Digital technology is leading to a global crisis in productivity, market monopolies and higher debts. While the supposed game-changer is boosting profits for big firms, it has hit poorer countries and deepened inequities
The most coveted digitalisation and hyper-globalisation have come for severe criticism by the UN. This phenomenon helps big firms, big countries and leads to concentration of financial and economic power. Worst sufferers are poor emerging economies. Trade wars and monopolisation are creating mammoths and distorting markets. Digital technology is prying into smaller economies and tearing them apart. Digitalisation leads to decline in demand for physical goods, ongoing decline in their price, long-term decline in the demand fixed capital formation as a share of GDP and jobless growth, said the UN Conference for Trade and Development (UNCTAD) in its 2018 report.
The global trade war is running towards a ‘deeper economic malaise’ at a time when many countries are growing below their potential, even as the BRICS nations are doing better, thanks to domestic demand. Among them, only Russia is doing better than others because of rising oil prices. The US and China have indulged in a bitter trade war, with both the countries slapping higher tariffs on each other’s imports. This year is unlikely to see a change of gear, the report said. The US Government will gain $280 billion in tariff revenues.
Digitisation affects production through computer-aided design and any other 3-D software or artificial intelligence, which creates digital models. Jobs are being outsourced to low-wage regions. This has caused stagnation of wages and hit job creation. The report said: The world economy is again under stress. The immediate pressures are building around escalating tariffs and volatile financial flows but behind these threats to global stability is a wider isis, accoe global financial crisis, accos and volatile financial flows. Behind these threats to global stability is a wider failure,rding to the report, the five largest exporting firms on an average accounted for 30 per cent of a country’s total exports and the 10 largest exporting firms for 42 per cent. Since 2008, global debt has soared from $142 trillion to $250 trillion, which is three times the combined income of every nation. Situation is worse than expected as global incomes failed to keep pace with rising debt levels. The situation looks so familiar in the Indian conditions even though the country is yet to realise that digitalisation is not the solution.
The report even quoted IMF’s 2018 observation that said that available evidence suggests that the digital sector is still less than 10 per cent of most economies if measured by value added income or employment. It found that the ratio of global debt to GDP is one-third higher than before the 2008 crash. Situation is worse in the developed countries that have borrowed heavily in recent years from Western banks that offered cheap short-term loans.
It quotes anns anns another estimate of digital economy being just five per cent of the global output and three per cent of the global employment. The growing mountain of debt, more than three times the size of global output, is symbolic of that failure. “Private debt hasded, especially in emerging markets and developing countries, whose share of global debt stock increased from seven per cent in 2007 to 26 per cent in 2017,” the report said.
Over the same period, the ratio of debts, racked up by non-financial businesses in the emerging markets, increased from 56 per cent in 2008 to 105 per cent in 2017. While the public sector in advanced economies has been obliged to borrow more since the crisis, it is the rapid growth of private indebtedness, particularly in the corporate sector, which needs to be monitored closely. The growing corporate debt syndrome has almost bust into a political crisis. It also calls for a rethinking on the bankisation of society.
The UNCTAD said developing countries will not be able to digitally leapfrog on their own. “While many developing countries are striving to develop their national e-commerce policies for linking their domestic producers and consumers to the e-commerce platforms, there is a need to recongise the associated risks.” This reduces the domestic markets and poor economies lose out on valuable data. This forces flooding of goods from mighty powers and helps thrive unethical corporates.
The UNCTAD was critical of WhatsApp and Google. It cited how the European Commission fined Google Euro 2.42 billion for abusing its market dominance as a search engine by demoting shopping service of its competitors and denying European consumers a genuine choice of service and benefits of innovation. Is India not falling prey to Google and monopolisation of groups like Amazon?
The corporate rent seeking is leading to market concentration. The UNCTAD wants a break-up of the large firms to prevent the concentration. The US had applied the anti-trust law to break monopolies, including the giant AT&T. The UN wants a check on national data transfer and wants the WTO to restrict the Government’s outflow of data of their producers and consumers. It is propagating for a strong regulatory regime, lack of which is creating global disparity. Gains from e-commerce for developing countries can become a reality only if they protect national e-commerce platforms. This will improve the domestic and international market access of their producers. A Chinese e-commerce platform, KiKUU, operates in six African countries, selling only Chinese goods.
The UN does not support robotics and artificial intelligence. Robots are concentrated in a few countries, including China, but does not invalidate the role of industrialisation as a development strategy. The use of computers and telecom is estimated to be less than one per cent for most countries between 2000-2014. Strong regulations are needed in a digital world to create anti-trust laws. Vietnam, Indonesia and the Philippines have introduced regulations, but they are not wide. This is leading to a global crisis in productivity, market monopolies and high debt. A supposed game-changer is bestowing the world with untold difficulties.
(The writer is a senior journalist)
