Going Digital – Making the transformation work for growth and well-being

Coming soon to a job near you?

Douglas Frantz, OECD Deputy Secretary-General and Project Leader for the OECD’s Going Digital project

At a conference in China last year, the chief scientist of an American robotics firm predicted the world was approaching the “moment of singularity.” For the uninitiated, technological singularity is the hypothetical event in which artificial general intelligence allows robots and computers to replace human control and understanding.

Yes, it sounds like the plot of the Terminator movies or a William Gibson novel. And no one can lay out a credible time line. But not too long ago scepticism would have been just as high if you had suggested that, say, a computer could beat a human chess champion or that cars would drive themselves.

The digital economy is growing exponentially. It transcends borders, transforms economies and upends the policy landscape. We have gone from a society where technology made work more efficient to one where it is revolutionising every aspect of our lives, from where we work and play to how long we live.

Our response to these fast-moving changes will define whether the digital revolution contributes to global economic growth and improves human well-being – or not.

The digital revolution will backfire if it widens the gap between haves and have-nots and erodes the already-frayed trust between governments, companies and citizens. Failing to make sure that innovations in manufacturing, medicine and agriculture reach poor countries will threaten economic growth. Failing to prepare workers who lose their jobs to automation in wealthy countries will foster social instability.

The clock is ticking. Some estimates suggest that nearly half of existing jobs will be eliminated by automation in the next 20 years. Even in wealthy countries, some poor and uneducated people are still shut out of the new economy by a lack of Internet access. The benefits of the digital economy are not distributed equally, leaving behind economic sectors and entire countries.

So far, governments have struggled to respond to the complexity of this digital reality. They have been slow to develop and implement policies that take advantage of the truly global opportunity for increased growth, inclusion and well-being. And too many businesses treat people like a cost to be eliminated. No wonder so many people fear being left behind.

There is time to get this right. There is time to develop pro-active policies that come to grips with the promise and the peril of the digital economy. And there is time to come to grips with the need for ethical guidelines and regulatory limits on artificial intelligence. The leaders of the G20, who represent the world’s wealthiest countries, recognise that the digital economy offers challenges as well as opportunities. As part of its G20 presidency this year, the German government has made a priority of developing ways to share the benefits.

At the Organisation for Economic Cooperation and Development, we are confronting the digital revolution head on. We have started an ambitious, two-year project to examine how the digital transformation affects policy making across the broadest possible range of fields and topics.

The project is called “Going Digital.” The objective is to work with governments, business, labour and civil society to develop policies to harness the power of the digital revolution for OECD members and developing countries and unlock the benefits for everyone.

Fortunately, we are not starting from zero. The OECD and its member countries have done a lot of work analysing the impact of the digital economy and trying to shape policies that maximise its potential. The OECD’s Committee on Digital Economy Policy has tracked digital economic growth since 1982 and developed “soft law” on issues like privacy, security and trans-border data flows. The Committee will co-ordinate the new project.

But the global nature of the challenge dictates a global response. So the new effort will expand the consultation beyond the OECD’s 35 members to experts, social partners and officials from emerging economies and the developing world. We aim to listen carefully and consult thoroughly.

Just as the digital revolution affects every aspect of our lives, the project is founded on a whole-of-house perspective. The unique strength of the OECD is our ability to bring together our diverse Directorates to draw on experts on tax, competition, industry, innovation and entrepreneurship, insurance and private pensions, financial markets, fiscal affairs, science and technology, statistics, economics, education, employment, labour and social affairs, public governance and trade.

How will this unfold over the next two years? We will actively seek the support of the widest range of experts, countries and organisations through workshops and conferences. We will go on the road to brainstorm, consult and engage. We will use the OECD’s world-class capacity to gather evidence and provide critical analysis to underpin new policies.

In the end, the goal is simple: The OECD wants to work with others to make the digital transformation work for growth and well-being. If that moment of singularity arrives, we want to help make sure the world is ready to use it to promote fair economic growth and social equality.

Useful links

Responsible Algorithms in Business: Robots, fake news, spyware, self-driving cars and corporate responsibility

Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

Why is the topic of robots frequently being raised at recent conferences on responsible business conduct?  For example, October last year the Polish Deputy Prime Minister noted the connection between robotisation and corporate responsibility during the opening of the Conference in Warsaw celebrating the 40 years anniversary of the OECD Guidelines for Responsible Business.

The potential negative impacts of robots or automated systems have proved cause for concern. In May 2010 there was a trillion dollar stock market crash, a ‘flash crash’, attributed to algorithm trading or in other words: robot investors. And let’s not forget the mathematical models that contributed to the financial crisis of 2007 and 2008. Recent events surrounding fake news, with Pizzagate as the most extreme example, are also contributing to these concerns.

What is the common denominator of these automated systems? Algorithms! These rule-based processes for solving mathematical problems are being applied to more and more areas of our daily lives. Likely, we are only at the beginning of the era of algorithms and their widespread application is raising many ethical questions for society and businesses in particular.

For example “killer robots”, weapons systems that select and attack targets without meaningful human control raise questions about dehumanisation of killing and who is responsible? In December the United Nations decided to set up an expert group, in order to look into this issue following a campaign ‘Stop Killer Robots’ by Human Rights Watch and other NGOs.  While self-driving cars will never be at risk of driving while intoxicated they can make decisions that might pose moral dilemmas for humans.  Online face recognition technology raises concerns around privacy.  These are just a few examples.

The pervasiveness of the use of algorithms may result in many unintended consequences.  In her book ‘Weapons of Math Destruction’ Cathy O’Neil describes how algorithms in combination with big data increase inequality and threaten democracy. She provides examples of the financial crisis and the housing market, but also of a college student who does not get a minimum wage job in a grocery store due to answers provided on a personality test, people whose credit card spending limits are lowered because they shopped at certain stores, etc. She also discussed predictive policing models such as those that predict recidivism and algorithms that send police to patrol areas on the basis of crime data, which can have a racist effect because of harmful or self-fulfilling prophecy feedback loops.

Scholars and practitioners in this field are beginning to consider the ethical implications of application of algorithms. Julia Bossmann of the Foresight institute described her top 9 ethical issues in artificial intelligence. Prof Susan Leigh Anderson of the University of Connecticut stated: “If Hollywood has taught us anything, it’s that robots need ethics.”  Cathy O’Neil proposes a ‘Hippocratic oath’ for data scientists. Recently a group of scholars developed Principles for Accountable Algorithms.  In the private sector Elon Musk, SpaceX CEO and other business leaders have founded OpenAI, an R&D company created to address ethical issues related to artificial intelligence. Amazon, Facebook, DeepMind, IBM and Microsoft founded a new organisation called the Partnership on Artificial Intelligence to Benefit People & Society. The partnership seeks to facilitate a dialogue on the nature, purpose of artificial intelligence and its impacts on people and society at large.  It is encouraging that certain industry efforts are being undertaken in this area. Additionally one thing should be clear for businesses that create and use these technologies: when things go wrong, using algorithms as a scapegoat won’t do the trick.

What guidance on these issues can be found in the most important instrument on business ethics, the OECD Guidelines for Multinational Enterprises (MNE), a multilateral agreement of 46 states on corporate responsibility. Cases brought to National Contact Points, the globally active complaints mechanism of the Guidelines, provide a good illustration of what the Guidelines recommend with respect to these issues.  For example, in February of 2013 a consortium of NGOs led by Privacy International (PI) submitted a complaint to the UK National Contact Point (NCP)  alleging that Gamma International had supplied a spyware product – Finfisher – to agencies of the Bahrain government which then used it to target pro-democracy activists.

The NCP concluded that Gamma had not acted consistently with the provisions of the OECD Guidelines requiring enterprises to do appropriate due diligence, to undertake a policy commitment to respect human rights and to remediate human rights impacts. Furthermore the company’s approach did not meet with the OECD Guidelines’ standards to respect human rights and the engagement of the company with the NCP process was unsatisfactory, particularly in view of the serious nature of the issues. The NCP recommended that the company engage in human rights due diligence.

What is human rights due diligence and what does it mean for companies developing algorithms? Under the Guidelines due diligence is a process that should be carried out by corporations as part of a broader range of actions to respect human rights. The right to privacy, freedom of speech, freedom from torture and arbitrary detention are examples of the many potential human rights that could be impacted. Due diligence is the process of identifying, preventing and mitigating actual and potential adverse human rights impacts, and accounting for how these impacts are addressed. If there is a risk of severe human rights impacts a heightened form of due diligence is recommended. For example, significant caution should be taken with regard to the sale and distribution of surveillance technology when the buyer is a government with a poor track record of human rights. Due diligence should be applied not only to a company’s activities but across its business relationships. In the context of a company producing algorithms therefore it is not sufficient that they behave responsibly in the context of their own operations but due diligence should also be applied to ensure buyers of the technology are not using it irresponsibly. In instances where this is the case, the company that created and sold the technology is expected to use its leverage in the value chain to prevent or mitigate the impact.

A number of valuable tools to respect human rights and implement the ’know your client’ principle have been developed in the context of ICT business operations. For example, the European Commission has developed a useful guide for companies on respecting human rights in the ICT sector. TechUK, an industry association of ICT companies in the UK, in partnership with the UK government has published a guide on how to design and implement appropriate due diligence processes for assessing cyber security export risks. Additionally the Electronic Frontier Foundation has developed a guide on How Corporations Can Avoid Assisting Repressive Regimes and the Global Network Initiative has developed Principles on Freedom of Expression and Privacy.

Beyond the human rights related recommendations, the OECD Guidelines make other relevant recommendations for companies developing algorithms. For example the Environment Chapter recommends environmental, health and safety impact assessments.[1] The Consumer Chapter advises companies to provide accurate, verifiable and clear information to consumers.[2] In addition companies should respect consumer privacy and take reasonable measures to ensure the security of personal data that they collect, store process or disseminate.[3]

Businesses that create algorithms should do their due diligence on potential human rights impacts. Companies should also carry out due diligence on labour, environmental and health and safety impacts. They should provide accurate verifiable and clear information about their algorithms and take measures to protect personal data. Collaborative industry efforts on responsible algorithms are highly needed to shape these expectations in concrete terms. Responsible algorithms will not only generate profit, but protect the rights of individuals worldwide while doing so.

Useful links

There’s an algorithm for that. Or there soon will be Marina Bradbury on Insights

[1]               OECD Guidelines for Multinational Enterprises, Chapter VI.3

[2]               OECD Guidelines for Multinational Enterprises, Chapter VIII.2

[3]               OECD Guidelines for Multinational Enterprises, Chapter VIII.6

What is key for the OECD in 2017? An open economy perspective

Noe van Hulst, Ambassador of the Netherlands to the OECD

As we start a year that Ian Bremmer (President Eurasia Group) has coined as entering ‘the geopolitical recession’, it is worth asking what the OECD focus could be in 2017. I see two key issues worth highlighting in this context. First: Escaping the Low-Growth Trap. Escape games are popular nowadays, but this one is of eminent importance to all of us. In the latest Economic Outlook (November 2016) the OECD has aptly demonstrated how we got stuck at 3% per year for the last five years. How can we get out of this low-growth trap? Now that extraordinary accommodative monetary policy has reached its limits, the OECD recommends a more balanced policy set with a much stronger role for collective fiscal action and for more inclusive structural and trade policies.

Although the Economic Outlook makes a passionate case for a more expansionary fiscal stance in many countries, the reality is that this is unlikely to happen. Partly because some countries are cautious in the light of a heavy public debt burden. Partly because they are already growing at or above potential growth, as we heard from Prof. Christoph Schmidt (Chairman of the German Council of Economic Experts) a week after the publication of the Economic Outlook. The reason that potential growth is so low has, of course, everything to do with the productivity slowdown that was – very appropriately – the main topic of the OECD Ministerial Council Meeting in June 2016. Against this background, I think we will find more common OECD ground in 2017 if we focus strongly on boosting smarter structural policies as the main avenue to get out of the low-growth trap.

Let me mention just two concrete examples. The first one is harvesting the great potential of the digital economy, both a priority of the German G20 presidency and a promising new horizontal project within the OECD. The second example is inclusive structural reforms, particularly in product markets potentially delivering short-term benefits in terms of output, investment and employment. Making reforms more inclusive is also about exploiting benefits of complementarities between product and labour market reforms, synergies (growth & equity objectives) and designing policy packages to help vulnerable groups or mitigate trade-offs.The launch of the 2017 OECD Going for Growth publication is an excellent opportunity to highlight this key point. Reinvigorating good-old competition policy will also reinforce stronger and faster diffusion of new (digital) technologies from frontier to laggard firms and hence boost average productivity. Let’s not forget that structural policies are a traditional OECD strength, an area where the OECD holds a strong comparative advantage and rightly enjoys high international credibility.

What about inclusive trade policies? Well, that is my second key issue to focus on in 2017. Global trade growth has been very weak relative to historic norms for five years. The general consensus is that the relationship between trade and GDP growth is undergoing a fundamental shift. In the ‘good old days’ we enjoyed trade growth at a rate of twice global GDP growth and now trade barely makes global output growth. According to OECD analysis this also contributes to the productivity slowdown. So what exactly is going on with trade? Is low trade growth somehow intertwined with the general global growth malaise? To what extent is this due to global value chains contracting, as reflected in OECD analysis? Is the current slowdown in global trade only natural and should not be a major concern? In any case, it is clear that the rise of trade restrictions in G20 countries, still continuing in stunning contradiction to countless G20 communiqués, surely are not helpful. Deeper OECD analysis is required to pin down more precisely how the different factors contribute to the trade slowdown. And how trade impacts labour markets and economic growth in different regions within countries.

Deeper analysis, however, is not enough. We definitely need to ask ourselves some tough questions about where the public backlash against trade and globalisation is coming from and what went wrong. And even more importantly, what we can and should do better. One area is the need to rebalance our trade and investment policies, towards a more fair, sustainable and inclusive system. Making the OECD Guidelines for Multinational Enterprises the centerpiece of trade and investment policies would be a concrete step. Another area is more effective complementary domestic policies to help people deal faster and more successfully with trade-related job losses if and when they occur. Ideally, this entails not only effective ‘safety net’ policies but also so-called “trampoline” policies offering a tangible springboard to new jobs.

In any case, it is obvious that trade and trade policies are politically more under fire now than I can remember – and I am not young.  As Martin Wolf wrote in the Financial Times “The era of globalisation under a US-led order is drawing to a close…the question is whether protectionism and conflict will define the next phase”. For very open economies like the Netherlands it is of critical importance how this ‘next phase’ will shape up in 2017 and beyond. At this juncture, the Dutch economy is growing at a solid 2% per year (in 2016 and 2017) with unemployment coming down rapidly to 5%, but the downside risks are all related to where the global economy is heading. Many other OECD member countries have a similarly high exposure to shifts in the global economy. According to Open Market Index data from the International Chamber of Commerce (ICC), more than two-thirds of OECD countries have an above average openness, as measured by observed openness to trade, trade policy, Foreign Direct Investment openness and infrastructure for trade.

The OECD has a crucial role to play, in cooperation with other international organisations, in clearly demonstrating the adverse impact of rising protectionism, in monitoring what’s happening in trade and stimulating policy dialogue on better alternatives that help global growth.  In this light it is very fitting that the OECD Ministerial Meeting in June 2017 will focus on the theme of making globalization work for all. Let’s try to come up with concrete policy improvements that can help us preserve a well-functioning open global economy.

Useful links

OECD Global Economic Outlook, November 2016

The future of work: a world of new and changing skills

Digital native in natural surroundings

Glenda Quintini and Alastair Wood, OECD Directorate for Education, Employment and Social Affairs

What do you want to be when you grow up? As young girls and boys learn about space and the cosmos they may dream about being an astronaut. Building a beautiful Lego construction might lead them to declare their desire to be an architect. These days however, rather than catching a young boy or girl playing with Lego or a toy space rocket, they might be learning how to write computer code, aspiring to change the world through technology. Even 3-year-old children scroll through photos on an iPad with an ease and dexterity that stun many adults. That our children are so comfortable using new technologies is encouraging given where our societies are heading. The Internet of Things, Big Data, artificial intelligence (AI) and other new technologies are expected to create new and different jobs, substantially change many existing jobs, and make others obsolete. Adapting to and benefiting from these profound changes requires new skills, now and in the future.

But how well are countries prepared for the digital economy? OECD evidence paints a disturbing picture. Today, 95% of workers in large businesses and 85% in medium-sized businesses have access to and use the Internet as part of their jobs (OECD, 2013).  Yet over half of the adult population (56%) have no ICT skills or can only fulfil the simplest set of tasks in a technology-rich environment. Even among young adults, those between 25 and 34, only 42% can complete tasks involving multiple steps and requiring the use of specific technology applications, such as downloading music files or looking for a job online (Level 2 or 3); among people aged 55-65, only 10% can do this. And not only the workplace is changing; interactions between citizens and governments, between businesses and clients, and within personal networks also rely more and more on digital, mobile or social-media tools (OECD, 2009, 2011). Obviously, workers who can code and develop applications are in high demand; but digitalisation also means that everyone needs to be quite proficient using ICT, even those in low-skilled jobs: today, a factory worker often has to interact with an entirely automated chain of production and a waiter might be taking orders on an iPad.

Being good at ICT pays off. Workers with strong ICT skills are paid almost 30% more, on average, than those who cannot do much more than type or use a mouse (i.e. with skills at or below Level 1). These pay gaps exceed 50% in England, Singapore and the United States. Like in other sectors, there are also gender gaps in ICT: ICT specialists account for 5.5% of all male workers but only for 1.4% of female workers (OECD, 2016a). And this gap is likely to persist in the future: more than twice as many boys currently expect to work in science and engineering jobs when compared to girls, as stated in the latest OECD PISA survey, despite the fact that ICT jobs are in high demand, well-paid and offer promising careers.

But while tech skills are crucial, more is needed to succeed in the new world of work. In addition to ICT skills, workers also need entrepreneurial and organisational knowhow and the right social skills to work collaboratively. Workers also need the flexibility to adapt as technologies evolve (Spitz-Oener, 2006; Bessen, 2015). As Einstein put it “The measure of intelligence is the ability to change.” Our children will likely have a whole range of different jobs and even a range of careers over their lifetime – an exciting prospect but also a challenging one.

New OECD work on Skills for a Digital World calls on governments to ensure that digitalisation brings good quality jobs and that both employers and workers have the means to benefit from new opportunities that open up. Skills policies should strengthen initial learning; anticipate and respond better to changing skill needs; increase the use of workers’ competences; and improve incentives for further learning along with greater recognition of MOOCs (massive open online courses) and OERs (open educational resources). Our challenge today is that we have to educate people for jobs that don’t exist yet and the only way to do this is to be flexible and adapt education and training continuously. Then there is no reason to be worried if kids have no idea what they want to be later in life. Being open-minded and making sure that one remains open to learning and using new skills is likely the best attitude to adopt.

Useful links

Arntz, M., T. Gregory and U. Zierahn  (2016), “The Risk of Automation for Jobs in OECD Countries: A Comparative Analysis“, OECD Social, Employment and Migration Working Papers, No. 189, OECD Publishing, Paris

Autor, D. (2015), “Why Are there still so many Jobs? The History and Future of Workplace Automation”, Journal of Economic Perspectives, Vol. 29, No. 3, pp. 7-30.

OECD (2016), PISA 2015 Results (Volume I): Excellence and Equity in Education, OECD Publishing, Paris.

OECD (2016a), “Skills for a Digital World: 2016 Ministerial Meeting on the Digital Economy Background Report”, OECD Digital Economy Papers, No. 250, OECD Publishing, Paris.

OECD (2015b), Adults, Computers and Problem Solving: What’s the Problem? OECD Publishing, Paris.

OECD (2013), OECD Skills Outlook 2013: First Results from the Survey of Adult Skills, OECD Publishing, Paris.

Spitz-Oener, A. (2006), “Technical Change, Job Tasks, and Rising Educational Demands: Looking Outside the Wage Structure”, Journal of Labor Economics, Vol. 24, No. 2, pp. 235‑270.

A bright digital future for all: global cooperation to make the best of the digital economy

Digital economy ministerial Ministers, the business community, civil society, labour and the Internet technical community will gather in Cancún, Mexico on 21-23 June for an OECD Ministerial Meeting on the Digital Economy: Innovation, Growth and Social Prosperity. Today’s post is by Andrus Ansip, Vice-President of the European Commission, leading the Project Team Digital Single Market.

Slowly but surely, digitisation has transformed the world’s economy and people’s daily lives and our habits as consumers: how we work, travel, shop and are entertained.

The internet is an amazingly diverse source of innovation and creativity. Nearly three billion internet users are both creators of information as well as consumers.

Digital technologies and the internet offer remarkable development potential. With the OECD’s Ministerial Meeting on the Digital Economy about to be held in Cancún, Mexico, it is clear that digital issues are firmly on the global political agenda.

Although ICT is the fastest growing sector in the world, many millions of people are losing out on the opportunities offered by the digital age simply because they do not have access to digital technologies.

In fact, more than half the world’s people are offline. They cannot download anything, they cannot view a website, surf the internet or send an e-mail. The other half of the world which is online takes all this for granted.

Europe is not immune to this problem.

One hundred million Europeans are digitally excluded, and the percentage of people who have never used the internet is still very high.

There are huge differences in internet usage between young and old people, and similar differences between those with high and low levels of education.

This has an impact not only on individual lives – income, health, education – but also on families, communities, on political process, democracy, public services.

We are tackling these in our plan to build a Digital Single Market for Europe.

This aims to remove barriers that are today preventing people and businesses from getting the most, and best, out of the opportunities offered by the digital age.

It will allow every European to enjoy digital content and services – wherever they are in the EU- for their work, leisure and education.

It is the digital equivalent to the right to non-discrimination.

In Japan in April, G7 ministers agreed a plan for 1.5 billion more people to have internet access by 2020.

This is a good start towards getting rid of digital divides and exclusion around the world. But ultimate success will depend on at least a couple of factors: connectivity and skills.

Firstly and most obviously, we can only achieve this goal if more people have online access – preferably with a high-speed connection.

At the moment, only 15% of the world’s population can afford one.

This is often caused by a lack of competition in many markets, where expensively-priced services are only available to the few who can pay for them.

Secondly, people also need to have the skills to use digital technologies and be able to apply them in a working environment. Digital transformation is structurally changing labour markets around the world; in fact, the very nature of work as we know it today.

At the OECD meeting in Cancún, I will be chairing a panel of experts who will address these and other issues, including the need to raise digital skills and how best to go about it.

I have high hopes for Cancún in general, for it to reach good levels of understanding on a range of digital issues that call for international cooperation and discussion: internet governance, the free flow of data and its protection, net neutrality – just to name a few.

The internet should be a dynamic source of growth in the digital economy, for everyone to benefit. Everyone who is involved, or who has an interest, should have a say in how it is governed. The digital economy depends on a properly functioning, fair and open internet.

As such, all countries need to work together so that the global digital economy fulfils its potential for enhancing fairness and social inclusion – for everyone and everywhere.

I look forward to seeing many of you at the OECD meeting in Mexico.

Useful links

OECD Digital Economy Outlook 2015

OECD work on Innovation in science, technology and industry

Maximizing the Benefits of the Internet Economy

Digital economy ministerialMinisters, the business community, civil society, labour and the Internet technical community will gather in Cancún, Mexico on 21-23 June for an OECD Ministerial Meeting on the Digital Economy: Innovation, Growth and Social Prosperity. Today’s post is by Daniel Sepulveda, US Deputy Assistant Secretary, Department  of State

The open Internet combined with today’s emerging technologies has launched the information revolution and is powering the global digital economy.  Everyone has a stake in that development, both as individuals and in the organizations in which we serve and affiliate ourselves.  In multiple venues, governments, academia, industry, civil society, and others gather regularly to ask and discuss what the global digital economy means for them and how we can best maximize its benefits for everyone.

The June 2016 OECD Ministerial Meeting on the Digital Economy in Cancun, Mexico is an important opportunity to continue that dialogue, build on the previous OECD Ministerial meetings in Seoul and Ottawa, and showcase the work of the OECD and its constituencies.  The meeting will feature high-level discussions that will help inform the current debate and present new ideas and perspectives for the participants to consider when they return home and chart their own paths to developing robust and productive local, national, and regional digital economies.

If you have an interest in the digital economy and the future of the Internet, this is an event you will want to attend.

We need to preserve the Internet as an open, secure, interoperable, and reliable platform, which serves as the backbone of the global digital economy.  Its ability to enable the transfer of data and information across borders and between people and things is our best hope for global economic and social development.  The question before policymakers and stakeholders is how to maximize their own economies’ ability to participate in and benefit from the digital economy.

We’ve identified three elements necessary for growth: (1) we need to connect everyone in the world to the Internet; (2) we need to digitize every sector of our economy and every service that is delivered to people by their governments or industries in every sector; and (3) we need to invest in providing everyone with the digital skills necessary to use that access productively.  The question for any public policy under consideration is how it will contribute to or detract from those goals.

Getting people connected is the first imperative.  It creates opportunities for budding entrepreneurs in developing economies to start businesses and escape poverty.  It makes workers more productive and enables employers to increase pay commensurately, leading to a higher standard of living.  It creates more high-skilled, high-paying jobs, and improves an economy’s competitiveness in the global marketplace.  It increases economic opportunities in rural and poor regions, and enables public services to reach the often underserved populations there, while also linking them to the mainstream economy as untapped markets.

It has taken only two decades for 40 percent of the world’s population to begin using the Internet.  By contrast, it took a century for electricity to reach that mark.  So we are doing well but must do more.  With that in mind, the U.S. Department of State and its partners in the public and private sectors recently launched the Global Connect Initiative (GCI) to catalyze multi-stakeholder efforts to bring an additional 1.5 billion people online by 2020.  We are working with our international partners to change the mindset of connectivity as a luxury and make it clear that broadband connectivity infrastructure has to be a vital element of national development plans, on the same level as water, power, and transportation, and prioritize funding accordingly.  For those deployment plans to work, public policy has to encourage investment, provide certainty for firms, and enable innovation.

Beyond connecting people, we need to digitize all sectors of the economy so that each of us as individuals or nations can become better at whatever it is we do best.

Experience has shown that the most successful models for the digitization of the economy feature accountable and responsive public institutions with transparent processes, free competition, “light touch” market regulations, and predictable policies over the long-term, so that investors can be assured their investments will be secure and relatively free of risk.

By contrast, economies where telecommunications markets are controlled by monopolies fail to compete in the global digital economy, and countries which impose data localization requirements or impose ICT domestic production requirements raise operational costs for businesses and institutions using ICT and increase the barriers to entry.  This is also true for policies that apply separate tax regimes to digital products.  These activities detract from the first goal of connecting people and the second goal of enabling the use of ICTs for increased productivity across sectors.

Lastly, for the digital economy to change people’s lives, stakeholders must also invest in skills development in their educational systems, and create training opportunities for professionals to acquire and update skills relevant to emerging technologies.  Many countries have achieved impressive results by supporting the formation of industry associations, establishing partnerships with industry to train workers, supporting investment promotion activities, and developing technology parks as incubators for IT start-ups, where entrepreneurs can receive mentoring, training, and administrative support in their early phases.  Rather than creating a dedicated ICT sector in a vacuum, all parts of the economy should be incentivized and enabled to adopt ICT for productivity enhancement, and let the growing economy-wide demand drive the organic development of an ICT sector to service its needs.  Once people have developed the necessary skills to use ICT, they will be able to enhance their own productivity, create content, and become active on the Internet as both consumers and producers.

The digital economy is still very early in its development, and it is as yet unclear whether all users will be guaranteed safe and equal participation in the future.  Our goal, as members of the OECD, should be to craft policies that reflect stakeholder input and serve the global public interest, while continuing to support the growth of the digital economy.  The OECD, with its rich history of collecting and analyzing data to draw evidence-based conclusions is just the right organization to support us in seizing these opportunities.

I look forward to seeing you in Cancun.

Useful links

OECD Digital Economy Outlook 2015

OECD work on Innovation in science, technology and industry

Digital innovation – what does it really mean?

Digital economy ministerialMinisters, the business community, civil society, labour and the Internet technical community will gather in Cancún, Mexico on 21-23 June for an OECD Ministerial Meeting on the Digital Economy: Innovation, Growth and Social Prosperity. Today’s post is by Paul Chaffey, State Secretary in the Norwegian Ministry of Local Government and Modernisation.

Some weeks ago the last video rental store in Oslo closed down. In 1990 there were 3500 such stores in Norway. Today there are only a few left. How could that happen?

Digital distribution has taken over many value chains in the last ten years. As we know, the marginal cost of such distribution is near zero. Thus, music, films, news stories, maps, encyclopaedias, books, charts, etc. may be made available for millions of people at almost no cost at all.

Digitalisation of goods and services destroys established business models and disrupts existing value chains. New value chains emerge. This is often called disruptive innovation. Digital technology influences the way we organise various economic sectors in a very profound way already. And this is only the beginning. More and more business models and value chains will be disrupted. Examples are plenty – the Nordic music streaming service Spotify pushed down CD sales almost overnight; Netflix is on the way to pushing out linear television from our homes; Facebook is in the process of taking over the media business; and Uber poses a serious challenge to the taxi business in many countries.

The music industry story is a case in point that illustrates that the denial of the looming technology development is not a very good strategy to adopt in a long term. Even if we know that employment in the CD-producing and distributing industry will decrease, we must realise the enormous possibilities new digital technologies afford us to develop whole new industries and to create new employment opportunities. That’s why all CEOs and public sector managers should acquire strategic ICT-knowledge – to be able to monitor and follow up on this development. Digital technology is a great driver for change and it creates the opportunities for new and improved business processes, new products and new services all the time. If you do not follow, you will be eliminated.

Understand value creation potential

It is crucially important to understand the drivers for this development and the paradigm shift that has happened the last few years when it comes to availability of new digital service platforms. The potential for value creation that springs from this development is twofold:

  • Ability to solve great societal challenges by harnessing digital innovation.
  • The added value that smart digital applications represent in a commercial. environmental and social context, including new employment opportunities.

The potential for value creation lies at the crossroads of new technology, new business models and the knowledge and competences of the workforce. It is up to our political will to make it happen.

A good starting point

Norway has a good starting point to succeed with value creation based on digital innovation:

  • We have a highly educated population with high participation in the labour market.
  • We have a highly productive and adaptable work force with employees thriving in their workplace, taking responsibility and accepting responsibility.
  • We adapt to using new technologies very quickly, both as private persons and businesses.
  • We have a digital infrastructure of high quality and high penetration – both mobile and fixed.

Let me mention some examples of Norwegian digital innovation agility. The municipal commuting company in Oslo – Ruter – has developed an app to buy all kinds of tickets for local transport. No cards or card machines are needed any more – you can buy your ticket (with all kinds of duration) anytime, anywhere.

Our tax authority has totally digitised tax returns – as a citizen, you actually do not need to do anything to hand in your tax return. It will be posted on the government website Altinn where you may view it, and you may change it – but if you do not have any remarks, you just do nothing. Most of Norwegian population are now “digital taxpayers”.

The last example concerns a new app for state employees to hand in their travel expense reimbursement claims. This may be done entirely on your smartphone – you just snap a picture of all paper receipts and upload it to the government website. This was made possible by changing the government regulations to drop the requirement for physical paper receipts to be enclosed to your reimbursement claim.

ICT and digitalisation, a crucial factor for innovation and productivity growth

Innovative use of digital technologies increases the competitiveness of our businesses and contributes to society’s total productivity. It is the foundation of our future welfare as a nation. Thus we as a government must create favourable conditions for digital innovation to thrive. We need to adapt our regulations, remove obstacles to digitalisation and secure a first class digital infrastructure offering communication services of high quality. We also need to ensure that the availability of digital competences and skills meets the demand in both the private and public sector.

Digitalising the public sector to reap benefits – care technologies

Digitalising the public sector is a high priority for the Norwegian government. State agencies and municipalities offer more and more digital services and the use of these has significantly increased over the last few years. Within our health and care sector, we are aiming for a country-wide rollout of digital care services in our municipalities. Care technologies represent a relatively new business segment with great potential for saving costs for care services and affording home-tailored, safe solutions for elderly and chronically ill citizens at the same time.

Taking a wider view, this technology may have a revolutionary impact on the whole health and care sector, by preventing quality decline that would inevitably come when the demographics kick in.

Today, a large portion of care workers’ time goes to looking for information from various sources, travelling from place to another place, collating and handing over information to others, instead of doing their actual job. Efficient use of digital care technologies could provide real time support for various tasks and enable seamless communication between various entities involved in patient and elderly care.

We have conducted a series of highly successful pilots about care technology use in various municipalities in Norway. These projects demonstrated a great potential for cost savings and better quality of care. What we learned from them is summarized below.

  • Successful implementation of assistive technologies and remote care largely depends on the involvement of the users – citizens – at an early stage, and careful consideration of their capability of and interest in benefitting from the technology.
  • Close cooperation between the health and care services and the technology providers is essential to optimize the functionality of devices and services to meet the needs of both care workers and the citizens.
  • Benefits of care technology rollout will materialize over time. However, the introduction of new technology requires implementation of change management in the public sector. Service design may be an important methodology to lean on here.
  • National coordinated approaches are needed to scale the use of care technologies to the whole of the public sector and create conditions for a thriving care technology market.

This is digital innovation in practice – and we need to make it happen to be able to care for an increasingly old population. This is also a unique opportunity for our ICT-businesses to develop solutions for a global market.

I am looking forward to discussing digital innovation at the forthcoming Cancun Ministerial on digital economy.

Useful links

Effekter av teknologiske endringer på norsk nærings- og arbeidsliv

Kronikk: Når digitaliseringen kommer og tar oss

Årskonferansen 2016: Remix – det nye arbeidslivet

OECD work on Innovation in science, technology and industry

OECD Digital Economy Outlook 2015

The doctor will see you now (if you turn on the video) Mark Pearson on OECD Insights