The Meaning of the Digital Economy

Introduction

The digital economy has been an object of fear, fascination and greedy hope for over thirty years. The rise of the digital economy has been marked by companies that are both hugely influential on society and hugely financially successful. As the names roll off the tongue – Google, Facebook, Alibaba, Amazon, Tencent, Apple – who could deny the digital economy's importance? But what exactly is the digital economy? And how does it relate to wider social changes marked by the rise of the internet and the digital?

Understanding the digital economy requires navigating between two extremes: the #hyper-hype that proclaims it as a fundamental revolution in human history, and the dismissive shrug that claims "it's really just the same old capitalism." The truth lies somewhere in between, requiring careful analysis of what makes digital economic activity distinctive while acknowledging its connections to existing economic structures.

Hype and #Hyper-hype

The internet and the digital economy have never been short of hype. From being proclaimed as the greatest revolution in humanity since the Gutenberg Press, the invention of language, the wheel, or even the taming of fire, the internet and the digital have not lacked boosters willing to proclaim their fundamentally transformative effects. This is particularly true for the digital economy, often because of the great financial gain that seems possible.

Some commentators have made sweeping claims, such as Anderson's positing of a "second industrial revolution" based on email, 3D printing and offshore factories, or Zuboff's claim of a new stage of capitalism based on surveillance. While these claims may overreach, they should not blind us to changes that are genuinely important to the ways twenty-first century economies function.

There is also an opposite and equally unenlightening position that amounts to a shrug, expressed in various forms of the claim: "it's really just the same old capitalism." It is important in understanding the digital economy to see past both claims that it is a fundamental revolution and claims that it is nothing new at all.

Defining the Question

A crucial question often left implicit is: When referring to the "new" digital economy, are we referring to changes that digital and internet technologies have brought to the existing economy, turning the whole economy into a "digital economy," or does the term refer to a new kind of economic activity that can be called digital?

For example, a McKinsey report into China's digital economy placed heavy emphasis on the fast take-up of mobile payments as evidence of a quickly growing Chinese digital economy. But if we pause and think about mobile payments, it is not clear whether they are indicators of the effect of digital mobility on the whole economy or are part of new economic practices which require such mobility.

Any analysis that effectively collapses the digital economy into the whole economy will have a strong tendency to miss two things: first, the distinctiveness of the digital compared to prior economic processes; second, how much of the preceding economy remains non-digital. The danger is a kind of selective blindness that sees digital processes everywhere but misses already existing practices, such as buying things in a supermarket, that remain a key part of the economy.

The Sectoral Approach

To grasp what may be new and distinctive about the digital and the economy without giving in to either hyper-hype or dismissal of the digital as new, means accepting the premise that there was complex economic activity prior to the digital which may or may not have been affected by any new kinds of economic activity related to the internet and the digital.

The issue then becomes one of identifying if there is any distinctively new economic activity. The simplest way to explore this question is through a sectoral analysis that looks for a new digital sector existing alongside and intersecting with the sectors that already existed. If such digital economic activity can be identified, it will then be possible to consider what effect such new activities might have on other economic activities.

Knowing what is specific to the digital economy is the first step to understanding its effects on the economy.

Measuring the Digital Economy

The OECD Perspective

In 2014, an OECD report addressed the extent to which the information economy had survived the global financial crisis of 2008 and whether it was contributing to increased economic activity after the crisis. The report judges the information economy both to have survived the 2008 crisis relatively well and to be a key contributor to innovation in other economic sectors.

According to the OECD: "While the role of ICTs in science has become pervasive and demand for products from the information industries has increased significantly over the last decade, the aggregate weight of these activities declined slightly in the average of OECD economies, to little less than 6% of total value added and 3.7–3.8% of employment."

In these terms, the information/digital economy appears smaller than might have been thought. However, the OECD measures also emphasize how central ICT and the information economy is to other industries, making it difficult to separate a specific sector out.

Market Value Analysis

Analysis of the 500 most highly valued companies in the world suggests that the digital economy makes up around 20-30 percent of the total economy and is worth around 6.5 trillion US dollars. The digital sector appears to be as important as the financial and manufacturing sectors and roughly twice as important as the retail, service and extractive sectors.

Examining additional measures reveals interesting patterns. The digital sector is relatively high in profit while being low in assets and moderate on employment. The sector has roughly 28 percent of profits with only 16 percent of revenue, 9 percent of assets and 15 percent of employees. This might be a starting point for understanding the high valuation of digital companies, which come out with 30 percent of total market value.

The Problem of Definition

The problem of defining the digital economy can be articulated by asking what may seem an odd question: are Apple, Microsoft, Google and Facebook all part of the digital economy? This may seem odd, as for so many analyses of the digital economy, Apple and Microsoft are not just part of the digital economy but are exemplars of it.

However, in the case of Apple and Microsoft, it is possible to argue that they are essentially old-fashioned manufacturing industries – they make stuff and sell it, and what they sell happens to be digital or informational products. After all, an operating system or an iPhone are commodities for sale. Both companies' revenues come out at over 80 percent on selling "things."

Google and Facebook cannot be described in this way. Both offer a free service – search, sociality – that allows them to generate information about their users and then profit from advertising that is targeted on the basis of that information. This raises fundamental questions about how we classify and understand digital economic activity.

Digital Economic Practices

What is missing is a theory encompassing and connecting the elements of the digital economy and defining its specificity. A starting point is the work already built up in the related areas of cultural economy and creative economy. Where cultural economy addresses the cultural dimensions of all economic activity, work on the cultural and creative industries addresses those industries that have creativity at their core.

An economic sector may be understood as having at its core cultural and social practices that constitute the production, exchange and consumption dynamics specific to that sector. The project of analyzing the digital economy becomes one of building an understanding of whether there are any particular digital economic activities and, if so, what constitutes them.

Economic practices are the repeated actions taken to construct everyday life-worlds, or what has been called "a nexus of doings and sayings." Practices are the habits, actions and meanings, formed into repeated routines, that sustain how we produce and exchange the goods that provide for life, wealth and their reproduction.