Experts Discuss Impact of “Digital Economy”

Martin Wolf took a strong stand at a recent SIPA panel discussion entitled “Evaluating the Importance of the Digital Economy.”

“‘Digital economy’ is an absolutely useless name,” said Wolf, a Columbia Global Fellow and chief economics commentator for the Financial Times. The digital economy, he explained, is not a separate thing but rather “a transformation of the existing economy.”

This distinction, Wolf said, makes it a much more “radical” idea, Wolf said.

Expanding on the same theme, panelist Joseph Stiglitz—a University Professor and Nobel Laureate in Economics—said that new technologies have transformed the nature of competition, of monitoring, of how we collect taxes. Collectively, he said, these are “the foundations of how the economy works.”

Dean Merit E. Janow, who moderated the event, noted that the economy has been radically reshaped by the advent of digital technology, but also suggested that “the aggregate economic impact of the digital economy appears by some measures to be quite modest.” She said that the question—as posed by Wolf in a previous SIPA appearance—of whether this is a measurement error or “something else,” was the inspiration for the current panel.

In response to this idea, both Wolf and Stiglitz said that the actual innovations of the digital age were “trivial” when compared to truly transformational inventions, such as electricity, the car, and the airplane.

“We think of this as the innovation economy, people are very proud of their innovations,” said Stiglitz. But he said Google, for example, is at heart just a “better advertising agency” that doesn’t compare to earlier “fundamental transformations.”

Professor Eli Noam of Columbia Business School disagreed, arguing that products like the iPhone and iPad and services like Uber and FreshDirect are all innovations unlike anything that existed before. If you think about the digital economy as outputs or products, Roam said flatly, “it is a separate sector.”

Noam also noted the growing importance of data on a large scale.

“For the first time, we have data other than that which is given to us by governments,” he said.

Data used to be the bottleneck, but we now have so much data that we have to consider how best to use it, Noam added.

Stiglitz was less enthusiastic about Uber. He said the car service and other online platforms are not necessarily increasing economic productivity, but rather only appear to be because they are skirting regulation and taxation.

Considering the company’s net impact, Stiglitz said that slightly greater convenience and bringing underutilized workers into the labor force could both be considered positive outcomes. But he said regulatory arbitrage, tax evasion, and driving down the bargaining power of workers would probably outweigh any net benefits Uber might produce.

Wolf and Stiglitz both said they worried about the technological disruption of what they called the economics of information, and Wolf spoke specifically raised the implications for news organizations.

“Historically, news organizations have sold a joint product—news and advertising,” Wolf said. “Now advertising has gone to the [online] platforms.”

Observing that the marginal cost to produce news and information has gotten radically cheaper as a result of technological advances, Wolf warned that this change could force us into a world with only “information that is zero cost to produce… which is not worth having.”

Stiglitz also discussed the challenge of what he called appropriate returns on knowledge.

He said that knowledge is a public good that is preferable to share, but also noticed the need, in private markets, for a return on investment. This tension between public and private is noteworthy, he said: One of the chief byproducts of the digital era is more easily disseminated knowledge, but it remains unclear how one can monetize it.

“In the economy where information is delivered completely efficiently, there is no information,” Stiglitz said. “That’s the paradox.”

Despite his skepticism, Wolf acknowledged that lowering the cost of information can reduce the distance between people and the market. Eventually, he said, we could reach a world in which all people have access to all the information in the world.

“And that’s a big deal,” he said.

— Lindsay Fuller MPA ’16

Martin Wolf, Eli Noam, Joseph Stiglitz and Dean Janow featured on the panel for a talk on 'Evaluating the Importance of the Digital Economy'

Clockwise from top left: Merit E. Janow, Joseph Stiglitz, Eli Noam, Martin Wolf