sou · H3B365 · 2015-08-04 00:00:00 — ICT investments have reduced costs but informants estimate that future cost savings will be much larger. The implementation of new technology is accompanied by changes in day-to-day operations as well as the development of new business offerings. Having the ability to perform big data analytics and putting these capabilities to profitable use are two very different things. It is clear that the use of big data and the Internet of Things is still in its infancy. The companies large volumes of data and are currently big data analytics capabilities. The interviews confirm that data is perceived as an increasingly significant re- source that can drive value creation and new products. Still, it could be argued that the economic importance of data is not new. The informants highlight why data is viewed as a new source of growth today. First the growth in data generated and collected. Second the increasing power of data analytics. Their confluence enables the exploitation of data in ways that were never possible before. The companies also describe how difficult it is to adapt big data analytics to make their operation more profitable. The case studies are designed to capture how the companies utilise the opportunities offered in the digital economy. Based on the companies’ descriptions of their digital journey potential success factors emerge. Evidence from the cases highlights the following success factors: Digitalisation has become part of core business and is viewed from an operations perspective thus closely connected to busi- ness strategy. New digital business requires new skills. Development is described in agile terms i.e. minor steps that continuously evolve in an iterative process which is very flexible and fast. Source: Tillväxtanalys (2015). Innovation is becoming data-driven Firms increasingly leverage large volumes of data, known as “big data”. This data is generated from numerous transactions, produc- tion and communication processes. Big data analytics enable the improvement of, or development of, new products, processes, organisational methods and markets i.e. It is argued that with time data-driven innovation has the pot- ential to increase resource efficiency and productivity, economic competitiveness, and social well-being. Evidence suggests that the exploitation of data-driven innovation has already created added value for businesses and more can be expected to follow. Empirical studies show that data-driven innovation can boost firms’ pro- ductivity growth by around 5 percent to 10 percent. For the ICT sector, the analysis of big data represents a sizeable business opportunity: some estimates put the global market for “big data technology and services” at billion in 2015, with a growth rate of 40 percent on average every year since 2010.14 The demand for structural change and new skills History reveals that major technological progress is often accom- panied by changes in the labour market. By increasing labour productivity, new technology enables producing a given amount of goods and services with less employment. At the same time, tech- nological progress triggers mechanisms, with potentially positive effects on employment. This section takes stock of the recent de- bate as evidence is mixed and explanations are far from consensual. There are several empirical studies which support the view that technology can replace workers that perform routine tasks (auto- mation).15 Recent studies show that one third of total employment in and half of total employment in are potentially automatable in the next decade or two. Still, the estimated impacts do not necessarily imply future mass unemployment. The limit of the automation approach is that it will only tell us what kind of jobs may disappear in the future. A criticism that could be levelled against the automation approach is that it does not take into account, or ignores, new digital businesses that enter the market and create new jobs. There may be serious consequences if this neglect continues as policymakers may think that digitalisation will only result in unemployment. This chapter advocates a more DATA-DRIVEN INNOVATION FOR GROWTH AND WELL- BEING. 15FREY, C. & , M. THE FUTURE OF EMPLOYMENT: HOW SUSCEPTIBLE ARE ? OMS Working Papers, , FÖLSTER, S. 2014. Vartannat jobb automatiseras – utmaningar för . STIFTELSEN FÖR STRATEGISK FORSKNING, PAJARINEN, M. & ROUVINEN, P. Computerization Threatens One Third of Finnish Employment. no 22, 13 January. nuanced discussion that highlights business and work life dynamics i.e. a discussion that cover both job creation and job destruction. It could be argued that employment dynamics will increase at the same time leaving net employment unchanged i.e. the difference between jobs created and jobs lost. Currently the literature is somewhat biased as studies that take into account both job creation and job destruction are rare but we provide a few examples below. To get as close as possible to the activities performed in digital businesses quantitative evidence should move beyond figures that show how much ICT firms purchase and try to measure the ser- vices that the new technology generated. The actual ICT-use is measured by the services that previous ICT investments generate. The cost of the services is computed as a rental price that varies with age. The cost of older ICT investments is lower than the cost of new ICT investments as the latest technology is perceived to be more productive thus more expensive. presents new evidence which support current research in the view that there are two opposing forces at play.16 Firstly ICT changes production and increases productivity. Secondly ICT re- duces costs which lead to lower prices and more sales. All in all the two opposing forces neutralises each other and in the long run the labour demand remains the same. Figure 3 shows the adjustment path as new technology is taken into use i.e. the user costs of pre- vious ICT investment decreases. The figure is a simplification of reality which does not take into account that firms continuously invest in new technology. New technology is bought continuously and not every twelve years. However, the figure still allows us to present more detailed evidence of how labour demand is affected when the new technology is taken into use. ICTS AND : COMPLEMENTS OR SUBSTITUTES? THE EFFECTS OF ICT INVESTMENT ON LABOUR DEMAND IN 19 COUNTRIES. DSTI/ICCP/IIS(2014)6, yet to be declassified. Source: (2014c). It takes time before day-to-day operations change which is shown in the first year. After a while the initial start-up costs decrease which leads to lower prices and higher demand. As a result, firms hire more staff and employment increases. In the second year, firms start to change their day-to-day operations. Once the tech- nology has been in use for some time and is cheaper, additional ICT investments are made. As the hiring, which started in the first year, is still producing its effects firms reduce employment below its long run level. After the second year firms progressively in- crease employment as to bring it back to equilibrium which takes about ten years. The estimates above suggest that the digital economy will in- crease the job dynamics and that technical progress will change the economic structure of nations. Initially there are effects such as a temporary decline in the demand of labour. While the negative effects of ICT investments are expected to fade away eventually their size and persistence seem to warrant appropriate policy measures. A criticism that could be levelled against Figure 3 is that it shows data from a time when we are good at measuring the ICT- producing sector. the narrative change in the future as we become better at measuring the ICT-using sectors? New skills for workers, firms and are required History shows that technological developments have made old skills obsolete and led to the demand for new skill sets. The digitalisation process is at the forefront of this transition and is generating policy interest about what new skills are needed and methods to develop these skills. This debate has raised a number of questions: What types of jobs are disappearing? To what extent does lifelong learning and education play a role in shaping the skills of future ICT users in the workplace and everyday life? ICT has become pervasive throughout the labour market with any jobs exempted. Recent literature however suggests a more nuanced view where computers could substitute for routine tasks. Several economists17 have found evidence of a polarization in the labour market in the sense that workers in the middle of the wage and skills distribution appear to have fared more poorly than those at the bottom and the top. It seems that computers comple- ment non-routine cognitive tasks but substitute routine tasks while not effecting non-routine manual tasks (like cleaning, gardening, and child care). This implies that many middle skilled groups like bank clerks and paralegals performing routine tasks have suffered a fall in demand. The industries that experienced the fastest growth in ICT also experienced the fastest growth in the demand for the most educated workers and the fastest falls in demand for workers with intermediate levels of education. Related to the above, there are concerns that the workforce may lack the ICT skills that new occupations would require and that employment growth may be hampered by a shortage of such skills.18 17AUTOR, D. & , D. The Growth of and the Polarization of the US Labor Market. , 103, 1553-97, , G., NATRAJ, A. & , J. Has ICT Polarized Skill Demand? Evidence from Eleven Countries over Twenty-Five Years. Review of Economics and Statistics, 96, 60–77. 18COMMISSION, E. Grand Coalition for Digital . ICT-enabled socio-economic benefits at risk How policymakers respond – or not respond – to opportunities and risks associated with the digital economy discussed above, will decisively shape both the cumulative size, distribution and sustain- ability of the socio-economic benefits that can be realized in the digital economy. The socio-economic benefits at risk come in three forms, of which the final two are of utmost societal importance.19 Direct effects result from investments in ICT and infrastructure rollout. The short-term economic stimulus effect, a year or two from these investments differs from a GDP point of view from other investment expenditures, but as ICT infrastructure investments are fundamentally necessary to realize the indirect and induced effects described below these investments are fun- damental. Indirect effects come from all aspects of economic activity affected by ICT use that drive economic growth and prosperity. Examples include industry and public sector efficiency and in- creased productivity, reduced costs, more innovation, increased market reach, and new employment opportunities. Indirect effects typically include evolutionary and radical changes in economic activities facilitated by ICT use. The duration of indirect effects on the economy is typically between two and five years. Induced effects come from transformative or disruptive uses of ICT. For example, ICT increases diffusion of information at lower cost, improves market access, allows people to work from multiple locations with flexible hours, and enables fundamental redesigns and optimization of procedures and processes, boost- ing the economy’s dynamism. There can be further positive spill-overs – when companies adopt broadband and ICT and transform their supply chains, they prompt other companies to change too, either because they are part of the chain, or because they copy an innovative leader. Finally, by its nature, ICT also creates positive network externalities whereby the benefits that accrue from using technologies increase as diffusion increases. Transforming to a : Guide for Policy Makers, Sriban. The duration of indirect effects on the economy is typically a minimum of five years and can last for one, two or three decades. Political economy of digital transformation There are wider political economy challenges associated with public policy making and concomitant governance challenges in public institutions. Barriers to transformational change are embedded in the political, constitutional, and institutional set up of a society. A growing share of the overall economy will most likely increase the risk of hitting some of these barriers since digital transfor- mation create pressures at sector, organisational and individual levels. The source of these barriers can be grouped accordingly:20 Government failure Deliberate or passive policy making designed to resources or shape incentive structures of stakeholders to non-productive or destructive activities. Ulti- such failure extracts economic value from the rest of society, to the benefit of small elite.21 Temporal asymmetry In a short-term perspective, an annual GDP growth rate of 1–2 percent enabled by the expansion of the digital economy makes difference from one year to another for the average citizen, and hence is not strong enough to shape the political agenda or electoral discourse. The dilemma of ICT enabled long-term growth is that contemporaries pay most of the costs (in terms of jobs, values, etc.) of a technology- led transformation, while the benefits are mostly enjoyed by future generations who are absent from the current political process. formally, the challenge is caused by temporal asymmetry in the distribution of costs and benefits that shapes political agenda and electorate competition.22 Or as The US Rep. 21ACEMOGLUE & 2012. The Origins of , Prosperity and Poverty, , Crown Publishers. 22LIPSEY, CARLAW & BEKAR 2005. Economic Transformations, , . The past, in general, is over-represented in . The future has no lobbyists.23 Regulatory failure This occurs when public institutions are cap- tured by private interest pressure groups or when agencies put their own interest above the public interest to protect the status quo. Private interest rent seeking Not every private profit seeking is to the benefit of society.24 Rent seeking leads to regulatory fail- ure when policy makers fail to distinguish between better public policy and better corporate deals. Private rent seeking coupled with government and/or regulatory failure is of particular con- cern decreasing the size or duration of socio-economic benefits enabled by digital economy. Systemic failures Both federal and unitary states have to deal with dispersed layers of authority that are not coordinated enough and often in conflict with each other. For example, contradicting policy objectives are pursued resulting in systemic dysfunctionality and risks.25 Society’s values Transformation requires nonconformist atti- tudes, increased openness to new information, and tolerance towards the unfamiliar. The networked infrastructure that blends computing and commu- nication is the largest construction project in human history.26 Getting public and ICT policy right or wrong has tremendous con- sequences for enabling transformational change that can deliver economically, culturally, and socially sustainable and desirable long term improvements in wellbeing. The magnitude of socio-economic benefits at stake is enormous.27 So are the opportunity costs of narrow, biased, or extractive policy choices that could suffocate /usv/status/194850234982080513 Industry and Empire: from 1750 to the Present , , Penguin Books. 25BIANCHI & LABORY 2011. Industrial Policy after the Crisis, Northampton, MA, . 26COWHEY & ARONSON 2009. Transforming Global Information and Communication Market, the Political Economy of Innovation, MA, . new initiatives, productive innovations and investments in technol- ogies underpinning the rise of the networked society.28 ICT Policy framework enabling transformation the last 30 years, many countries have moved away from state-owned telecommunications monopolies, and adopted liberali- zation and deregulation to embrace a market-based regulatory approach that relies on competition policy. Historically, we have heard calls for less regulation, better regulation, more equitable regulation, smarter regulation, and now for more holistic regula- tion that focuses on the cumulative impact of regulation. Each of these calls serves as a reminder that technology moves faster than regulation and hence there is a continuous need for regu- latory frameworks aligned with technological, business, consumer, market, and societal realities. To enable ICT led transformation and realize the benefits of the digital economy policymakers could take a much broader and a more coherent approach to ICT policy making to minimize the risks of hitting the barriers identified above. The related policy decisions or lack of them will have significant impact on; R&D investments (knowledge creation), value creation (innovation), roll out (diffusion), and use (adoption) of ICT. These ICT policies (see below) will determine the cumulative strength and sustaina- bility of ICT in driving transformational change and the distribu- tion of socio-economic benefits. They are also central as they im- pact key stakeholders’ timing and degree of willingness to invest in ICT, and hence the long-term supply of ICT-related capabilities. They also determine end users’ (individuals, businesses, and public services) ability to benefit from ICT as they define the speed, scope, and intensity of opportunities and benefits available from ICT-enabled service adoption. 28 The issue of rethinking policy and the opportunity cost of having the wrong public policy is summed up by Castell (1996):“If society does not determine technology, it can, mainly through the state, suffocate its development. Or alternatively, again mainly by state inter- vention, it can embark on an accelerated process of technological modernization able to change the fate of economy and social well-being in a few years.” Supply-side ICT policy issues National broadband (BB) policies aim to increase the roll out of BB infrastructure within a geography (region or a country) typically specifying an ambition in terms of expected BB service speeds, service roll out time plan, and sometimes adoption. They may also include public funding and cooperation mecha- nisms. Network regulation aims to address technical (standards), mar- ket (incumbent, new entrant) and consumer (protection, pric- ing) specific conditions with the aim to improve market effi- ciency, public interest (access) and increase protection of consumers (contract terms). Spectrum management aims to efficiently manage scarce resources and allocate new spectrum to highest value. It also includes global or regional coordination and harmonization of spectrum usage to decrease cost of technology by increasing economies of scale. Demand-side ICT policy issues Industrial Internet/Internet of Things – an umbrella term for emerging issue across a number of sectors currently experienc- ing accelerated rate of digitization such as, health, electricity, and energy. Increased use of ICT may result in changing rela- tionships in existing value chains and in new business models, upsetting the status quo. Media/content regulation aims to regulate, increasingly in a multi-platform environment, obligations, roles and responsibil- ities of media service and content providers while creating, aggregating, and making available audio-visual content. Data protection aims to regulate data subjects’ rights and data controllers and processers’ obligations while collecting, pro- cessing, using and disseminating personal data. It also regulates transfer of data across national boundaries and roles and respon- sibilities in data processing value chains. Increasingly the chal- lenge is about optimising a data protection perspective focusing on protecting citizens with a data driven innovation paradigm aiming to enable new form of innovation, services and industries to evolve (see emerging policies section below). Horizontal policies impacting supply and demand side Internet governance concerns rules and principles for the opera- tion and use of the Internet – the mandate, organization, and responsibilities of governing entities. Trade policies aim to regulate trade (financial, products, services, technologies, etc.) between countries and regions. Trade policies can facilitate liberalization resulting in more trade, economic and social integration, as well as transfer of technologies and innovations. Intellectual Property Rights (IPR) – an umbrella term including trademarks, patents and copyrights. The regime aims to protect private interest and increase incentives to invest in new know- ledge creation and innovations on one side, and on the other, stimulate diffusion of new knowledge and innovation – for example, positive spillovers for greater societal benefit, thereby also limiting the private interest to appropriate some portion of the value attached to intellectual property investments. Emerging policies impacting supply and/or demand side Critical infrastructure and cybersecurity – critical infrastructure refers to any vital infrastructure for the functioning of modern societies, such as electricity and ICT. The policy aim is to take extra security measures – physical, logical, procedural, and re- dundancy – to assure continued availability beyond the demand and willingness to pay by the commercial market, as well as to cope with stressful environmental or other situations. Cyber- security is a much broader term that includes considerations covered by critical infrastructure, as well as additional con- siderations such as offensive and defensive measures to protect against and resist cyber-attacks targeting ICT at any level: net- work, IT-infrastructure, software, device, and user. Data Driven innovation Big data and analytics refer to large scale collection of data whose analysis drives innovation that creates new opportunities for society. Policies primarily touch upon data protection when they are applied at the individual level. When applied at the business level, they deal with issues of copyright, liability, and trade secrets. At the societal level they touch upon issues of open data, transparency and e-government initiatives. Increasingly there is a need to view data driven inno- vation as a new phenomenon creating a new set of opportunities for forming new industries. Institutional quest for the effective regulator The digital economy breaks up existing vertical service-technology specific value chains into a multitude of horizontal offerings and capabilities. Convergence, a bi-product of the digital economy, changes markets by transforming traditional sectors, blurring historical market boundaries, and challenging the robustness of previously successful business strategies. From a policy perspective, convergence enables increased demand-side and supply-side sub- stitution by lowering entry barriers and ultimately facilitating more consumer choice, lower prices, and increased competition and innovation. The outcome at stake in the hands of policymakers is how much a society can gain from the convergence process. But, convergence puts a range of very different regulatory tra- ditions and philosophies on a collision course: Telecommunications, concerned with operation of the physical network and access. Broadcasting, where licensing provides the basis for regulation on political and cultural criteria. The film industry, where control is exercised through classifica- tion, censorship, and copyright. Publishing, shaped by principles of a free press, libel, and copy- right. The computing industry (including the Internet), historically left to develop largely unregulated, apart from general competi- tion law. Protection of citizens’ fundamental rights, such as privacy and free speech.