Curious Capitalist

The Real Threat to Economic Growth Is the Digital Divide

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I spent last night in Davos talking about the two-speed recovery — not between the rich and the poor, but between the real economy and the digital one. I was speaking with a couple of Boston Consulting Group (BCG) guys who’ve come out with a new report tallying up the economic costs to countries that make it tough for their populations to access the Net. The reasons can be myriad — poor infrastructure (Africa), red tape (parts of Latin America and the Middle East), a lack of free speech (China, parts of the Arab world) — but whatever the reasons, the frictionless nature of the Internet seems to be changing. And the digital world is in danger of becoming Balkanized, with large swaths of the population unable to connect easily, cheaply and freely.

That will have a big economic impact. The BCG report, which represents some of the best tallying of the economic impact of the digital economy, found that countries like Sweden, Switzerland, the U.K. and others that make digital connection and commerce easier for their populations have a much larger share of their economies represented by digital business — about 2.5 more percentage points to be exact. So far, so obvious. The crucial point is that the digital economy is growing exponentially faster than the real economy. BCG tabulates that even during the post-financial-crisis recession, the digital economy (which includes not only e-commerce, but the cost of online access via broadband-subscription fees) was growing by about 8 percentage points a year. The consultancy is busy tabulating the new, recovery growth numbers, and estimate that they could be as high as 10% to 15% a year.

That means if you are a country like the U.K., where 10% of the entire economy is based on digital commerce and access, you are getting a big bump up. On the other hand, if you live in Pakistan, Nigeria, Egypt or Bangladesh, where the digital economy and Internet access are being stifled, economic growth takes a big hit too. Policymakers in places like China should take note: the Great Firewall, which leaders hope will create social stability by suppressing information that might be unflattering to the Communist Party, may actually create dissent by dampening growth and creating a headwind to employment.

And U.S. policymakers should pay attention to the fact that America, which desperately needs better technology infrastructure, has been creeping down the list over the past few years — it’s in fifth place in terms of ease of Internet usage and commerce (behind Sweden, Finland, Switzerland, Denmark and Hong Kong), but BCG predicts we’ll likely fall a place or two by next year. Tweet that.