GOOGLE IS AS BIG AS BIG BANKS TO CANADA’S ECONOMY, BUT BEFORE YOU GET TOO EXCITED ...
Benefits of digital revolution can be hard to quantify, Kevin Carmichael writes.
Bank of Canada Governor Stephen Poloz is a decent media critic.
“In the process of creative destruction, destruction gets more headlines than creation does,” Poloz observed last month at the annual central banking conclave in Jackson Hole, Wyoming.
So true. One of the reasons for that is human nature. Another one is that destruction is easy to spot. Statistics Canada can tell me fairly definitively there are about 230,000 fewer manufacturing jobs today than a decade ago, for example. Tallying the economic benefit of camera phones is harder. The data suggest they probably hurt gross domestic product by wiping out film, a tangible good that was bought and sold. There is no line in the national accounts for “selfies.”
“The opportunities being created by the application of new technologies — and the broad, positive spillover benefits to the rest of the economy — are much harder to identify and measure,” Poloz said.
Statisticians will catch up to the modern economy eventually. When they do, we probably will learn that we were wealthier in 2018 than we realized. Alphabet Inc. commissioned Deloitte to assess Google’s contribution to the Canadian economy. The results suggest StatsCan is missing a significant amount of GDP every month.
Alphabet generates as much wealth as many countries, so it probably shouldn’t be a surprise that Google, the company’s main business unit, creates as much gross domestic product as entire industries. Deloitte calculated that Google’s search and advertising services alone helped generate economic activity of at least $10.4 billion in Canada, and perhaps as much as almost $19 billion. That translates to the equivalent of 112,000 to 200,000 full-time jobs, or about as many as work in the utilities industry.
“The traditional economic accounting framework used by national statistical agencies was developed to measure the manufacturing-based economy,” Craig Alexander, Deloitte’s chief economist, says in the introduction to the report, which was published Sept. 12. “It was designed to count the number of widgets produced in the factory by the workers employed. But the economy has evolved into a very different animal.”
Comparisons probably are dangerous, but let’s take a stab at some context. The revenue generated by companies using Google’s advertising services is equivalent to that of the dairy industry, except that Google is one company and the Canadian milk-and-cheese business is underpinned by about 12,000 farms and more than 400 processing plants.
The Canadian Bankers Association, on behalf of its members, takes credit for about $60 billion of GDP; if the Deloitte results are accurate, that means Google and the five biggest banks each are roughly equal contributors to Canada’s economic life. The Canadian Manufacturers and Exporters says that about 91,000 factories are responsible for about $200 billion of Canada’s $2 trillion GDP.
Some of that traditional output now would be aided by Google and other providers of digital services, of course. Alexander said he and his team didn’t bother to control for a world in which Google didn’t exist; nor did they include the company’s more easily measurable contributions to GDP, such as the salaries of its 1,000 Canadian employees and the value of the company’s intellectual property, real estate and foreign direct investment. The idea was to measure the economic multiplier of using Google’s services to expand markets, monetize content and enhance productivity.
There are some other things the Deloitte report doesn’t mention about the digital economy that Poloz chose to bring up in Jackson Hole.
Canada’s central bank governor expressed concern about the drift toward a “winner take most” economy in which “superstar” companies such as Alphabet and Amazon.com Inc. achieve near monopoly status. That raises questions about competition; rent seeking, or the tendency of powerful owners to profit from existing assets rather than through innovation; and political stability. Google already is confronting these issues in Europe, where regulators are seeking to restrict its dominance in search, and the United States, where Congress recently has developed an interest in the economic and societal influence of Silicon Valley’s champions.
Such things were beyond the scope of the Deloitte study, no doubt.
However, those issues should be part of every conversation about the digitalization of the economy. The Google report shows that the doomsters probably are missing something by putting so much attention on the casualties of disruption; positive economic change is happening too, just as it always has. We just need to be careful about putting too much gloss on this moment in history.
“We need to demonstrate that beyond the initial negatives are many positives, which are likely to dominate over time,” Poloz said. But, “we need to acknowledge that real people and businesses are being disrupted and require policy support,” he added.