Wealth in the Digital Economy
The most well-known metric of the volume of an economy is the famous GDP (Gross Domestic Product), which is the total MONETARY or MARKET value of all the finished goods and services produced within a country or region, in a specific time period; whereas the most widely acknowledged indicator for determining the wellbeing of a country’s population is the GDP per Capita, which is simply the GDP divided by a country’s population.
Both have an undisputable advantage: it is relatively easy to calculate them. However, do they really measure the year-over-year deviation in consumers’ wellbeing and how wealth is distributed among them?
The consumers’ wellbeing depends on the extent to which they are able to fulfill their needs and the level of quality they can ultimately reach. Great technological inventions, such as radio, television, the internet, search engines and social media platforms, have offered consumers life-changing services at ZERO COST.
Zero cost implies no monetary values, thus no contribution to GDP growth!! The only thing that can be considered as contribution to GDP, is the advertising cost of the companies.
Getting great products and services at a price considerably lower than what you are willing to pay or even at no cost at all, is the so-called Consumer Surplus.
And that’s exactly what Digitalization is offering excessively to the global economy: Consumer Surplus. Imagine the amount of money you would be probably willing to pay for services such as search engines, Wikimedia, GPS, social media and more. All these non-monetary values consist the added value of digitalization to the global economy — which is reported neither in the GDP nor in the GDP per Capita.
Let’s see the case of Wikipedia. If we were to measure, in some way, the Customer Surplus provided by this service, we should go a few decades back in time and examine the amount of money that people were willing to pay for encyclopedias. The purchase of the renowned Encyclopedia Britannica, back then, was considered as a small investment for any household willing to pay more than $1.000. Whereas today, we have at our disposal a knowledge source far more extensive and interactive: it’s called Wikipedia and comes without any cost at all.
Those $1.000 represent an estimation for the Consumer Surplus related to Wikipedia.
A direct effect of the way we measure global wealth, is that the contribution of the information technology sector to the global GDP has hardly budged since the 1980s, hovering between 4% and 5% annually and reaching a high of only 5.5% in 2018. Therefore, if we look at GDP numbers, the Digital Revolution never happened!
Harvard is currently working on the development of a much more realistic measurement of global wealth (code name GDP-B), taking into consideration all the non-monetary parameters of each economy that promote the wellbeing of its population.
Until then, let’s just stay online and be confident that we are much wealthier than we probably think!
ATCOM: From Digital to Purpose
Originally published at https://www.atcom.gr on October 25, 2021.
