Digital disruption: What do governments need to do?
Commission research paper
This research paper was released on 15 June 2016 and it focuses on the role of government in the face of potentially disruptive technological change.
Governments establish the legal and regulatory systems that govern the operation of the economy. They provide key inputs into the economy by educating the labour force and providing public infrastructure and services.
Governments also negotiate (through democratic processes) and maintain (through social expenditure and justice) an underpinning social compact with the community. Disruptive technologies have implications for each of these roles.
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Introduction from the Chairman
The disruptive potential of digital technologies has become a hot topic in recent years. There are calls for governments to add or remove regulations, invest in digital start ups, and protect the jobs of workers threatened by new ways of doing business. This research paper reviews and interprets expert opinion on disruption in order to inform governments about the policy tasks posed by digital technologies. For the Commission, this review sets a broader framing for the formal inquiries into Data Availability and Use, and Intellectual Property Arrangements. It also provides context for important work that we expect to come to us on productivity growth in a time of apparent digital transformation.
With rapid advances in computing power, connectivity, mobility, and data storage capacity over the last few decades, digital technologies offer opportunities for higher productivity growth and improvements in living standards. But they also pose risks of higher inequality and dislocation of labour and capital. Speculation about the effects of technologies often suffer from extreme optimism or pessimism. In the 1930s, several countries were enthusiastically experimenting with using new rocket technology to deliver mail, and in 1959, the United States trialed mail delivery via cruise missile, a proposition that could now be regarded as comical. The Commission has attempted to avoid the overly excited or dire views of the impacts of current digital technologies, while recognizing their potential where evident.
There is nevertheless a serious debate amongst economists on whether we are extracting less benefit from today's digital disruption than from previous disruptions or industrial revolutions of the 1870s, 1920s or even 1980s. The data suggests this is so — Australia, and indeed other advanced economies, has yet to see digital technologies drive significant productivity growth or result in substantial disruption at a sector or economy wide level.
This is not a matter of minor technical interest. Productivity in its clearest form — multifactor productivity — has not recorded the kind of growth that would be expected from a period of change described as 'disruptive'. While measurement of the productivity of new technologies is often problematic, US analysis indicates that measurement issues do not sufficiently explain the drop off in productivity. The open and critical questions are: whether the current economic lassitude is primarily a delay before the onset of significant social and economic changes driven by digital disruption; whether government policies (or lack of them) might themselves be frustrating the realization of the benefits; or whether the effects of this disruption are less fundamental than initially thought.
The scope for pro productivity policies — drawing on both digital and non digital opportunities — will be examined in the Commission's future work. This report contributes to that task by exploring the potential impacts and challenges of digital technology for markets and competition, workers and society, and the way governments operate. With a few exceptions, governments across Australia have, to date, evidenced largely reactive responses to dealing with digital technologies. Despite promising statements, we have also been unremarkable in our adoption of technologies to improve public sector processes and service delivery.
In a short paper such as this, we do not seek to answer big policy questions in any comprehensive way but rather provide an informed direction about where policy may need to go. And while we hope to avoid 'rocket mail' errors, we expect that not every Finding reached in this report will ultimately prove accurate. But absence of conjecture in this space would be both timid and unhelpful to the development of a productivity policy agenda.
The Commission anticipates digital technologies will continue and likely accelerate changes in Australia's economy. Digital technologies offer greater scope for more distributed production, and facilitate the trend toward more service elements — pre and post production services — in manufactured and other goods. Data is a new source of market power but, in the face of the digital economy, advantage may also only be short lived. How governments deal with market power will be important for both those who control, and those who want to use, data and networks. Digital platforms are enabling greater utilization of assets, including research and household assets. Where governments enable this, firms, households and consumers stand to benefit from a greater product range, new sources of income and often lower prices. More generally, digital platforms afford more power to consumers than in the past — they can share views on products and make more informed consumer choices. Some regulations aimed at improving consumer information may become redundant; those aimed at ensuring information is authentic and platforms are not gamed, may become critical.
There is much governments can do to enable the creation and take up of digital reform opportunities without favoring particular technologies. In markets that are currently highly regulated but where digital technologies allow more producers — electricity generation is one such case — governments will need to review the institutional and regulatory arrangements to ensure that new technologies can compete for market share. More generally, standards to support interoperability of digital technologies and ensuring investment in enabling infrastructures (such as reliable and readily upgradeable communications networks), can help with rapid technological diffusion.
There will be adjustments that come with digital disruption. Some workers will struggle to adjust to changes in demand for their skills and new, more flexible but less reliable, work options. Australia's social safety net will remain important in mitigating risks for workers and lessening the effects of a widening distribution in incomes. Broader protections for an individual's rights (such as with control of personal information) and to support society's moral and ethical mores (relevant to technological advancements into artificial intelligence, remote sensing and medical research) will require ongoing government attention informed by scientific evidence.
Digital technologies offer governments scope to improve their own service delivery, including through better assessment of risk in regulatory activities, integration of human services, and infrastructure management. Digital technologies will also make governments more publicly accountable than in times past and raise pressure for greater transparency. By showing leadership in their own practices, re designing regulation to enable rather than block the adoption of digital technologies, and mitigate community level risks where practical, governments can do more than they appear to envisage today.
Peter Harris
Chairman