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Digital technologies play an ever-increasing role in our lives – and the pandemic has seen this trend accelerate. Effective regulation of digital platforms, resilience of the networks and equitable, universal access are among the challenges facing policy-makers.

Newsletter from 18 June 2021

It is a long time since I was first seized by an interest in digital technology, wanting to understand what it is doing to our economies and societies. It was the mid-1990s when I first saw a webcam showing me – in London – live traffic driving along San Francisco’s Golden Gate Bridge. It sounds dull now, but many were equally enthralled at the time by a webcam showing how much coffee was left in the pot of the University of Cambridge computer science department. I for one was hooked.

A quarter of a century on, one of the many lessons to emerge from the pandemic is how much we rely on digital technology. The availability of digital services – from online shopping to Zoom, Teams and other platforms – has meant that many people have been able to continue to work and sustain their social contacts since March 2020.

Recent figures from Ofcom, the UK’s regulator of the communications sector, show a surge in the amount of time the average Briton spends online: 3 hours and 37 minutes a day (excluding TV watched by streaming online). That’s over a day a week. It is hard to imagine how we would have coped without it.

This dependence raises many questions for economists. One is the basic reliability of digital infrastructure, and access to stable and adequate broadband. That there are vulnerabilities was revealed recently when the content delivery network service Fastly, one of the jigsaw of companies enabling access to websites, brought down swathes of the internet for more than an hour, seemingly because of a single software bug.

Overall though, the communications networks have proven wonderfully robust and able to cope this past 15 months. In an upcoming Observatory article, Will Stewart, a telecommunications engineer, discusses how our digital infrastructure has expanded to meet rising demand. But the big policy and economic challenge is extending coverage: access needs to be reliable and ubiquitous. The need for universal access also points to issues concerning distribution in terms of devices and affordability of services. These are economic and political challenges, not engineering ones.

For in addition to reliability and resilience, there are major distributional questions. School pupils have needed to access their lessons online, and those in low-income families or rural areas have been significantly disadvantaged. Around one in seven adults in the UK does not use the internet, generally older and poorer people. And there are still gaps in service coverage around the country.

A second set of issues concerns the fact that digital markets are so concentrated. In a recent Observatory piece, William Quinn and John Turner (both Queen’s University Belfast) discuss the extent to which there is currently a tech bubble. Have share prices for technology companies risen far beyond the level justified, even by the extent to which we all use them?

There’s a big difference between ‘crypto-assets’, the purpose of which is, to say the least, unclear, and companies such as Alphabet (Google) and Amazon that deliver genuinely highly valued services. This is highlighted in an article by Andrew Urquhart (Reading) on the meme cryptocurrency Dogecoin. Started as a joke, Dogecoin is now the sixth largest cryptocurrency. Yet its value is extremely precarious and ultimately tied to interest in the meme.

Figure 1: Price of Dogecoin

Source: CoinMarketCap

A handful of giant companies absorb the majority of our time online. The economies of scale are large, and network effects – whereby we all benefit from services with more users – are powerful. Amelia Fletcher (East Anglia), a member along with me and our legal and technical colleagues on the 2019 Furman Review Unlocking Digital Competition, explains in her article the changes taking place in competition policy to make sure digital markets are ‘contestable’ – that is, open to new entrants with better technologies. She also sets out the challenges in achieving this.

Figure 2: Shares of supply by page referrals from January 2009 to April 2020

Source: Statcounter Global Stats
Note: Bing’s share represents Bing and MSN Search, MSN Search was rebranded as Bing in 1998; ‘Other’ consists of: AOL, AskJeeves, AVGSearch, Babylon, Baidu, Conduit, Webcrawler; Yandex; and ‘other’

The challenges in ensuring the markets are competitive mean that regulation of digital platforms also needs to step up a gear. Although competition is important, and the threat of competition can tackle some of the problems attributed to the big digital platforms, it cannot do everything.

Social media platforms in particular seem to involve harms such as potential loss of privacy, conspiracy theories, polarisation of views and damage to users’ mental health. As Carlo Reggiani (Manchester), Leonardo Madio (Padova) and Andrea Mantovani (TBS) explain, online intermediaries have largely not been held responsible for the harms that their users perpetrate. But many economists, lawyers and other commentators are starting to question this presumption, and regulation of the platforms is beginning to tighten up.

A third area of interest is the impact of the enforced increase in the use of digital technology on working patterns and productivity. Economists have begun to investigate the trends and the productivity effects of working from home, which broadly seem to be positive, at least in the short term.

But there remain longer-term questions about the effects on younger workers, who learn from more experienced colleagues, and the impact on women’s promotion and pay at work, as well as their share of the household work. Many of us working in teaching and research consider online meetings far less effective for conveying information and ideas. This was the subject of a debate I had with Cary Cooper (Manchester) at a recent conference at The Productivity Institute.

One area where there are high hopes for using digital technologies to boost productivity and improve outcomes is healthcare. In a recent paper, my co-authors and I look at the use of technology in UK hospitals during the pandemic. Interviews with senior leaders in two major NHS England hospital trusts show that they expect the use of digital technologies – both internally and for patient consultations – to continue. But there has been no evaluation yet of either long-term productivity effects or the impact on patient outcomes.

As Heidi Tau (Hertfordshire County Council) and Marselia Tan (Care Policy and Evaluation Centre) set out in their Economics Observatory article this week, the pandemic has catalysed a lot of new activity in digital health. Another question will be the distributional impact and ensuring everyone can access health services, including the devices (such as smartphones or pulse oxymeters for example) needed for remote consultations. But as with other digital innovations, the expansion of digital technology seems sure to have a major impact on healthcare.

Figure 3: Number of deals and size of investment raised by e-health companies

Source: Beauhurst, 2021

Of course, there are many other economic questions relating to digital technology, in addition to the ones covered this week at the Observatory. One set of questions relate to changes not only in working lives but also in the labour market. There has been much debate about the impact of automation on jobs, and the pandemic – along with Brexit – has jolted some sectors of the economy toward faster automation than might have otherwise occurred.

Then there’s the outlook for further innovation either in the digital sector itself, with rapid development of commercial uses of artificial intelligence under way, or in sectors that rely on massive computing such as biomedical innovation and pharmaceuticals.

There seems little doubt that the role of digital technologies in our lives will continue expand. There have been a number of recent efforts to measure the size of the digital economy. To my ears, after more than 25 years of study, this sounds like talking about ‘the electricity economy’. If it isn’t all digital yet, it soon will be.

Author: Diane Coyle
Image by Alexandre Debiève for Unsplash
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