Digitization for economic growth and job creation

Executive summary

Digitization — the mass adoption of connected digital services by consumers, enterprises, and governments — has emerged in recent years as a key economic driver that accelerates growth and facilitates job creation. In the current environment of a sluggish global economy, digitization can play an important role in assisting policymakers to spur economic growth and employment. Strategy&’s econometric analysis estimates that, despite the unfavorable global economic climate, digitization provided a US$193 billion boost to world economic output and created 6 million jobs globally in 2011. ¹

However, the impact of digitization by country and by sector is uneven. Developed economies enjoy higher economic growth benefits by a factor of almost 25 percent, although they tend to lag behind emerging economies in job creation by a similar margin. The main reason for the differing effects of digitization is the economic structures of developed and emerging economies. Developed countries rely chiefly on domestic consumption, which makes nontradable sectors important. Across developed economies, digitization improves productivity and has a measurable effect on growth. However, the result can be job losses because lower-skill, lower-valueadded work is sent abroad to emerging markets, where labor is cheaper. By contrast, emerging markets are more export-oriented and driven by tradable sectors. They tend to gain more from digitization’s effect on employment than from its influence on growth.

Policymakers can harness these varying effects of digitization through three main measures, which go beyond their current roles of setting policy and regulations. First, they should create digitization plans for targeted sectors in which they wish to maximize the impact of digitization. Second, they should encourage the development of the necessary capabilities and enablers to achieve these digitization plans. Finally, policymakers should work in concert with industry, consumers, and government agencies to establish an inclusive information and communication technologies (ICT) ecosystem that encourages greater uptake and usage of digital services.

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Key highlights

• • Digitization accelerates economic growth and facilitates job creation: It provided a $193 billion boost to world economic output and created 6 million jobs in 2011.
• Digitization’s impact is not uniform across economies in different stages of development. It has a greater impact on economic growth in developed economies than in developing ones, larger by a factor of one-quarter. However, developed countries experience less employment growth compared with the developing countries.
• Although digitization positively affects productivity across sectors, its impact on employment is uneven. Tradable sectors tend to gain more from digitization’s effect on employment whereas nontradable sectors, typically large in developed economies, might lose jobs due to digitization.
• Based on Strategy&’s analysis of six developed economies, we believe digitization has improved the productivity and output of all sectors while resulting in job losses in manufacturing and financial services and gains in retail and hospitality.
• Policymakers need to develop digitization plans across sectors that take into consideration the varying impact by level of economic development and sector.
• Policymakers must ensure the capabilities and enablers for sectoral digitization are in place, and need to collaborate with industry, consumers, and government to foster an ecosystem in which the uptake and usage of digital applications grow

Conclusion

Ever since Adam Smith proposed the theory of absolute advantage enjoyed by a country in producing a good or service, policymakers have sought to build and maintain this advantage in key sectors of their economies. Digitization is emerging as a new tool to build and sustain such absolute advantages, and in some cases even to claim the “right to win” and beat the competition in certain sectors — a critical capability that underpins all other national economic efforts.

Creating digital markets and boosting digitization can yield significant economic benefits and lead to substantial social benefits to societies and communities. Digitization has the potential to boost productivity, create new jobs, and enhance the quality of life for society at large. For example, if emerging markets could double the Digitization Index score for their poorest citizens over the next 10 years, the result would be a global $4.4 trillion gain in nominal GDP, an extra $930 billion in the cumulative household income for the poorest, and 64 million new jobs for today’s socially and economically most marginal groups. This would enable 580 million people to climb above the poverty line.²

If policymakers want to capture these rich returns, then they need to go back to the drawing board and figure out how they can build their digital markets — the markets where the bulk of the world’s information and goods will be bought and sold in the upcoming decade of digitization.

¹ Strategy& analysis. We have estimated the GDP and employment impact caused by the increased digitization in most countries and aggregated to get the global impact.

² El-Darwiche et al. 2012.