2. Growth Driver: Developing Digital Services
In the digital era, connectivity counts. It is impossible to imagine the country, sector, industry or area of endeavour that cannot benefit from digital services. The services enabled by digital technology are economic growth drivers, job creators, talent magnets and big sources of exports. The internet has created entirely new fields of commerce (the term “app developer” did not exist a few years ago), and its impact extends deeply into traditional industries, enabling new capabilities, products and services. The quality, speed and extent of connectivity will be increasingly important factors in business and economic decisions in the future, including where companies decide to expand or locate new facilities.
Digital service sectors have evolved along many different paths, but they have certain key attributes in common: adequate digital infrastructure, technology-literate end-users, technology talent with entrepreneurial spirit, and a friendly business environment. (See Figure 5.)
Governments Can Lead – Up to a Point
In a number of countries, but by no means all, governments have played a key role in getting the digital ball rolling with strategies, policy initiatives, investment incentives and even funding. South Korea saw the potential of information and communications technologies (ICT) – many then still in their youth – during the South-East Asian economic crisis of the late 1990s and the public and private sectors combined to turn the country into an economic powerhouse. Sweden was the first country in Europe to develop a broadband policy with the principle that everyone should have access. The government provided IT training to 75,000 teachers and funded IT training for small businesses and the unemployed. It led a public-private partnership to develop Stockholm’s Kista Science City, home to more than 1,000 information and communications technology companies with some 25,000 employees and Europe’s largest ICT cluster.4 In these instances, as well as others, the governments also knew when to step aside and let the private sector maintain the momentum.
California’s Silicon Valley is perhaps the leading example of a thriving digital service economy that grew almost entirely out of successive waves of private sector innovation and investment, albeit with major assistance from a leading educational institution (Stanford University) and the nearby presence of the US military. Countries as varied as China, Israel and Kenya have built energetic digital service industries with their own mixes of private and public sector involvement.
It’s the Environment
Governments can play a big role in creating environments that facilitate digital exchange. Attitude is important. The UN as well as a number of countries have declared internet access to be a fundamental right of all citizens, and Finland and Spain have mandated connection speeds of at least 1 megabit per second for everyone. Fibre-optic broadband projects have led to higher than average penetration in such countries as Slovakia and Estonia, where fibre as a percentage of total broadband exceeds 30%, compared with an OECD average of less than 14%.5
Policies matter, too. Governments can make it easy and attractive for digital service providers to operate within and across their borders. They can promote the free flow of information and services across those borders. They can recognize that the competition for investment and talent is global, and that digital infrastructure and the business friendliness of a country are critical attributes for attracting both. Many have a lot of catching up to do in this regard. Countries vary widely in their ability to attract venture capital, with most lagging the leaders by a substantial margin. Engineers are in high demand: they make up approximately 80% of the expense structure for start-ups and are a critical resource for larger companies seeking to grow.6 Developing strong tech communities – often by first attracting international digital service players – creates a virtuous circle, furthering the attraction, development, and retention of talent. The fact that more than 50% of Silicon Valley start-ups had first-generation immigrants on the founding teams illustrates the importance of immigration-friendly environments.7 Reforming immigration rules to attract and retain foreign-born technical talent are signals that a country is open for digital business.
Many factors, such as workforce ICT skills, trade barriers, access to capital and the strength of intellectual property protection, hold back successful online business operations. Countries with well-developed markets for international trade and a domestic business environment that fosters innovation and creativity have a big advantage. Equally, lack of ICT literacy and access to and affordability of financial services impede consumers’ interaction with the digital economy. These are areas in which education, trade and consumer policies and programmes can help.
Toomas Hendrik Ilves, President of Estonia, highlighting key elements of Estonia’s ICT policy and Carlos López Blanco, Global Head, Public and Corporate Affairs, Telefonica, Spain, at the World Economic Forum Annual Meeting 2014.
Governments should recognize that there are things they should not do. Tariffs, taxes and technology controls slow things down. So do excessive or intrusive regulations. If a country limits access to cloud computing and data, wherever those resources happen to be based, it is a big obstruction for start-ups. It is equally important to avoid protectionist solutions, such as mandated national traffic routing or “country clouds”, that lack scale, push the potential fracturing of the internet, and put users at a disadvantage to peers and competitors elsewhere.
Data security and privacy are two high-profile areas countries need to get right. Consumers value privacy, but studies also show they are happy to trade personal information for expanded services and convenience if they are satisfied with the privacy controls. Better aligning tax laws, copyright protections and data protection rules improve the environment for digital services.
Setting an Example
Three areas in which governments can lead by example and promote digital services demand are education and training, healthcare, and bringing public services online. Today’s challenge is not whether to use the internet in education; it is how to do so effectively. Emerging countries such as Chile, Colombia and Peru have established programmes to connect schools and build digital literacy.8 Schools and school districts need to reorganize their instructional models, using digital technology to raise the productivity of teaching staff and improve educational outcomes through high-quality, individualized instruction at a more affordable cost.
Digital innovation has the potential to unlock similar value in healthcare. It can expand access to health services and improve their quality; it can equip patients with the tools to manage their own health and wellness; and it can lend new energy to public health initiatives. There is only so much that innovators, providers and patients can do on their own, however. To unlock the full benefits of digital innovation, policy-makers must remove healthcare industry barriers to faster adoption and encourage experimentation and development. Denmark, for example, has set out a National Strategy for Digitalisation of the Danish Healthcare Sector 2013-2017, with a goal of increasing the “focus on ensuring full deployment and use of existing ICT solutions”.9
In emerging and developed markets alike, putting government services online can encourage internet use and digital development. Interactions with private companies in developed markets are raising citizens’ expectations for how all organizations should perform. In all countries, the next step is to move to digital services as the default standard – or to go even further and follow the Danish government’s aspiration to phase out paper-based interaction for government services entirely.
Digital services are still in their youth. Governments that want to secure a piece of the action for their economies should play to their countries’ strengths and established capabilities. Not every country can be home to Silicon Valley. Smart policy-makers will use the internet to extend their nations’ inherent economic advantages.