Tag Archives: Structural reforms

A ‘Digital’ narrative for ‘structural reforms’

Gutenberg’s printing press took over a century before its true impact began to be felt. At a hearing yesterday organised by the Industry Committee of the European Parliament, my message was that, despite upheaval in the entertainment and news industries, the true contours of the ‘Digital Economy’ are still to emerge. And, as we think about future policy my advice to policy makers was: “think less about digital, and more about the economy”.

The Internet of Things will be a real game-change, as it takes ‘communication’ beyond the realm of humans into a vast array of items and sensors. That said, we can speculate about its impact, but we’ll probably be wrong.

A more immediate example of the scale of transformation technology enables can be seen in the “sharing economy”, and that is where I focused my contribution. There are many definitions of the sharing economy, but for me it means the aggregation (through technology) of micro-supplies to deliver a service seen as comparable to those provided by the firm-centric, industrial model.

This covers pure sharing services, but also includes commercial couchsurfing (AirBnB) and ride sharing (Uber), and characterises the shifts underway in Germany in the name of Energiewende. All are changing the competitive landscape for sectors that may never have imagined they would be affected by ‘digital’ and creating new choices for consumers.

The conclusion from such an analysis is that while sharing economy services are affected by the traditional elements of digital policy, such as privacy, net neutrality and copyright, the key breaks on potential European champions lie in other parts of our regulatory framework. This can mean sectoral rules (e.g. of taxis), but also more general regulation of small businesses and freelance workers.

There is no silver bullet for unleashing growth, but there is a political opportunity for Brussels policy makers. ‘Structural reforms’, which have hitherto been perceived by citizens as painful austerity, can genuinely be presented as preparing the continent for the digital era.

If Europe is play host to the next generation of global internet champions, we need policy to let out start ups grow quickly in whatever sector they choose to disrupt. You can find signs of this, for example, in the way Portugal has opened up its tourism industry. But the structural reforms agenda does not just apply to ‘programme member states’ alone, and the ongoing reluctance of other member states to open markets (such as the unenthusiastic implementation of the Services Directive) is now the real digital agenda.


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’.

Looking for public sector superstars

I’ve been reading the Second Machine Age by Erik Brynjolfsson and Andrew McAfee, two leading economists studying the digital economy. The book builds on their previous work about the future of growth and employment in a world of exponentially growing computing power, but one of the many new points that emerged for me from the book was about ‘superstars’.

In essence the Internet makes it possible for superstars to project their talent more broadly than ever before and, in so doing, accrue rewards at the relative expense of others. Whether at the corporate or the individual level, this explains the weak performance of US median wages and growing levels of inequality. The authors rightly fret over the social consequences, and redistribution features frequently in their policy recommendations.

But the perspective is inverted when you consider public services, such as teaching and healthcare. Classroom and hospital superstars can suddenly improve the lives of a far larger part of the population, whether directly or at least by the sharing of their materials and techniques.

Some of these superstars will no doubt be content simply knowing that are more amply fulfilling their public mission.  But others may feel they deserve relative recognition, and I doubt few parents or patients would disagree! Meanwhile, many long serving, but less effective, public workers will be watching from the sidelines. Such distinctions sit uncomfortably with many traditions of public service.

The point is that the Internet’s impact is not limited to the communications technology sector. It will be felt throughout the economy, including the relatively large public sector that we – as Europeans – choose as part of our social model. The public sector needs to lead in embracing the disruptive influence of the Internet, but will it take a political superstar to create the climate for that?