Ben­e­fits of dig­i­tal revo­lu­tion can be hard to quan­tify, Kevin Carmichael writes.

Calgary Herald - - FINANCIAL POST - Fi­nan­cial Post [email protected]­tion­al­

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 Ama­ 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.


A Deloitte study com­mis­sioned by Al­pha­bet cal­cu­lated that Google’s search and ad­ver­tis­ing ser­vices helped gen­er­ate at least $10.4 bil­lion in an­nual eco­nomic ac­tiv­ity in Canada, mak­ing it as big a GDP con­trib­u­tor as one of the Big Five banks.

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