The Next Wave of the Digital Economy — Promises and Challenges
By Irving Wladawsky-Berger
“The next wave of digital innovation is coming. Countries can welcome it, prepare for it, and ride it to new heights of innovation and prosperity, or they can ignore the changing tide and miss the wave,” writes Robert Atkinson in The Task Ahead of Us. Atkinson is founder and president of the Information Technology and Innovation Foundation (ITIF), a think tank focused on science and technology policy.
We’re now entering the third wave of the digital economy, says Atkinson. The first was based on personal computing, the Internet, Web 1.0, and e-commerce. The second brought us Web 2.0, big data, smartphones and cloud computing. The emerging third wave promises to be significantly more connected— including higher bandwidth and a wide variety of devices; more automated — with more work being done by machines while integrating the physical and digital worlds; and more intelligent— leveraging huge volumes of data and advanced algorithms to help us understand and deal with our increasingly complex world.
“Building and adopting the new connected, automated, and intelligent technology system will lead to enormous benefits globally, not least of which will be robust rates of productivity growth and improvements in living standards. Moreover, these technologies will help address pressing global challenges related to the environment, public health, and transportation, among others.”
We’re in the early stages of this third wave. 5G, IoT, robotics, AI, and other promising technologies are being embraced by early marketplace adopters, but their full-scale impact is still five to 10 years away. We’re in a period not unlike the late 1980s, when it was clear that IT was on the brink of a major transition, but the Internet revolution didn’t arrive until the mid-1990s.
According to Atkinson, this transition will be more complicated and take longer to come to full fruition that the first two. In both previous eras, “consumers needed only Internet- connected devices, and companies needed little more than websites (and to be sure, logistics changes and new payment systems). Moving forward, progress will depend on a much more complex reworking of organizations’ production systems and business models — not just within organizations, but between them.” Moreover, beyond the technical and organizational challenges, one of the biggest risks standing in the way is the rising neo-Luddite opposition to the ongoing digitization of the economy and society.
“Implementing the next wave of digital technologies will be much more difficult from a sociopolitical perspective than it was during the last two digital transformations because there is broader and stiffer opposition today.
In past digital transitions, the technology industry was largely seen as a force for positive societal change: Computers helped organizations become more productive, and the Internet spread access to knowledge. Today, by contrast, ‘Big Tech’ is increasingly demonized and challenged on a host of issues, from privacy to job disruption.”
Given its compelling benefits, the next digital wave will largely be inevitable, says Atkinson. But, its support need not be based on unrealistic optimism. There will be serious challenges, as has been the case with technological transformations over the past two centuries, including cybersecurity and the need to provide transition assistance for displaced workers. As noted in a recent McKinsey report on the future of work, “while there may be enough work to maintain full employment to 2030 under most scenarios, the transitions will be very challenging — matching or even exceeding the scale of shifts out of agriculture and manufacturing we have seen in the past.”
“But societies have managed to address similar challenges in past transformations, and there is no reason to believe they cannot do so again going forward, especially if more of civil society shifts from opposing technology implementation to supporting proper rules and governance frameworks,” writes Atkinson.
Markets and firms will play the biggest role in developing and implementing next-wave digital technologies and their ensuing organizational transformations. But governments have a major role to play. They need to make the next-wave digital evolution a central policy goal.
More specifically, governments should enact policies that support and enable digital transformation; remove institutional and regulatory barriers to implementation; and encourage citizens to embrace digital evolution. Here’s a closer look at each of these policy recommendations.
- Support policies where the benefits are largely unequivocal
Such policies include “supporting R&D, digital skills, and digital infrastructures; transforming the operations of government itself; embracing global market integration; and encouraging the transformation of systems heavily influenced by government (e.g., education, health care, finance, transportation).”
As I read this list of policies, I was reminded of the National Innovation Initiative (NII), a 2005 report based on 15 months of intensive study and deliberations — which I was part of— on the changing nature of innovation at the dawn of the 21st Century, and what it would take for the U.S. to effectively compete and collaborate in an increasingly interconnected world. The findings and recommendations in the NII report were organized into three broad categories:
- Talent: The human dimension of innovation, including knowledge creation, education, training and workforce support.
- Investment: The financial dimension of innovation, including R&D investment; support for risk-taking and entrepreneurship; and encouragement of long-term innovation strategies.
- Infrastructure: The physical and policy structures that support innovators, including networks for information, transportation, health care and energy; intellectual property protection; and business regulation.
It’s not surprising that calling for policies that support talent, investment and infrastructure remain as prominent today as they were 15 years ago. While we may already be in the third wave of digital technologies, their transformational impact on economies and societies is still in the early stages.
2. Remove institutional and regulatory barriers
But, the bloom is off the rose. In the earlier waves, we mostly viewed digital technologies as enhancing communications, disseminating knowledge, and improving productivity. Now, digital technologies are also viewed as threatening privacy and security, providing access to polarizing and hateful information, and seriously disrupting jobs and the well-being of many workers. “The most strident opposition to digitally driven economic progress comes from a growing, vocal minority that seeks to ban or heavily regulate emerging digital technologies such as robots, autonomous vehicles, and biometrics to dramatically limit their adoption.”
As has long been the case, it’s a matter of balance and trade-offs. We need policies that support the positive benefits of digital technologies while addressing their negative impacts. Overly stringent data privacy policies will hamper the potential advances that AI might bring in medicine, drug design and public health. “For example, giving users the right to opt out of data collection (rather than mandating they opt in), will protect privacy while limiting negative effects on digital innovation.”
While eschewing policies that limit digital advances, policymakers should actively pursue illegal or unethical activities. For example, policies that seek to regulate negative activities— “such as ‘revenge porn,’ spam, financial fraud, hacking, ID theft, malware, and Internet piracy — do little or nothing to limit digital transformation (and in most cases advance it), but they achieve important social goals.”
3. Encourage citizens to embrace digital evolution
Finally, the trap of anti-technology groupthink will seriously limit and slow down digital transformation. “Government officials and other elites need to embrace and advance an optimistic narrative about how digital transformation will lead to increased living standards and better quality of life, and actively counter self-promoting fearmongers seeking to instigate techno-panics.”
Anti-technology narratives blame digital innovations for a number of societal challenges, including “inequality; loss of jobs and worker rights; addiction; surveillance; algorithmic bias and manipulation; cybercrime; social media coarseness and polarization; lack of diversity; political bias; concentrated economic and political power; and tax evasion. The truth is, digital technologies are not the principal cause of most of these challenges; and where they contribute, measured responses can often provide effective solutions without harming innovation.”
“At the end of the day, nations’ success in embracing next-wave digital technologies will depend on a combination of awareness and strategic action,” writes Atkinson in conclusion. “Each nation needs to ask itself where it stands on both fronts. Do policymakers truly understand the technologies and competitive strengths, weaknesses, opportunities, and threats they present?… In taking strategic action, are nations focused on learning from global best practices in the wide range of policy areas affecting next-wave digital technologies, and then ensuring they adapt those lessons to fit the realities of their own nations? Getting this right will have a significant, positive impact on the living standards and quality of life of future generations.”
First published on April 29 here.
