at great speed, their success is not preordained. How policies and regulations respond to new challenges will be a key to leveraging the potential of digital platforms to accelerate economic growth after Covid-19.
In this regard, six policy areas will determine the readiness of countries to maximize the benefits of this innovation, namely: 1) robust information and communications technology infrastructure and services; 2) efficient trade and logistics networks; 3) an efficient payment system; 4) an efficient and internationally compatible legal and regulatory framework, including effective implementation and enforcement of rules and regulations, both internally and externally; 5) a conducive business environment to promote start-ups for greater innovation and digital entrepreneurship; and 6) the sufficient digital skills and literacy for workers, business, civil society, and governments.
At the same time, digital platforms also bring disruptions to markets, their participants, and the wider economy by reinventing market arrangements and creating new business models to generate and capture value. For example, the growth of e-commerce in many countries has cut retailers’ profit margins and put some out of business. Platform technology has also affected labor market arrangements through independent contracts, with little employment protection and social security. It is important therefore to consider appropriate regulations to manage undue and unfair disruptions posed by the emergence of digital platforms, including:
* Competition: Digital platforms are characterized by a “double-edged” nature. Numerous micro-businesses around the globe can potentially gain from unprecedented opportunities provided by the platforms, but they also have the tendency to create one or very few ‘winners’ due to the presence of strong network effects. Authorities should craft policies that encourage more competition and ease barriers to entry, while maintaining the network-effect benefits that large platforms can bring about. Governments should promote interoperability which could help market players collaborate and innovate to the benefit of consumers.
* Labor security and social protections: Governments should roll-out emergency health and social services and expand the coverage of social protection systems to cover workers who may fall into the poverty trap, regardless of working arrangements. They should also provide adequate income security for those in the informal sector, migrant workers and their families, and other vulnerable members of society. Strengthening the grievance and feedback system to give voice to the vulnerable will also help.
* Data access, privacy, and security: As the new data value chain rests on the access, use, and sharing of data, platforms should exercise caution and maintain transparency in using, sharing, and creating value from the intrinsic power of data. Policies and regulations should uphold individual privacy, ensure that access to data and information is secure and not used to discriminate against different groups, that effective security policies are built, and that regulations ensure information helps create more evenly distributed benefits. Cybercrime must also be addressed.
* Taxation: Taxing digital platforms is challenging due to regulatory issues, difficulties in classifying digital activities, a lack of cross-border harmonization on tax matters, and many other problems. Internationally, as digital-enabled transactions become increasingly cross-border, greater international cooperation, stronger dialogue, and policymaking on taxation issues for digital platforms is critical.
Countries in Asia and the Pacific, and around the world, are using digital platforms to address Covid-19. They need to take the next step and use these platforms to open up and propel their economies into recovery.
Author:
James Villafuerte is Senior Economist, ADB Economic Research and Regional Cooperation Department.
