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PPT Stiglitz Digital Economies World Bank Presentation 2_25_2019_0

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Digital Economies: Challenges and Opportunities for Inclusive Growth
Joseph StiglitzWorld BankFebruary 25, 2019
Multiple Aspects
Will new digital technologies make it more difficult for developing countries to close the gap between themselves and the advanced countries?Will it lead to increased unemployment and wage and income inequality within developing countries, even as it increases opportunities for some?Will it lead to increased market power?Will new technologies make it more difficult for governments to collect tax revenues?How worried should we be about threats to privacy?How worried should we be about political manipulation—with those with money being in a better position to affect political outcomes, in ways that may be adverse to inclusivity?How worried should we be about new technologies contributing to undermining global trade order?
General perspective:double-edgedsword
New technologies open up multiple new opportunities (for instance, in finance, in e-government, in access to knowledge, in global connectivity)But there is a real risk that unless adequately regulated, the “dark side” will predominate—with more monopolization, more inequality of income, more inequality of voice, more invasion of privacy, more tax avoidance and evasion and less tax revenuesOriginal promise of Twitter: democratizing publishingReality: those with money can dominate through Bots
Large implications for developing countries
New technologies may also make it more difficult for developing countries to catch upOn-shoringLack of trust undermining global trade regime and leading to “splinternet”Problems of mental health, lack of focus that are showing up in advanced country may manifestthemselves in developing countries, with less capacity to copeConsequences of undermining democracy worse in countries with weaker institutions
General Theorem
New technologies expand possibilities, but often lead to new market equilibrium with more inequalityAnd a political equilibrium which may make it difficult to address inequalitiesHistorically, it took a long time before the advances of the first industrial revolution led to increases in standards of living for ordinary workersNew technologies may be even more “biased” to advantage those in advanced countriesFacilitating on-shoringThe model of manufacturing export-led growth—the model used by successful countries in East Asia—has already been undermined, and will have to be replacedProblems exacerbated by international agreements ensuring flow of patent-rents and undermining flow of tax revenues
Big concern
Growth of labor-replacing robots will lead to even more inequality and unemploymentMachines have long been stronger than humans, better able to do many physical jobsComputers are better at processing large amounts of informationAI means that robots may even be better at learningExtent to which they can replace or outperform humans in immediate future uncertain—large variance in estimatesAlternative perspective: robots (AI) will belabor-augmenting(IA:intelligence-assisting), increasing productivities of large proportion of populationBased on A.Korinekand J. E. Stiglitz, “ArtificialIntelligence, Worker-Replacing Technological Progress and Income Distribution,” with AntonKorinek, NBER Working Paper No.24174, December2017,forthcoming inEconomics of Artificial Intelligence, NBER/University of Chicago Press
Technological possibilities and utility
Consider arrival of a new technology that replaces workers.Would their standardof livingnecessarilycollapse?1) If (i) theworld is 1st-bestand (ii)redistribution iscostless,the utility possibilities frontier (UPF) moves out (evenifcompetitive equilibrium wage decreases):Redistribution can ensure that everyone is better off
Technological possibilities and utility
Consider arrival of a new technology that replaces workers.Would their standard of livingnecessarilycollapse?2)If the world isnot 1st-best, the utility possibilities frontier may move inwards (even with costless distribution):Limiting technological change may again be desirable
Implications of “no 1stwelfare theorem”
Intervening in the innovation process may generatesocietalimprovementsMarket produces too much “unskilledlabor-replacing” innovation, too little environmental innovationMarkets produces too much digital addiction and High Frequency Trading (HFT) innovation, too little “inclusion” innovationImportant role for industrial and regulatory policies to shape the direction of innovation
Critical public policy question:
Are there public policiesthat wouldensure that everyone would be better off?Political economy: will these policies emerge out of our political processes?We focus onthe firstquestion—but political economy is endogenous, can and will be affected by policies.
Essential insights
Innovation typically gives rise to rentsRents can be taxed without creating distortionsProceeds of taxes can be used to ensure inclusive growthBroader institutional reforms include careful attention to regulatory, tax, and IPR regimeImplications for domestic competition, developmental resources, and potential for developing countries to “catch up”Further implications for society (privacy, inequality)Surveillance mechanisms can quickly morph from private to public, undermining democracy and basic rightsIfthe worldsplinters into competing trade areas, with different standards, developing countries may face difficult choices in choosing sidesChoice is along-runchoice, with multiple ramificationsShouldn’t be excessively swayed by current terms (price, credit)
Important international dimension
Analysis above was for a single economyIn practice, the gainers are “superfirms” located in advanced countries, taking advantage of a technology with low MC and global IPR agreementsLowering globally of real wages has adverse terms of trade effects on developing countriesRedistributions pictured above require cross-country redistributions—even less likely to occur than intra-country redistributionsIncreased income (rents) of gainers will be reflected in increased demand for some owners of scarce natural resources (“rents”)Redistributive effects between developing countries—those with such assets and those withoutBecause of “natural resource curse” developmental benefits may be limited
Hidden trap
Some of “bundled benefits” of new technologies (search engines, social media) may become apparent more quickly than the adverse terms of trade effectsBut the globally scarce assets that give rise to AI and other new technologies are disproportionately based in advanced countriesAnd their business model is to extract rents from the ownership of those assetsTechnologies associated with global market powerInevitable that over the long term they will be using their market power to redistribute income from developing countries and emerging markets to themselvesUnless the rules changeEspecially because it is unlikely, regardless of investments in education and technology made by emerging markets, that many (any) can close the knowledge gap to be effective competitors
IPR is a social construction
Designed to promote innovationWith strong distributive consequencesWith adverse effects on efficiency in the short run—inefficient use of knowledgeRules in TRIPS and post-TRIPS trade and investment agreements were designed to benefit particular industries in the advanced countries—not to promote global growth, let alone broader sense of global well-beingNeed to rethink the rules, including use of compulsory licensesAlternatively or in addition: use of taxation to prevent or mitigate adverse terms of trade effects
Important not to give digital commerce tax preference over non-digitalCould argue that it may be desirable to do reverse: presence of stores affects nature of communityImportant to tax digital multinationalsImportant source of revenuesVirtually all of revenues are rents, so that optimal tax rates should be highShould be viewed as part of broader program to combat tax avoidance/evasion by multinationals (global initiative)May be desirable to encourage digital national companiesLearning by doing arguments/learning spill-overs
Major change in perspective on regulation in last few yearsSelf-regulation will not work—hasn’t worked in other areas, and hasn’t been working in this arenaIntersecting concerns over competition/privacy/security/addiction/manipulation (political, individual)Multiple attempts—all so far inadequateGDPR, CaliforniaRestrictions on data aggregation (Germany)Restrictions on storage/use of informationInformed consent on use of dataGiving individuals ownership rights over their data won’t suffice
Competition policy
Conventional restrictions on conflicts of interest/anti-competitive actions (Europe’s actions against Google)Divestiture (Facebook, WhatsApp, Instagram)Use/sale of informationIncluding for discriminatory pricing
Lack of trust in trade in new digital productsDifficulties of verificationRelevant not just to5Gbut to all products with certain classes of chipsIncreasing fraction of all productsDoes China’s lack of concern about privacy give it unfair trade advantage?Or US’s relative lack of concern compared to Europe?Increasing problem: rules of game for “fair trade” among countries with different values, regulatory regimeNot likely to be full regulatory harmonization—nor should there beBut this will almost certainly have consequences for trade in other goods and servicesCompounding tensions already created by Trump Administration
Focused mostly on risks of new technologies and how they can be mitigatedBut new technologies also open up multiple new opportunitiesFinancial inclusionBut success has been more limited than at first hopedHas failed to have broader benefits associated with other avenues of inclusion, such as micro-creditEasier access to international markets/lower barriers to entryAccess to credit, knowledge still necessaryGreater barriers to entry in platformsWhich is where much of the profits are
Access to knowledgeBut also bombarded by disinformationHave to increase capacities to distinguish between the two and process knowledgeContinuing worries about digital divide, both between and within countries
Concluding comments
Time of rapid change in technology, with great uncertaintyUpside potential of greater inclusionBut matched with serious downside risks in multiple dimensionsResponses will require oversight and regulationWe know many of the problems that are already unfoldingBut there is great uncertainty about best regulatory responsesWe know one thing: self-regulation will not workAnd will also require accompanying investments and policies to make sure that developing countries can fully avail themselves of the opportunities that these new technologies afford.





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PPT Stiglitz Digital Economies World Bank Presentation 2_25_2019_0