The platformization of the economy has been a reckless phenomenon of the last few months, with the rise of numerous digital marketplaces, which have contributed to widen the gap between the real and the digital economy. The risk we are running is that, while we witness the rise of digital industrial complexes capable of derailing market efficiency, untenable digital rents are being imposed upon every aspect of the real economy that still requires access to technological solutions of daily use.
The premises of the Fourth Industrial Revolution are based largely on the symbiotic ability of the tangible and intangible poles of the economy to co-exist and lean on each other. The tangible side of the economy provides the infrastructure required by automation, manufacturing, and the complex network of trade and shared production. This physical infrastructure is the foundation upon which efficiency enablers such as logistics, communication, energy and labor, can be built.
The tangible economy is often a pre-requisite for the intangible economy: It is then that a hybrid infrastructure arises, where physical and digital interfaces can exist, and digitalization provides the acceleration required for those ‘tangibles’ to become ‘intangibles’ and to bypass limitations by shifting large chunks of economic value creation to the digital datasphere. So far, not much drama can be found in this process, which, while heavily transactional and capital-intensive, is still a positive mechanism for growth and provides some equity of opportunities for small and large countries alike.
What this story doesn’t include is that in recent years, and especially in 2020, the digital sector of the economy has often decoupled itself from the real economy, and digitally native companies, which arose out of a dis-intensified use of traditional factors of production, are today growing at a pace that since September 2020 has exceeded the pre-Covid-19 period, and has kept increasing since then. By the beginning of September, the share prices of Facebook, Amazon, and Apple had more than doubled since the worst of the pandemic. Apple hit the surreal $2 trillion valuation mark – a first in the history of our global economy. Shares of Netflix and Alphabet (Google), the other so-called FAANG firms, hadn’t quite doubled but were also trading at or near all-time highs. Meanwhile, the oldest and most iconic member of the S&P 500 since 1928 – ExxonMobil – left the index on Aug. 31, driven out by Apple’s decision to split its stock. Those who own and run the tech giants make ever more money, while the rest of the world suffers from economic devastation.
This estranged and partially de-normalizing trend positions real economy assets far below digital financial assets and a clear K shape seems to emerge: thrive and grow if you are digital, stifle and decline if you are part of a real economy, where growth is only proportional to how finite the system is. This trend is not only challenging some neoliberal economic assumptions about the creation of value, but it is also pushing us towards a complex scenario where government policies or the redistribution of value will no longer be plausible options, given the width of a gap that already appears unsurmountable.
Governments and private sectors have already thoughts of plausible remedies, but, while some governments contemplate taxing digital assets in order to redistribute tsome value back to the real economy, opponents continue to believe that any form of market intervention creates even greater market distortion, with deregulation and laissez-faire as the only acceptable ways forward. We fear that neither approach has garnered satisfactory evidence of success. Fragmentation and inefficiency continue to reign.
The remedial options must be consolidated in a more systemic way, and we argue for 3 possible actionable ways forward:
- Government grants and subsidies to promote technology diffusion, so that the tech gap between platforms and SMEs that require technology can be closed. rather than expecting the market to provide access to technologies through the mechanism of economies of scale, government funding can accelerate access by allowing millions of smaller firms to gain access to the marvels of technology. While this would increase public debt, a more balanced distribution of power goes a long way in strengthening a country’s ability to build productivity.
- An agile governance and multi-stakeholder collaboration model, conciliating the fast pace of technological innovation with the imperative of inclusion and representation of all parties for effective outcomes which benefit the broader number without discouraging innovations. This will also help reconciling tensions between winners and losers among value chains’ stakeholders. Several existing use cases have demonstrated that the fair representation of interests favors a governance that works for most.
- Digital protectionism: just as trade tariffs are used in developing economies to incentivize the rise of nascent local production, the introduction of digital tariffs may help the development of local innovation ecosystems in countries where the technological threshold is strong enough to create a hub and where grassroots, spontaneous organization of the management of technology can fuel the ecosystem itself and the inflow of capitals. This would empower those who can stand on their own two feet and would selectively reduce dependency on the large multinational companies, which currently operate at scale.
The post-pandemic world will not only present us with a limping economy, a generalized state of fear for the future, and the realization that the character of the global economy has been profoundly changed. We will also find ourselves facing one of the most acute crises of opportunity and technology access of all time, driven by a digitally invasive economic model that is incapable of building equity for all or at least for most. The times are critical, and the stakes are high, but this is also the moment to let go of the failed promise of market efficiency theory and simply fix this. It must be now, as it can’t be tomorrow.
This article was co-authored by Landry Signe, Nicholas Davis and Mark Esposito.
This article is also published on Project Syndicate and on Brookings. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.