The “Digital President’s” ultimate challenge

All being well, a new Commission President will take office this year, having proclaimed ‘Digital’ to be her/his top priority.  But what should a Digital President do?  Sort out our fragmented telecoms market?  Perhaps.  Foster entrepreneurial start-ups?  Definitely.  But the real challenge is driving technology-based productivity gains in the rest of the economy: manufacturing, services and the public sector.

Competition can do most of the work in the private sector, which is why completing the single market remains so vital.  But the public sector is the largest part of the economy, generally a monopolist provider, and historically a victim of “Baumol’s disease”.  (The American economist, William Baumol, argued in the 1960s that it was impossible to achieve significant productivity gains by the state because it naturally focused on labour intensive services.)

Public spending % of GDP: maroon > 55%, red 50–55%, orange 45–50%, yellow 40–45%, green 35–40%, blue 30–35% “Depense-publique-sur-PIB” by Marc Baronnet – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons.

Baumol’s disease has been born out over the last 50 years, but in their recent book entitled The Fourth Revolution, The Global Race to Reinvent the State, John Micklethwait and Adrian Woolridge suggest that the picture could now change.  After charting the history of the western state, the authors argue that it is living up to Plato’s two great concerns: that voters would always favour short-term benefits, and that politicians would pander to this by offering entitlements to paid for by the next (unborn) generation. But they see two contemporary phenomena that will precipitate change.

The first is an emerging Asian model of technocratic government – the book focuses mostly on China, but identifies Singapore as the intellectual origins.  The key features of the model are long term planning and ruthless meritocracy.

Second is technology.  In Education, Moocs create radical new economies of scale for teaching, while giving all students a chance to learn from the best teachers.  The advent of wearable technology places prevention firmly alongside cure in health planning.  Big data helps focus law enforcement towards emerging trouble spots.  Meanwhile, open public data changes the level of accountability of every public service, and private sector developments could reduce demand for some public goods, such as ride-sharing needing less roads.  Ultimately, there is a need to reset our ambitions for the state, and to turn to technology, and the networked society, to find alternative means to the end.

Moreover, the two forces combine.  China has far fewer public sector traditions than the west; has studied the good and the bad of our systems; and can impose best practices quickly.  Given how important the state has been in fostering western economic success, a modern, effective Chinese public sector will become an inescapable global benchmark. The EU neither runs the most costly and labour-intensive parts of the public sector, nor even has competence over them.

The authors are dismissive of the EU, but a Commission that used the relenting economic crisis to drive an EU-wide debate about public sector reform would render a huge service to European citizens.  Fostering the reinvention of the public sector is the real challenge of the ‘Digital President’.

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