Stand Out UK digital economy could be a Brexit bargaining chip in EU negotiations

SUMMARY:

Could the UK digital economy be a significant bargaining chip in Brexit negotiations with the EU? Academics in the US reckon it just might.

The Stand Out strength of the UK digital economy could be a useful bargaining chip in the country’s Brexit negotiations with the European Union, according to a major global research report.

Produced by the Fletcher School at Tufts University, the oldest graduate school of international affairs in the US, and sponsored by Mastercard, the Digital Evolution Index (DEI) 2017 is a study into the progress countries have made towards being digital economic champions. It updates the findings of the first version of the research which was published in 2014.

In a cautionary note for European Union, there is a Brexit-spin in this year’s findings andit’s potentially good news for the UK. The DEI observes:

If one considers the digital economy alone, the EU would be losing a genuine star. This is an essential consideration, since the digital sector is one of the most dynamic and innovative elements of the economies of the UK and the EU, and of countries anywhere; in the UK alone the digital sector accounts for 16 percent of domestic output, 10 percent of employment, and 24 percent of exports.

This leads the report’s authors to conclude:

When one factors in how the UK’s digital economy performs over time, its strengths become even more apparent…This is an indicator of the momentum of the digital economy overall and leaves little doubt that the UK is a digital powerhouse. These analyses ought to influence how the UK and the EU consider the negotiations; the DEI could provide the UK some more leverage in the discussions at a time when it needs as many bargaining chips as it can assemble.

Away from the unpleasantness ahead, the DEI divides up the 60 countries it surveyed into four broad headings:

(1) Stand Out countries are both highly digitally advanced and exhibit high momentum and lead in driving innovation. The UK, New Zealand, the United Arab Emirates, Estonia, Hong Kong, Japan, Singapore and Israel meet this definition. But there’s no room for complacency:

Sustaining consistently high momentum over time is challenging, as innovation- led expansions are often lumpy phenomena. To stay ahead, these countries need to keep their innovation engines in top gear and generate new demand, failing which they risk stalling out.

(2) Stall Out countries enjoy a high state of digital advancement while exhibiting slowing momentum. The US, Germany, Norway, Sweden, Switzerland, Denmark and Finland are to be found in this camp. The report warns:

Moving past these “digital plateaus” will require a conscious effort by these countries to reinvent themselves, bet on a rising digital technology in which it has leadership, and eliminate impediments to innovation. Stall Out countries may look to Stand Out countries for lessons in sustaining innovation-led growth.

(3) Break Out countries are low-scoring in their current states of digitalization, but are evolving rapidly.  China, Malaysia, Saudi Arabia, Kenya, and Russia are prime examples of countries which are:

Held back often by relatively weak infrastructure and poor institutional quality, Break Out countries would do well to foster better institutions that can help nurture and sustain innovation.

(4) Watch Out countries are countries that need a reality check and in some cases are actually moving backwards in their pace of digitalization. Greece, South Africa and Egypt are among those clearly in this category, while France and Belgium straddle the divide between Watch Out and Stall Out. There is one immediate approach for these countries to take:

The surest way for these countries to move the needle on momentum would be to improve access to the internet for their masses by closing the mobile internet gap—that is, the di erence between the number of mobile phones and the number of mobile phones with internet access.

Trust

The researchers also wanted to look at the relationship between digital momentum and levels of digital trust among users. With that in mind, 42 of the 60 countries in the Index were analysed around four key dimensions – behaviour, attitudes, environment, and experience – in order to understand the state of digital trust.

Again there are some broad categories here:

(1) High Trust Equilibrium countries exhibit patient and engaged behavior online combined with a more trustworthy environment and relatively seamless experience. Countries here include Singapore, Spain, Norway and Finland.

(2) Low Trust Equilibrium countries include Pakistan, Jordan, and Egypt.

(3) Trust Surplus countries have patient and engaged users despite high friction experiences online and relatively less trustworthy environments. Countries here include China, Turkey, and Malaysia.

(4) Trust Deficit countries are those with users who are less patient and more fickle when faced with friction online. These include the USA, the UK, France, Germany, Australia, Canada and Japan.

The trust rankings are an important consideration, states the DEI:

What is trust? Is it the “currency of the new economy”? The “glue that holds people together”? Or simply the “lubricant” of social and economic systems? In the context of the digital economy, trust is all these things and more: It’s the leap of faith when users choose to transact, interact, and consume online. Fundamentally, it determines the quality of the interaction between those who give trust and those who guarantee to uphold that trust.

Recommendations

The report makes 6 key recommendations with global applicability:

(1) Use Public Policy as Key to the Success of the Digital Economy:

A sophisticated understanding of the state and drivers of the digital economy and its impact on the overall economy are essential for the success of a wide range of prominent policy imperatives such as: how Brexit negotiations are conducted; how India nudges its society towards a “less cash” future; and how the US and China compete for economic dominance.

(2) Identify and Amplify Drivers of Digital Momentum:

Digital momentum is powered by different drivers depending on a country’s level of digital evolution and economic advancement.

(3) Organize Digital Entrepôts As linchpins of the Digital Planet:

Smaller countries with strong institutions can create high value as early adopters and create a demonstration effect for the world by assembling the right ecosystem.

(4) Reinvent the Digital Stalwarts through re-focusing on innovation: 

The digitally most advanced countries can put their maturity, scale and network e ects to use to reinvent themselves and grow.

(5) Play digital catch-up by closing the mobile internet gap:

The digitally least advanced countries must allocate limited resources wisely.

(6) Work harder to earn users’ trust in more digitally-evolved countries:

Technology providers and policymakers offering privacy, security, and accountability should prioritize their marginal resources towards the more evolved countries with slowing momentum.

My take

An interesting and absorbing global overview of digital progress – or lack thereof in some cases. The US government has nothing to be particularly pleased about in its conclusions, although it’s plateaued after years of growth, while the Brexit angle will bring some cheer to the negotiators in Westminster.

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