A model for growth post-Coronavirus? Digital business beyond city hubs

Profile picture for user ddpreez By Derek du Preez April 8, 2020
Summary:
If governments and policy makers want to distribute wealth more evenly across the USA post-Coronavirus, then they should be looking at fostering small digital businesses.

Image with the words ‘time for change’ written on a chalk board
(Image by Gerd Altmann from Pixabay )

There have already been plenty of comparisons drawn between the economic impact of the 2008 financial crisis and the inevitable economic fallout from the current global health pandemic, the novel Coronavirus. 

However, post-2008 there has been plenty of data and research to show that the negative economic consequences were not felt by all. Income inequality has grown, the ability to move up the income ladder has become harder, and whilst towns and more regional communities have suffered, cities and industry hubs have thrived. 

In other words, the gaps that were already there pre-2008 have widened and it has become harder for some people to ‘improve their lot’. 

Why does this matter now? Well, it is generally agreed that the post-Coronavirus world is going to look different to the one that came before. And whilst we don’t know what this yet looks like, we can look at data and research from our post-2008 world to think about how we might want to do things differently. 

New research released by Arizona State University and the University of Iowa - based on data made available by internet domain registrar, GoDaddy - gives us some useful insights for exactly that purpose. 

The research shows that communities with higher density of websites and domains - or what it terms ‘ventures’ - benefit from greater economic output and prosperity. 

The research paper argues that website domains are an expression of human capital as digital community participation, which is an argument I can buy into. Human capital is the main driver of economic growth and prosperity. 

What’s particularly interesting about the research is that: 

  1. The higher density of web domains, and therefore greater economic output, has a greater impact on economic prosperity than the availability of broadband access. 

  2. These communities with high density of ‘ventures’, benefitting from greater economic output, are more evenly distributed across the USA. They are not just populated around cities or other industry hubs, such as Silicon Valley. 

Again, why does this matter? Well, governments in the US and the UK have placed a high importance on fostering these ‘industry hubs’, often arguing that they are key to long-term economic prosperity. I’m not sure that rings true for everyone, particularly in a post-Coronavirus world. 

Therefore, down the line, policy makers could well look at this research as a guide for where to invest for the future - one where economic output is more evenly distributed. 

What did the research find? 

Firstly, as noted above, the researchers found that the higher density of domain name websites - or ventures - per 100 people were found to be visible across much of the US - not just on the coastal regions or around the ‘hubs’. In addition, the research found that the spread of activity differs to the spread of data on people employed in IT or the spread of what was traditionally defined as ‘small businesses’. 

Image of high activity ventures mapped across USA
(Image sourced via research paper released by Universities of Arizona and Iowa )

 

Image of  highly active ventures mapped across USA
(Image sourced via research paper released by Universities of Arizona and Iowa )

The paper notes: 

Ventures represent businesses both large and small, including micro businesses that are too small to be counted by the Census, as well as non-commercial websites. 

The balance of this paper explores whether or how the density of domain name websites matters for communities. What can this new digital footprint of grassroots economic activity tell us?

The authors of the report looked at the impact of ‘highly active ventures’ on local prosperity and economic activity - and the results are quite astounding. They note: 

Adding one more highly active venture to a county increases the prosperity score by an average of 1.37 points on the index (compared to 0.39 points for all ventures). Put another way, as highly active ventures in a country rise from 0 to 2, the average prosperity score rises from 55 to nearly 58 - an almost 3 percentage point increase from the addition of only two ventures. 

The results are not only statistically significant, but substantively quite large…

The point on broadband above is also particularly interesting. Whilst broadband availability has an impact on prosperity, high activity ventures have a greater impact. The paper notes: 

Broadband subscriptions are also significantly related to county prosperity, independent of ventures: a 1 percent increase in broadband subscriptions leads to a 0.6 increase on the prosperity index, all else equal. 

Highly active ventures, however, have a large effect on prosperity beyond intervened access. This indicates that this measure of ventures is a distinct measure of digital capacity. 

Communities with higher rates of broadband subscriptions are more prosperous but using this connectivity to create commercial and civic activity has an even larger effect on prosperity. 

The research even found that ventures make a greater difference in counties with low rates of broadband connectivity - that is counties that are poor and often rural. In other words, in the most disadvantaged counties, adding a high activity venture can significantly boost economic prosperity. 

My take

This research is very interesting, as government data has typically failed to capture the impact of highly active ventures - or domain names - on local economic prosperity. The data here suggests that the impact is significant and large. 

As the report notes, with this knowledge governments and policy makers need to take the digital divide and associated skills divide seriously, to improve outcomes for all communities. 

As we’ve been noting on diginomica for the past few weeks, the shift in how the world of work works - and how economies work - post-Coronavirus, is likely to be significant. Sustained change of this nature, combined with a huge economic hit, will have many untold consequences down the line. 

That being said, policy makers can learn from the past, make use of data, and guide how growth develops in the future. Combine the economic crises with a growing sense amongst the general public that the current system isn’t working for them, and this becomes more critical than ever. 

There is a real opportunity to invest in local, digital communities, to help them thrive.