The Digital Economy – Generating Opportunities or Vulnerabilities? Economy Near Us (LVIII)
I have argued several times (including in papers published in TMFI) that technological progress can be approached as an opportunity, since, through education and the training of new skills on the labour market, it creates circumstances conducive to the growth of the country and the development of the inclusive nature of the labour market. Digital technology plays a key role in transforming the economy, but also society. On the one hand, impending changes (both emerging and planned) can be very promising; on the other hand, the influence of technologies on production, consumption and employment patterns can provide major challenges that require understanding and managing change from the level of the individual to that of the government.
The idea of the opportunities created by the Industrial Revolution 4.0 seems to be supported by the tendency to include all industries and economic activities in a broader concept, that of the digital economy, the new economy that reflects the generalized impact of digitalization (of processes) and digitization (of information) on the economy. Over the years, we have seen attempts at classifying and defining sets of indicators to give the picture of the influences of digital technologies on the economy. Values of the digital economy have been estimated at the level of national economies using standard approaches based on the system of national accounts. A series of empirical studies and research, relatively recent, on digitalized fields of activity or digital industries have led to the conclusion that it remains difficult to measure the digital economy, first of all because of the lack of agreed conceptual definitions (IMF, 2018), and then because of the need for data which is hard to come by. Much has been written and yet, at the conceptual level, there are still divergences of research both from a historical perspective, from the conceptual scope, and from the methodological approach.
Thus, it remains current to better identify the role of digital technologies in the way in which goods and services are produced and delivered, the way in which they are used by almost all sectors of the economy, leading to irreversible structural transformations.
In this sense, the work I propose is structured in three parts, from which I will extract three short article-reports:
- the first report proposes a series of reflections on the definitions and basic or adjacent concepts of the digital economy.
- the second report addresses the digital transformation at the level of the business, of the organizational structure and of the management of the company, starting from the notion that existing businesses can be transformed by developing new digital technologies or by innovatively applying these technologies, both ways involving change management strategies;
- the third report brings to attention digital entrepreneurship and the labour market, because the question arises whether the persistence of digital transformations will lead to the persistence of the new skills required on the labour market, and in this respect, what are the influences of the basic curriculum in the formation of the technical and entrepreneurial skills of the workforce.
At the end of the paper, several vulnerabilities of the labour market specific to the digital economy were identified, which can be addressed through interventions formed of a mix of economic policies and labour market policies.
Some conceptual reflections in literature
The literature sets out different ways in which the digital economy can be conceived, analysed and interpreted – each offering a new perspective. A unanimously accepted definition of the digital economy is not found in the literature, an approach in this regard and a language of experts, businessmen, academia or governors having evolved alongside the presence of technology in the form of the first computers, computer servers and networks, as well as personal computers, when a number of factors of change had an acute impact on specific industries, when we witnessed the globalization of the economy and so far when we talked about the platform economy, the Covid-19 pandemic, new and multiple crises.
From a historical perspective, the digital economy is a successor to the information economy, manifesting itself more intensely and with significant effects in a short period of time. I will review some key contributions.
In 1996, Tapscott used the term “digital economy” to explain the relationship between the new economy, new businesses, and new technologies. He also emphasizes how they potentiate each other. Both his definition and other early definitions of the concept of the digital economy reflect a differentiation from previous concepts of information economy.
Brynjolfsson and Kahin (2000) states that the “information economy” has come to mean the broad, long-term trend towards the expansion of assets and value based on information and knowledge in relation to tangible assets and products associated with agriculture, mining and production, while by “digital economy” they refer in particular to the recent and still largely unrealized transformation of all sectors of the economy through the digitization of information with the help of the computer. The authors addressed several perspectives: macroeconomic, competitiveness, organizational change, work, but in the end, they remain on a narrow approach, with reference to information and telecommunications technologies, e-commerce, digital delivery services, software and information.
The digitization of information, combined with the internet, is a form of general-purpose technology that gives rise to a vast new range of possible combinations that we can call the New Economy or digital economy, according to Carlson (2004).
Other authors, defining the e-business and e-commerce components of Mesenbourg (2001) or, referring to the low costs of Fournier transactions (2014), consider it a branch of the economy based on the Internet and the movement of goods and services in the online environment.
A comprehensive study by Bukht and Heeks (2017) examines both narrower and broader approaches to the digital economy, marking issues of conceptual definition or measurement of the activities of the digitised economy. The study points out that the reference to information and communication technologies (the economic activity of manufacturers of ICT goods and digital services corresponds to the basic level of the digital economy), to the use of the Internet and Web platforms to connect people to different purposes (production and entertainment appear constantly in all attempts to define the digital economy between 1996 and 2017, along with culture, education, trade, banking), technologies regarded as an important factor in increasing productivity, optimizing economic structures and creating value at the new frontiers of the business world.
According to this definition, the digital economy consists of all sectors that make extensive use of digital technologies (i.e., for which existence depends on digital technologies), as opposed to sectors that make intensive use of digital technologies (i.e., only the application of digital technology to increase their productivity).
An even broader approach, according to which the digital economy includes artificial intelligence, the Internet of Things (IoT), virtual reality, cloud computing, blockchain, robotics and autonomous vehicles, that is, all parts of the economy that exploit technological change in the market and new business models and transform everyday operations including both traditional technologies, media and telecommunications services and e-commerce, the digital banking system, digitisation from agriculture, mining or manufacturing (De Freitas, 2020), or “an economic and societal model that is driven by computer technology” (Alaerds et all, 2017). There are authors and opinions according to which the digital economy coincides with the Industrial Revolution 4.0, since relying on the development of information and communication technologies (IT & ICT) and on the connections favoured by the Internet allows the remodelling of transactions, trade relations, structures for organizing any activity, work, respectively the subtle transformation of the functioning of the classical economy, possibly even its replacement.
For the broader understanding presented above Bukht and Heeks (2017) used the term “digitalized economy”.
The bottom line is that there may be conceptual levels that are connected to each other, but not necessarily included in the digital economy, and which allow digital transformation to be traced over time.
Digital transformation is achieved through:
- the use of digital technologies in the internal processes of a production structure or in the operationalization of services, in order to improve all the functions of the business, increase its efficiency by reducing costs (saving resources) and finally the performance of the business will determine sustainable profits.
- the use of digital technologies in the innovation of products, services, the business model, which will determine the competitive advantage, higher revenues of the firm through the value of new customers, increased sales of related products and services, market position, etc., also leading to sustainable profits.
Digital technologies such as sensors, cloud computing, big data, as well as the influences of innovation in production, the workplace, and in company management have proven to have a significant impact on the transformation and success of the manufacturing and service business, as will be shown in the next article.
Photo source: PxHere.
(to be continued)