102724 A World Bank Group Flagship Report world development report DIGITAL DIVIDENDS OVERVIEW A World Bank Group Flagship Report world development report Digital Dividends OVERVIEW This booklet contains the overview, as well as a list of contents, from the World Development Report 2016: Digital Dividends, doi: 10.1596/978-1-4648-0671-1. A PDF of the final, full-length book, once published, will be available at https://openknowledge.worldbank.org/, and print copies can be ordered at http://Amazon.com. Please use the final version of the book for citation, reproduction, and adaptation purposes. © 2016 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank with external contributions. 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Contents v Foreword vii Acknowledgments 1 Overview: Strengthening the analog foundation of the digital revolution 5 Digital transformations—digital divides 8 How the internet promotes development 11 The dividends: Growth, jobs, and service delivery 18 The risks: Concentration, inequality, and control 25 Making the internet universal, affordable, open, and safe 29 Analog complements for a digital economy 36 Global cooperation to solve global problems 38 Reaping digital dividends for everyone 38 Notes 39 References iii Foreword We find ourselves in the midst of the greatest information and communications revolution in human history. More than 40 percent of the world’s population has access to the inter- net, with new users coming online every day. Among the poorest 20 percent of households, nearly 7 out of 10 have a mobile phone. The poorest households are more likely to have access to mobile phones than to toilets or clean water. We must take advantage of this rapid technological change to make the world more prosperous and inclusive. This Report finds that traditional development challenges are preventing the digital revolution from fulfilling its transformative potential. For many people, today’s increase in access to digital technologies brings more choice and greater convenience. Through inclusion, efficiency, and innovation, access provides opportunities that were previously out of reach to the poor and disadvantaged. In Kenya, for example, the cost of sending remittances dropped by up to 90 percent after the introduction of M-Pesa, a digital payment system. New technologies allow women to participate more easily in the labor market—as e-commerce entrepreneurs, in online work, or in business-process outsourcing. The world’s 1 billion persons with disabilities—80 per- cent of whom live in developing countries—can lead more productive lives with the help of text, voice, and video communication. And digital ID systems can provide better access to public and private services for the 2.4 billion people who lack formal identification records, such as a birth certificate. While this is great progress, many are still left out because they do not have access to digital technologies. Those in extreme poverty have the most to gain from better commu- nication and access to information. Nearly 6 billion people do not have high-speed internet, making them unable to fully participate in the digital economy. To deliver universal digital access, we must invest in infrastructure and pursue reforms that bring greater competition to telecommunications markets, promote public-private partnerships, and yield effective regulation. The Report concludes that the full benefits of the information and communications transformation will not be realized unless countries continue to improve their business climate, invest in people’s education and health, and promote good governance. In countries where these fundamentals are weak, digital technologies have not boosted productivity or reduced inequality. Countries that complement technology investments with broader economic reforms reap digital dividends in the form of faster growth, more jobs, and better services. The World Bank Group stands ready to help countries pursue these priorities. We are already working with clients to promote competitive business environments, increase accountability, and upgrade education and skills-development systems to prepare people for the jobs of the future. v vi FOREWORD While people around the world make more than 4 billion Google searches every day, 4 billion people still lack access to the internet. The findings of this Report should be used by all who are working to end extreme poverty and boost shared prosperity. The greatest rise of information and communications in history will not be truly revolutionary until it benefits everyone in every part of the world. Jim Yong Kim President The World Bank Group Acknowledgments This Report was prepared by a team led by Deepak Mishra and Uwe Deichmann and com- prising Kenneth Chomitz, Zahid Hasnain, Emily Kayser, Tim Kelly, Märt Kivine, Bradley Larson, Sebastian Monroy-Taborda, Hania Sahnoun, Indhira Santos, David Satola, Marc Schiffbauer, Boo Kang Seol, Shawn Tan, and Desiree van Welsum. The work was carried out under the general direction of Kaushik Basu, Indermit Gill, and Pierre Guislain. World Bank President Jim Yong Kim was an invaluable source of encouragement to the team. The team received guidance from an Advisory Panel cochaired by Kaushik Basu and Toomas Hendrik Ilves and consisting of Salim Sultan Al-Ruzaiqi, Carl Bildt, Yessica Car- tajena, Dorothy Gordon, Richard Heeks, Monica Kerretts-Makau, Feng Lu, N.R. Narayana Murthy, Paul Romer, and Hal Varian. The team would like to acknowledge the generous support of Canada’s Department of Foreign Affairs, Trade, and Development and the International Development Research Cen- tre; Estonia’s Ministry of Foreign Affairs and Office of the President; the French Develop- ment Agency; Germany’s Federal Ministry for Economic Cooperation and Development and the Deutsche Gesellschaft für Internationale Zusammenarbeit; Israel’s Ministry of Econ- omy; Norway’s Ministry of Foreign Affairs and the Norwegian Agency for Development Cooperation; Sweden’s Ministry of Foreign Affairs; the multidonor Knowledge for Change Program; and the World Bank Research Support Budget. Consultation events were held in Armenia, Belgium, China, the Dominican Republic, the Arab Republic of Egypt, Estonia, Finland, France, Germany, India, Indonesia, Ireland, Jamaica, Kenya, Morocco, the Netherlands, Oman, Pakistan, the Philippines, Somalia, Swe- den, Switzerland, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Vietnam, with participants drawn from many more countries. Detailed information about these events can be found at http://www.worldbank.org/wdr2016/about. Interagency consultations were held with the European Commission, International Telecommunication Union, Organisation for Economic Co-operation and Development, United Nations Broad- band Commission, United Nations Conference on Trade and Development (UNCTAD), and United Nations Development Programme (UNDP). The initial findings of the Report were also discussed at several conferences and workshops, including at the Brookings-Blum Roundtable; Columbia University; Nairobi’s iHub; International Conference of Agricultural Economists in Milan; Oxford Internet Institute; the People-Centered Internet Conference at Stanford University; the Science, Technology and Innovation for Development conference in Seoul; the Swedish Program for Information and Communication Technology in Devel- oping Regions; the UbuntuNet Alliance Connect Conference in Mozambique; the University of West Indies at Mona, Jamaica; the U.S. State Department; the World Economic Forum; and the World Summit on the Information Society. The team thanks the participants in all of these events for helpful comments and suggestions. Bruce Ross-Larson was the principal editor of the Report. The production and logistics team for the Report comprised Brónagh Murphy, Mihaela Stangu, and Jason Victor, with vii viii ACKNOWLEDGMENTS contributions from Laverne Cook, Gracia Sorenson, Roza Vasileva, and Bintao Wang. Reboot was the principal graphic designer. Phillip Hay, Vamsee Krishna Kanchi, Mikael Ello Reven- tar, and Roula Yazigi provided guidance on communication strategy. The World Bank’s Publishing and Knowledge Division coordinated the copyediting, typesetting, designing, printing, and dissemination of the Report. Nancy Morrison and Dana Lane copyedited the Report. Diane Stamm and Laura Wallace edited the background papers and framing notes, respectively. Special thanks to Denise Bergeron, Jose de Buerba, Mary Fisk, Yulia Ivanova, Patricia Katayama, Stephen McGroarty, Andres Meneses, Chiamaka Osuagwu, Stephen Pazdan, and Paschal Ssemaganda, as well as the Translation and Interpretation Unit’s Bouchra Belfqih and her team, and the Map Design Unit. The team would like to thank Vivian Hon, Jimmy Olazo, and Claudia Sepúlveda for their coordinating roles. Elena Chi- Lin Lee, Surekha Mohan, and Joseph Welch coordinated resource mobilization. Jean-Pierre Djomalieu, Gytis Kanchas, Nacer Megherbi, Manas Ranjan Parida, and Pratheep Ponraj provided IT support. The team would like to acknowledge several people for insightful discussions, including Jenny Aker, George Akerlof, Robert Atkinson, David Autor, Arup Banerji, Eric Bartelsman, Vint Cerf, Carol Corrado, Claudia Maria Costin, Augusto de la Torre, Asli Demirgüç-Kunt, Shantayanan Devarajan, Laurent Elder, Marianne Fay, Francisco Ferreira, Torbjorn Fredriksson, Carl Frey, Haishan Fu, Mark Graham, Caren Grown, Ravi Kanbur, Jesse Kaplan, Loukas Karabarbounis, Phil Keefer, Michael Kende, Homi Kharas, Taavi Kotka, Aart Kraay, Arianna Legovini, Norman Loayza, Epp Maaten, Michael Mandel, James Manyika, Magdy Martinez-Soliman, Njugu­ na Ndung’u, Nandan Nilekani, Ory Okolloh, Tapan Parikh, Rich Pearson, Lant Pritchett, Martin Rama, Vijayendra Rao, Ana Revenga, John Rose, Sudhir Shetty, Joseph Stiglitz, Randeep Sudan, Larry Summers, Jan Svejnar, Chad Syverson, Prasanna Tambe, Michael Thatcher, Hans Timmer, Kentaro Toyama, Nigel Twose, Bart van Ark, Tara Vishwanath, Stephanie von Friedeburg, Melanie Walker, and Darrell West. The contributors to the spotlight and sector focus pieces are Robert Ackland, Wajeeha Ahmad, Hallie Applebaum, Joseph Atick, Amparo Ballivian, Adis Balota, Biagio Bossone, Karan Capoor, Mariana Dahan, Alan Gelb, Aparajita Goyal, Dominic S. Haazen, Naomi Hale- wood, Mia Harbitz, Todd Johnson, Anna Lerner, Dennis Linders, Arturo Muente-Kunigami, Urvashi Narain, Thomas Roca, Zlatan Sabic, Marcela Sabino, Chris Sall, Randeep Sudan, Kyosuke Tanaka, Tatiana Tropina, Michael Trucano, and Darshan Yadunath. The Report draws on background papers and notes prepared by Karina Acevedo, Laura Alfaro, Maja Andjelkovic, Izak Atiyas, Ozan Bakis, Shweta Banerjee, Sheheryar Banuri, Johannes Bauer, Jessica Bayern, Zubair Bhatti, Miro Frances Capili, Xavier Cirera, Nicholas Crafts, Cem Dener, Joao Maria de Oliveira, Bill Dutton, Mark Dutz, Maya Eden, Ana Fer- nandes, Lucas Ferreira-Mation, Rachel Firestone, Jonathan Fox, Paul Gaggl, Jose Marino Garcia, Elena Gasol Ramos, Tina George, Daphne Getz, Itzhak Goldberg, Martin Hilbert, Sahar Sajiad Hussain, Leonardo Iacovone, Saori Imaizumi, Ali Inam, Melissa Johns, Todd Johnson, Patrick Kabanda, Chris Kemei, Doruk Yarin Kiroglu, Barbara Kits, Anna Kocha- nova, Gunjan Krishna, Arvo Kuddo, Filipe Lage de Sousa, Michael Lamla, Victoria Lemieux, Emmanuel Letouzé, Zahra Mansoor, Francisco Marmolejo, Aaditya Mattoo, Samia Melhem, Michael Minges, Martin Moreno, Huy Nygen, Stephen O’Connell, Brian O’Donnell, Alberto Osnago, Tiago Peixoto, Mariana Pereira-Lopez, Gabriel Pestre, Sonia Plaza, Rita Ramalho, Dilip Ratha, Seyed Reza Yousefi, Said Mohamed Saadi, Leo Sabetti, Simone Sala, Deepti Samant Raja, David Sangokoya, Bessie Schwarz, Sophiko Skhirtladze, Elisabeth Tellman, Kristjan Vassil, Patrick Vinck, Joanna Watkins, Robert Willig, Min Wu, Maggie Xu, Emilio Zagheni, and Irene Zhang. All background papers for the Report are available at http://www .worldbank.org/wdr2016 or through the WDR office at the World Bank. The team received expert advice during several rounds of reviews from Christian Aedo, Ahmad Ahsan, Mohamed Ihsan Ajwad, Omar Arias, Cesar Baldeon, Morgan Bazilian, Kath- leen Beegle, Luis Beneviste, Christian Bodewig, Stefanie Brodmann, Shubham Chaudhuri, ACKNOWLEDGMENTS ix Karl Chua, Massimo Cirasino, Amit Dar, Ximena del Carpio, Deon Filmer, Adrian Fozzard, Samuel Freije, Roberta Gatti, Caren Grown, Mary Hallward–Driemeier, Robert Hawkins, Joel Hellman, Mohamed Ibrahim, Leora Klapper, Luis Felipe Lopez Calva, Charlotte V. McClain-Nhlapo, Atul Mehta, Samia Melham, Claudio Montenegro, Reema Nayar, David Newhouse, Anna Olefir, Pierella Paci, Cecilia Paradi-Guilford, Josefina Posadas, Siddhartha Raja, Dena Ringold, David Robalino, Jan Rutkowski, Carolina Sanchez-Paramo, Joana Silva, Jin Song, Renos Vakis, Alexandria Valerio, Joao Pedro Wagner de Azevedo, Aleem Walji, Michael Weber, and William Wiseman, as well as from the World Bank Group regions, global practices, cross-cutting solutions areas, Legal Department, Independent Evaluation Group, and other units. Many people inside and outside the World Bank Group provided helpful comments, made other contributions, and participated in consultative meetings. The team would like to thank the following: Jamal Al-Kibbi, Mavis Ampah, Dayu Nirma Amurwanti, James Anderson, Elena Arias, Andrew Bartley, Cyrille Bellier, Rachid Benmessaoud, Natasha Beschorner, Zubair Bhatti, Phillippa Biggs, Brian Blankespoor, Joshua Blumenstock, David Caughlin, Jean-Pierre Chauffour, Michael Chodos, Diego Comin, Pedro Conceicao, Paulo Correa, Eric Crabtree, Prasanna Lal Das, Ron Davies, Valerie D’Costa, James Deane, Donato de Rosa, Niamh Devitt, Ndiame Diop, Dini Sari Djalal, Khalid El Massnaoui, Oliver Falck, Erik Feiring, Xin Feng, Nicolas Friederici, Doyle Galegos, Rikin Gandhi, John Garrity, Diari- etou Gaye, Daphne Getz, Ejaz Syed Ghani, Soren Gigler, Chorching Goh, Itzhak Goldberg, Simon Gray, Boutheina Guermazi, Suresh Gummalam, Stefanie Haller, Nagy Hanna, Jeremy Andrew Hillman, Stefan Hochhuth, Anke Hoeffler, Bert Hofman, Mai Thi Hong Bo, Tim Hwang, William Jack, Sheila Jagannathan, Satu Kahkonen, Kai Kaiser, Jesse Kaplan, Rajat Kathuria, Anupam Khanna, Stuti Khemani, Zaki Khoury, Oliver Knight, Srivatsa Krishna, Kathie Krumm, Victoria Kwakwa, Somik Lall, Jason Lamb, Jessica Lang, Andrea Liverani, Steven Livingston, Augusto Lopez-Claros, Muboka Lubisia, Sean Lyons, Sandeep Mahajan, Shiva Makki, Will Martin, Selina McCoy, Stefano Mocci, Mahmoud Mohieldin, Partha Mukhopadhyay, Pauline Mwangi, Gb Surya Ningnagara, Tenzin Norbhu, Tobias Ochieng, Varad Pande, Douglas Pearce, Oleg Petrov, Jan Pierskalla, Maria Pinto, Martin Raiser, Achraf Rissafi, Nagla Rizk, Michel Rogy, Gabriel Roque, Karen Rose, Carlo Maria Rossotto, Frances Ruane, Onno Ruhl, Umar Saif, Daniel Salcedo, Apurva Sanghi, Arleen Seed, Shekhar Shah, Fred Shaia, Shehzad Sharjeel, Gurucharan Singh, Rajendra Singh, Alexander Slater, Karlis Smits, Vicenzo Spezia, Christoph Stork, Younas Suddique, Abdoulaye Sy, Maria Consuelo Sy, Noriko Toyoda, Rogier van den Brink, Adam Wagstaff, Ken Warman, Cynthia Wong, Bill Woodcock, Pat Wu, Elif Yonca Yukseker, and Breanna Zwart. The team also met with representatives from civil society and the private sector, includ- ing Airbnb; Alibaba (China); Babajob (India); Baidu (China); Diplo (Switzerland); Economic and Social Research Institute (ESRI; Ireland); Elance-oDesk (now Upwork); eLimu (Kenya); Enterprise Ireland; the Estonian e-Governance Academy; Facebook; Google; Groupe Speciale Mobile Association (GSMA); Human Rights Watch; Nairobi’s iHub; Internet Corporation for Assigned Names and Numbers (ICANN); Internet Society; Khan Academy; Let’s Do It! (Estonia); Lyft; MajiVoice (Kenya); McKinsey Global Institute; Microsoft; National Asso- ciation of Software and Services Companies (India); Nortal (Estonia); Olacabs (India); Postmates; Rovio Entertainment (Finland); Souktel (West Bank and Gaza); the Start-Up Jamaica Accelerator; TransferWise (Estonia/United Kingdom); Twitter; and Uber. The team apologizes to any individuals or organizations inadvertently omitted from this list. Inclusion Efficiency Innovation OVERVIEW Strengthening the analog foundation of the digital revolution Digital technologies have spread rapidly in much of the world. Digital dividends—the broader development benefits from using these technologies—have lagged behind. In many instances digital technologies have boosted growth, expanded oppor- tunities, and improved service delivery. Yet their aggregate impact has fallen short and is unevenly distributed. For digital technologies to benefit everyone everywhere requires closing the remaining digital divide, especially in internet access. But greater digital adoption will not be enough. To get the most out of the digital revolution, countries also need to work on the “analog complements”—by strengthening regulations that ensure competition among businesses, by adapting workers’ skills to the demands of the new economy, and by ensuring that institutions are accountable. Digital technologies—the internet, mobile phones, e-commerce site, by significantly reducing coordi- and all the other tools to collect, store, analyze, and nation costs, boosts efficiency in China’s economy share information digitally—have spread quickly. and arguably the world’s. The M-Pesa digital pay- More households in developing countries own a ment platform, by exploiting scale economies from mobile phone than have access to electricity or clean automation, generates significant financial sector water, and nearly 70 percent of the bottom fifth of innovation, with great benefits to Kenyans and others. the population in developing countries own a mobile Inclusion, efficiency, innovation—these are the main phone. The number of internet users has more than mechanisms for digital technologies to promote tripled in a decade—from 1 billion in 2005 to an development. estimated 3.2 billion at the end of 2015.1 This means Although there are many individual success sto- that businesses, people, and governments are more ries, the effect of technology on global productivity, connected than ever before (figure O.1). The digital expansion of opportunity for the poor and the middle revolution has brought immediate private bene- class, and the spread of accountable governance has fits—easier communication and information, greater so far been less than expected (figure O.2).2 Firms are convenience, free digital products, and new forms of more connected than ever before, but global produc- leisure. It has also created a profound sense of social tivity growth has slowed. Digital technologies are connectedness and global community. But have mas- changing the world of work, but labor markets have sive investments in information and communication become more polarized and inequality is rising—par- technologies (ICTs) generated faster growth, more ticularly in the wealthier countries, but increasingly jobs, and better services? Indeed, are countries reap- in developing countries. And while the number of ing sizable digital dividends? democracies is growing, the share of free and fair Technology can be transformational. A digital elections is falling. These trends persist, not because identification system such as India’s Aadhaar, by of digital technologies, but in spite of them. overcoming complex information problems, helps So, while digital technologies have been spreading, willing governments to promote the inclusion of dis- digital dividends have not. Why? For two reasons. First, advantaged groups. Alibaba’s business-to-business nearly 60 percent of the world’s people are still offline overview 3 Figure O.1 Digital technologies have spread rapidly in much of the world a. Digital adoption b. Digital adoption c. Digital adoption by businesses by people by governments 1.0 1.0 1.0 Global 0.8 0.8 0.8 average Global Global average 0.6 average 0.6 0.6 0.4 0.4 0.4 0.2 0.2 0.2 0 0 0 100 1,000 10,000 100,000 100 1,000 10,000 100,000 100 1,000 10,000 100,000 GDP per capita (constant 2005 US$) GDP per capita (constant 2005 US$) GDP per capita (constant 2005 US$) Source: WDR 2016 team. Data at http://bit.do/WDR2016-FigO_1. Note: The figures show the diffusion of digital technologies across countries as measured by the Digital Adoption Index compiled for this Report and described in detail in chapter 5 of the full Report. GDP = gross domestic product. and can’t participate in the digital economy in any institutions, amplify the voice of elites, which can meaningful way. Second, some of the perceived bene- result in policy capture and greater state control. And fits of digital technologies are offset by emerging risks because the economics of the internet favor natural (figure O.3). Many advanced economies face increas- monopolies, the absence of a competitive business ingly polarized labor markets and rising inequality—in environment can result in more concentrated markets, part because technology augments higher skills while benefiting incumbent firms. Not surprisingly, the bet- replacing routine jobs, forcing many workers to com- ter educated, well connected, and more capable have pete for low-paying jobs. Public sector investments received most of the benefits—circumscribing the in digital technologies, in the absence of accountable gains from the digital revolution. Figure O.2 The pessimism concerning the global outlook is not because of digital technologies, but in spite of them a. Global productivity b. Global inequality c. Global governance Five-year moving average of median growth Percentage change in real income between Share of elections that are free and fair (%) of labor productivity per hour worked, 1998 and 2008 at di erent levels of world in percent, in 87 countries income distribution in 2003 prices 6 90 100 70 75 4 50 50 30 2 25 10 0 –10 0 5 15 25 35 45 55 65 75 85 95 85 19 9 19 2 19 5 19 8 19 1 19 4 20 7 20 0 20 3 20 6 20 9 20 2 15 73 79 91 97 03 09 15 7 8 8 8 9 9 9 0 0 0 0 1 19 19 19 19 19 19 20 20 20 Percentile of world income distribution Sources: Panel a: Conference Board (various years); WDR 2016 team. Panel b: Lakner and Milanovic 2013. Panel c: Bishop and Hoeffler 2014. Data at http://bit.do/WDR2016-FigO_2. 4 WORLD DEVELOPMENT REPORT 2016 Figure O.3 Why digital dividends are not spreading rapidly—and what can be done Making the internet Divide Connectivity Accessible Affordable Open and safe Digital Digital Spreading benefits development technologies strategy INCLUSION EFFICIENCY INNOVATION Dividends Reducing risks Complements CONTROL INEQUALITY CONCENTRATION Source: WDR 2016 team. To maximize the digital dividends requires better foundation, consisting of regulations that create a understanding of how technology interacts with other vibrant business climate and let firms leverage dig- factors that are important for development—what the ital technologies to compete and innovate; skills that Report calls “analog complements.” Digital technol- allow workers, entrepreneurs, and public servants to ogies can make routine, transaction-intensive tasks seize opportunities in the digital world; and account- dramatically cheaper, faster, and more convenient. But able institutions that use the internet to empower most tasks also have an aspect that cannot be auto- citizens. The long-term development impact is by mated and that requires human judgment, intuition, no means definitive, being continuously shaped by and discretion. When technology is applied to auto- the evolution of technology (connectivity) and the mate tasks without matching improvements in the country’s choice of economic, social, and governance complements, it can fail to bring broad-based gains. arrangements (complements).4 Countries that are The digital revolution can give rise to new business able to swiftly adjust to this evolving digital economy models that would benefit consumers, but not when will reap the greatest digital dividends, while the rest incumbents control market entry. Technology can are likely to fall behind (figure O.3 and box O.1). make workers more productive, but not when they The triple complements—a favorable business cli- lack the know-how to use it. Digital technologies can mate, strong human capital, and good governance— help monitor teacher attendance and improve learn- will sound familiar—and they should because they ing outcomes, but not when the education system are the foundation of economic development. But lacks accountability.3 digital technologies add two important dimensions. What should countries do? Making the internet First, they raise the opportunity cost of not undertak- universally accessible and affordable should be a ing the necessary reforms. They amplify the impact global priority. The internet, in a broad sense, has of good (and bad) policies, so any failure to reform grown quickly, but it is by no means universal. For means falling farther behind those who do reform. every person connected to high-speed broadband, With digital technologies, the stakes have risen for five are not. Worldwide, some 4 billion people do not developing countries, which have more to gain than have any internet access, nearly 2 billion do not use a high-income countries, but also more to lose. Second, mobile phone, and almost half a billion live outside while digital technologies are no shortcut to develop- areas with a mobile signal. The unfinished task of con- ment, they can be an enabler and perhaps an accel- necting everyone to the internet—one of the targets in erator by raising the quality of the complements. the recently approved Sustainable Development Goals Online business registries ease market entry for new (SDGs)—can be achieved through a judicious mix of and innovative firms. Well-designed internet-based market competition, public-private partnerships, and training helps workers upgrade their skills. New effective regulation of the internet and telecom sector. media platforms can increase citizen participa- Access to the internet is critical, but not sufficient. tion. And digital enablers—digital finance, digital The digital economy also requires a strong analog identification, social media, and open data—spread overview 5 Box O.1 Frequently asked questions: The Report at a glance What is the Report about? of mid-level office jobs, could contribute to a hollowing It explores the impact of the internet, mobile phones, and out of labor markets and to rising inequality. And the poor related technologies on economic development. Part 1 record of many e-government initiatives points to high fail- shows that potential gains from digital technologies are ure of ICT projects and the risk that states and corporations high, but often remain unrealized. Part 2 proposes policies could use digital technologies to control citizens, not to to expand connectivity, accelerate complementary reforms empower them. in sectors beyond information and communication technol- ogy (ICT), and address global coordination problems. What should countries do to mitigate these risks? Connectivity is vital, but not enough to realize the full devel- What are the digital dividends? opment benefits. Digital investments need the support Growth, jobs, and services are the most important returns of “analog complements”: regulations, so that firms can to digital investments. The first three chapters show how leverage the internet to compete and innovate; improved digital technologies help businesses become more pro- skills, so that people can take full advantage of digital ductive; people find jobs and greater opportunities; and opportunities; and accountable institutions, so that gov- governments deliver better public services to all. ernments respond to citizens’ needs and demands. Digital technologies can, in turn, augment and strengthen these How do digital technologies promote development and complements—accelerating the pace of development. generate digital dividends? By reducing information costs, digital technologies greatly What needs to be done to connect the unconnected? lower the cost of economic and social transactions for Market competition, public-private partnerships, and effec- firms, individuals, and the public sector. They promote tive regulation of internet and mobile operators encourage innovation when transaction costs fall to essentially zero. private investment that can make access universal and They boost efficiency as existing activities and services affordable. Public investment will sometimes be necessary become cheaper, quicker, or more convenient. And they and justified by large social returns. A harder task will be increase inclusion as people get access to services that to ensure that the internet remains open and safe as users previously were out of reach. face cybercrime, privacy violations, and online censorship. Why does the Report argue that digital dividends are not What is the main conclusion? spreading rapidly enough? Digital development strategies need to be broader than ICT For two reasons. First, nearly 60 percent of the world’s peo- strategies. Connectivity for all remains an important goal ple are still offline and can’t fully participate in the digital and a tremendous challenge. But countries also need to economy. There also are persistent digital divides across create favorable conditions for technology to be effective. gender, geography, age, and income dimensions within When the analog complements are absent, the develop- each country. Second, some of the perceived benefits of the ment impact will be disappointing. But when countries internet are being neutralized by new risks. Vested business build a strong analog foundation, they will reap ample interests, regulatory uncertainty, and limited contestation digital dividends—in faster growth, more jobs, and better across digital platforms could lead to harmful concentra- services. tion in many sectors. Quickly expanding automation, even benefits throughout the economy and society, fur- technological innovations. For Indonesia to reap the ther strengthening the interaction between technol- benefits of steamships took 160 years after their inven- ogy and its complements. tion and for Kenya to have electricity, 60 years; but for Vietnam to introduce computers, only 15 years. Mobile Digital transformations— phones and the internet took only a few years. More households in developing countries own a mobile digital divides phone than have access to electricity or improved san- The internet and related technologies have reached itation (figure O.4, panel a). Greater internet access has developing countries much faster than previous led to an explosion in the production and consumption 6 WORLD DEVELOPMENT REPORT 2016 Figure O.4 Digital transformation in action nearly 70 percent own a mobile phone. The lowest mobile penetration is in Sub-Saharan Africa (73 per- a. Digital technologies are spreading rapidly in developing countries cent), against 98 percent in high-income countries. 100 But internet adoption lags behind considerably: only 31 percent of the population in developing countries 80 had access in 2014, against 80 percent in high-income countries. China has the largest number of internet % of the population users, followed by the United States, with India, Japan, 60 and Brazil filling out the top five. The world viewed from the perspective of the number of internet users 40 looks more equal than when scaled by income (map O.1)—reflecting the internet’s rapid globalization. 20 Connected businesses Internet adoption has increased across businesses in 0 1990 1995 2000 2005 2010 2015 all country income groups. Nearly 9 of 10 businesses in high-income OECD (Organisation for Economic Improved water Mobile phone Electricity Internet Co-operation and Development) countries had a Secondary school Mobile broadband broadband internet connection in 2010–14, compared Improved sanitation with 7 for middle-income countries and 4 for low-in- come countries. But adoption rates for more sophisti- b. A typical day in the life of the internet cated technologies such as secure servers, enterprise network, inventory management, and e-commerce are much lower in most developing countries. 186 million 152 million INSTAGRAM photos SKYPE 36 million Connected governments calls AMAZON purchases Governments are increasingly going digital, and a greater share of government jobs in developing coun- 2.3 billion tries is ICT-intensive than in the private sector. By 2014, GB of WEB 803 million 8.8 billion TRAFFIC TWEETS all 193 member states of the United Nations (UN) had 4.2 billion YOUTUBE GOOGLE national websites: 101 enabled citizens to create per- videos watched searches sonal online accounts, 73 to file income taxes, and 60 207 billion to register a business. For the most common core gov- E-MAILS ernment administrative systems, 190 member states sent had automated financial management, 179 used such systems for customs processing, and 159 for tax man- Sources: World Development Indicators (World Bank, various years); WDR 2016 team; http://www .internetlivestats.com/one-second/ (as compiled on April 4, 2015). Data at http://bit.do/WDR2016-FigO_4. agement. And 148 of them had some form of digital Note: In panel a, for some years data for electricity are interpolated from available data. GB = gigabytes. identification, and 20 had multipurpose digital iden- tification platforms. So far, developing countries have invested more in automating back-office functions of information around the world (figure O.4, panel b). than in services directed at citizens and businesses. But while the internet has reached almost all coun- tries quickly, the intensity of its use has been lower The divide in digital access and use in poorer countries—in large part because it has not persists spread as widely within those countries. And despite The lives of the majority of the world’s people remain many great examples of the uses of new technologies largely untouched by the digital revolution. Only in developing countries, advanced economies have around 15 percent can afford access to broadband been using them even more effectively.5 internet. Mobile phones, reaching almost four-fifths of the world’s people, provide the main form of inter- Connected people net access in developing countries. But even then, On average, 8 in 10 individuals in the developing world nearly 2 billion people do not own a mobile phone, own a mobile phone, and the number is steadily ris- and nearly 60 percent of the world’s population has no ing. Even among the bottom fifth of the population, access to the internet. The world’s offline population is overview 7 Map O.1 The internet is more evenly spread than income a. Based on national income, 2014 b. Based on internet population, 2014 IBRD 42010 Source: World Bank. Data at http://bit.do/WDR2016-MapO_1. Note: Countries’ sizes are rescaled in proportion to national income and internet population. The darker the shade, the higher the national income (panel a; GDP at market exchange rates) and the higher the internet population (panel b). mainly in India and China, but more than 120 million percent and the top 60 percent and between rural people are still offline in North America (figure O.5). and urban populations are falling for mobile phones The digital divide within countries can be as high but increasing for the internet. In Africa, the digital as that between countries. Worldwide, nearly 21 per- divide across demographic groups remains consider- cent of households in the bottom 40 percent of their able (figure O.6, panel a). Women are less likely than countries’ income distribution don’t have access to men to use or own digital technologies. Gaps are even a mobile phone, and 71 percent don’t have access to larger between youth (20 percent) and those more the internet. Adoption gaps between the bottom 40 than 45 years old (8 percent). 8 WORLD DEVELOPMENT REPORT 2016 Figure O.5 The internet remains unavailable, inaccessible, and unaffordable to a majority of the world’s population a. ICT access by population b. A closer look at the world’s offline population Total global population ~7.4 billion Congo, Dem. Rep. Mexico 68 million Philippines 63 million Ethiopia 70 million Russian Federation 95 million 55 million Brazil Iran, Islamic Rep. Within 98 million 54 million mobile coverage Nigeria Myanmar 111 million 7 billion 53 million Bangladesh Vietnam 148 million 52 million Pakistan United States 165 million 51 million Mobile phones Indonesia Tanzania 49 million 213 million 5.2 billion Thailand China 48 million 755 million Egypt, Arab Rep. 42 million Turkey 41 million Total India Total Countries internet users 1.063 billion internet users outside of 3.2 billion 3.2 billion the top 20 High-speed High-speed internet internet 1.1 billion 1.1 billion Sources: World Bank 2015; Meeker 2015; ITU 2015; GSMA, https://gsmaintelligence.com/; UN Population Division 2014. Data at http://bit.do/WDR2016-FigO_5. Note: High-speed internet (broadband) includes the total number of fixed-line broadband subscriptions (such as DSL, cable modems, fiber optics), and the total number of 4G/LTE mobile subscriptions, minus a correcting factor to allow for those who have both types of access. 4G = fourth generation; DSL = digital subscriber line; ICT = information and communication technology; LTE = Long Term Evolution. The increased connectivity has had limited effect government. And their use of e-government is highly in reducing information inequality. For example, uneven—citizens in the top 20 percent of income in there are more contributions to Wikipedia from the most connected EU country are 45 times more Hong Kong SAR, China, than from all of Africa com- likely to use e-services than those in the bottom 20 bined, despite the fact that Africa has 50 times more percent of income in the least connected EU coun- internet users.6 The amount of information published try (figure O.6, panel b). Within countries, greater on the web, and its origin, often corresponds to what e-government use by individuals is associated with one sees in the offline world as well. For instance, education, employment, urban residence, being male, 85 percent of the user-generated content indexed and broadband access. by Google comes from the United States, Canada, and Europe, similar to the share of global scientific journals originating in these countries. In fact, the How the internet promotes information produced and consumed in the digital economy has little bearing on the number of users of development digital technologies. Given that nearly one-fifth of the Digital technologies have dramatically expanded world’s population is illiterate, the spread of digital the information base, lowered information costs, technologies alone is unlikely to spell the end of the and created information goods. This has facilitated global knowledge divide. searching, matching, and sharing of information and Countries that have bridged the digital-access contributed to greater organization and collaboration divide often face a new divide in digital capabilities. among economic agents—influencing how firms In the European Union (EU), businesses are more operate, people seek opportunities, and citizens inter- likely than citizens to use the internet to interact with act with their governments. The changes are not lim- the government. Citizens use e-government mostly ited to economic transactions—they also influence for getting information and not for transacting with the participation of women in the labor force, the overview 9 Figure O.6 The digital divide in access is high in Africa, and the divide in capability is high in the European Union a. Africa b. European Union Within-country digital divide can be significant Poor households use e-government less than the rich a. Africa b. European Union 25 100 Individuals with internet access (%) % of individuals (ages 16–74) 20 80 15 60 10 40 45:1 5 20 0 0 Bottom Upper Mature Young Rural Urban Women Men 0 20,000 40,000 60,000 80,000 40% 60% (45+) (15–24) GDP per capita (US$) Income Age Location Gender distribution Top income quartile Second quartile (household) Third quartile Bottom quartile Sources: WDR 2016 team, based on data from Research ICT Africa (various years), ITU, and Eurostat (EC, various years). Data at http://bit.do/WDR2016-FigO_6. Note: For more details see figure 2.4 in the full Report. ease of communication for people with disabilities, Figure O.7 The internet promotes development and the way people spend their leisure. By overcom- through three main mechanisms ing information barriers, augmenting factors, and transforming products, digital technologies can make DIGITAL development more inclusive, efficient, and innovative TECHNOLOGIES (figure O.7 and box O.2). Spotlight 1 in the full Report explores the links between these three mechanisms in the broader economic literature. The internet promotes inclusion Search and Automation and Scale economies Before the internet arrived, some transactions were information coordination and platforms so expensive that a market for them did not exist. Two types of transactions fall into this category. First is when two parties to a potentially beneficial transaction simply didn’t know about each other and INCLUSION EFFICIENCY INNOVATION faced exorbitantly high search and information costs. Second is when one party had a lot more information Source: WDR 2016 team. than the other. In the economics literature, such situa- tions are known as information asymmetries between creditworthiness. Or a small firm that cannot connect buyers and sellers, and in the absence of trust and with a potential buyer in another country and does not transparency, many transactions do not take place. know whether to trust a new business partner. Or a By reducing the cost of acquiring information freelancer willing to perform small tasks for a fee. Or and making more information available transpar- a homeowner looking to rent her spare room to local ently, digital technologies can make new transac- visitors. Or remote or marginalized population groups tions possible.7 Consider a poor farmer who cannot who fall outside the reach of the services that gov- access credit because the lender has no way to assess ernments provide. In all these cases, a fundamental 10 WORLD DEVELOPMENT REPORT 2016 Box O.2 e-commerce with Chinese characteristics: Inclusion, efficiency, and innovation in Taobao villages The dynamic growth and rapid spread of e-commerce Efficiency. Besides the Taobao e-commerce site for in China is best illustrated by the Shaji phenomenon. consumers, Alibaba and other Chinese firms operate The economy of Dongfeng village in Shaji town (Jiangsu business-to-business platforms. They facilitate intra- and Province) shifted from pig farming in the 1980s to plastic inter-industry trade in China’s already efficient production waste recycling in the 1990s. In 2006, a migrant from sector, as well as exports. They also make it easier for for- the village returned to open an online shop to sell simple eign firms to sell in China. Consumers benefit from greater furniture. His success encouraged other villagers to do selection and convenience on online retail sites. Online likewise, and by the end of 2010, the village had 6 board trade has not only helped raise rural incomes but also processing factories, 2 metal parts factories, 15 logistics made shopping more efficient. Purchasing power in rural and shipping companies, and 7 computer stores serving areas is only about one-third that in cities, but the aggre- 400 households engaged in online sales throughout China gate consumption of China’s 650 million rural residents and even in neighboring countries. Shaji was one of the is vast, contributing to the national goal of moving from first “Taobao villages”—named after an online shopping an export- and investment-driven economy to one that is platform run by the Alibaba Group—where at least 10 per- more consumption based. And the boom in online trade cent of households are engaged in online commerce.a The has spawned numerous logistics companies that provide Taobao villages, and the rise of e-commerce in China more quick delivery—sometimes by bicycle in towns and villages. generally, illustrate how the internet promotes inclusion, efficiency, and innovation. Innovation. Taobao and other e-commerce platforms are examples of innovation generated by the economies of Inclusion. While the economies of China’s coastal urban scale that emerge when transaction costs drop drastically. areas have grown rapidly over the last three decades, rural Since these platforms are highly automated, fees can be and western parts of the country have lagged behind. kept low, and operations are often financed by advertising But China’s large investments in rural connectivity are alone. Some problems cannot easily be solved solely by beginning to pay off. More than 90 percent of villages will automation, such as creating trust in the market and pre- have fixed broadband access by the end of 2015. Online venting fraud. Online ratings, escrow services, and conflict commerce has allowed producers in towns and villages to resolution mechanisms address them. One of the most participate in the national and even global economy. At the valuable assets Alibaba and other e-commerce operators end of 2014, there were more than 70,000 merchants in accumulate is data. Each transaction contributes to better 200 Taobao villages, and many more in other rural areas. knowledge about the economy and consumer behavior. Most of the stores are small, with an average of 2.5 employ- This information supports new business lines, such as ees. About one-third of owners are female, and one-fifth extending credit to small firms based on automated eval- were previously unemployed. About 1 percent are persons uations of creditworthiness. This can also advance financial with disabilities. One of Alibaba’s top “netpreneurs,” con- inclusion. In early 2015, for instance, Alibaba’s Ant Financial fined to a wheelchair after an accident, built a thriving teamed up with the International Finance Corporation to online livestock business. expand credit to female entrepreneurs in China. Sources: WDR 2016 team, based on information from the China State Information Center, China Association for Employment Promotion, and Alibaba company reports. a. http://www.alizila.com/report-taobao-villages-rural-china-grow-tenfold-2014. information problem makes it difficult to make a expanding trade, creating jobs, and increasing access deal or a match. Mobile phone records, business-to- to public services—and thus promoting inclusion.8 business e-commerce, the sharing economy, online reputation mechanisms, and digital identification sys- The internet promotes efficiency tems all help to overcome these information barriers. Perhaps the largest impact has been on transactions While they make the market more efficient, the big- that existed before the arrival of the internet but are gest benefit seems to be their market creation effects: now quicker, cheaper, or more convenient to carry out. overview 11 This mechanism operates in two ways. First, the dra- Figure O.8 Many digital transactions involve all three matic decline in the price of digital technologies has mechanisms and a two-sided market led businesses and governments to replace existing factors—labor and non-ICT capital—with ICT capital INNOVATION and to automate some of their activities. Airlines use online booking systems to fill planes. Supermarkets substitute cashiers with automated checkout count- Platforms ers. Manufacturers use real-time inventory and sup- ply chain management systems. And governments invest in information management systems and offer INCLUSION EFFICIENCY online services for a wide range of tasks—from issu- ing drivers’ licenses to filing taxes. Sellers Buyers Second, digital technologies augment the factors not substituted and make them more productive. They help managers to better supervise their workers, poli- Drivers, hosts, On-demand/ Riders, guests, and and freelancers sharing economy small businesses ticians to monitor the service providers, and workers to use technology to become more productive, thus Employers, airlines Job seekers, travelers, Matching raising the returns to their human capital. By stream- entrepreneurs, and artists platforms and hotels, investors, lining tasks and raising the productivity of existing and consumers factors, the internet can greatly increase economic Traders and senders e-commerce and Customers and efficiency across firms, workers, and governments. (money) digital payments recipients (money) The internet promotes innovation Source: WDR 2016 team. The extreme case of efficiency is when transactions are executed automatically, without human input, Many internet businesses or services use a platform and transaction costs fall to essentially zero. This is or “two-sided market” model. The platforms match the realm of the “new economy,” such as search or buyers with sellers or a service user with a provider. e-commerce platforms, digital payment systems, In a ride sharing service, the platform automatically e-books, streaming music, and social media. The fixed matches drivers and passengers (innovation), the cost of building the platform may be large, but the driver takes advantage of a flexible income-earning marginal cost of carrying out another transaction or activity not otherwise accessible (inclusion), and the adding another user is tiny. This gives rise to increas- passenger benefits from greater convenience and ing returns to scale, which stimulate new business often lower prices (efficiency). Online crowdfunding, models and provide a major advantage to online job matching, room sharing, and music sites operate firms competing with their offline counterparts. The similarly (figure O.8). zero marginal cost attracts new sellers and buyers to the firm’s platform, creating virtuous network effects, where the benefit to a buyer increases as more sellers The dividends: Growth, jobs, join in, and vice versa. An auction site attracts more bidders the more the sellers use it, and a search engine and service delivery learns and becomes more useful the more searches The benefits of digital technologies filter throughout are performed. Scale and zero marginal costs also the economy (figure O.9). For businesses, the internet explain why many of the social network sites have promotes inclusion of firms in the world economy by become the preferred vehicles for social mobilization expanding trade, raises the productivity of capital, and political protests. By enabling almost frictionless and intensifies competition in the marketplace, which communication and collaboration, the internet can in turn induces innovation. It brings opportunities to support new delivery models, encourage collective households by creating jobs, leverages human capital, action, and accelerate innovation. and produces consumer surplus. It enables citizens to The 2016 WDR presents many examples of how access public services, strengthens government capa- the internet promotes inclusion, efficiency, and bility, and serves as a platform for citizens to tackle innovation. In the internet economy the three mecha- collective action problems. These benefits are neither nisms often operate together. So the one-to-one map- automatic nor assured, but in numerous instances ping in figure O.7 simplifies a more complex reality. digital technologies can bring significant gains. 12 WORLD DEVELOPMENT REPORT 2016 Figure O.9 How the three mechanisms apply to has become an essential part of a country’s infra- businesses, people, and governments structure—and a factor of production in almost any activity in a modern economy. Isolating the impact of DIGITAL digital technologies is therefore difficult at an aggre- TECHNOLOGIES gate level. Firm-level analysis provides a more reli- able picture.9 The internet enables many small firms to participate in global trade, thus leading to more inclusion; it makes existing capital more productive, INCLUSION EFFICIENCY INNOVATION raising efficiency; and by stimulating competition, it encourages innovation. BUSINESSES Trade Capital utilization Competition Expanding trade The internet enables more products to be exported to PEOPLE Job opportunities Labor productivity Consumer welfare more markets, often by newer and younger firms. A 10-percent increase in internet use in the exporting Public country is found to increase the number of prod- GOVERNMENTS Participation Voice sector capability ucts traded between two countries by 0.4 percent. A similar increase in internet use of a country pair Source: WDR 2016 team. increases the average bilateral trade value per prod- The internet can lead to more trade, better uct by 0.6 percent.10 Firms selling on eBay in Chile, capital use, and greater competition Jordan, Peru, and South Africa are younger than firms The ICT sector is a fairly modest part of the overall in the offline markets.11 In Morocco, rural artisans, economy. Its share in GDP is around 6 percent in some of them illiterate, sell globally through the Anou OECD member countries and considerably less in crafts platform. At the other end of the spectrum, developing countries (figure O.10, panel a). In the businesses trade on global e-commerce sites such as United States, home to 8 of the world’s 14 largest tech- Alibaba’s in an online market that could reach more nology companies by revenue, the contribution of than US$6 trillion over the next five years. Online the ICT sector to GDP is around 7 percent. The corre- platforms overcome trust and information problems sponding number for Ireland is 12 percent—a country through feedback and rating systems and by offering that does not boast its own Silicon Valley, but attracts escrow and dispute resolution mechanisms. Easier many foreign firms through its competitive business trade of intermediate products encourages further environment and favorable tax rates. In Kenya, which “unbundling” of production processes, not just in hosts one of the largest ICT sectors in Africa, the value the markets for goods but also for services.12 Firms added share of ICT services in GDP was 3.8 percent in India, Jamaica, and the Philippines have captured in 2013. a share of these global markets for services that range The contribution of ICT capital to GDP growth from traditional back-office services to long-distance has been fairly constant over the past two decades. online tutoring. In high-income countries, it has fallen from 0.7 per- centage points in 1995–99 to 0.4 percentage points in Improving capital utilization 2010–14 (figure O.10, panel b). In developing countries, Perhaps the greatest contribution to growth comes the contribution of ICT capital to GDP growth has from the internet’s lowering of costs and thus from been fairly modest—around 15 percent of growth— raising efficiency and labor productivity in practi- reflecting lower digital adoption. With rapid diffusion cally all economic sectors. Better information helps of digital technologies into developing countries, this companies make better use of existing capacity, opti- number could rise in the future. In addition, the indi- mizes inventory and supply chain management, cuts rect contributions of ICT capital to economic growth, downtime of capital equipment, and reduces risk. In through improvements in total factor productivity the airline industry, sophisticated reservation and (TFP), could be large as well, although rigorous evi- pricing algorithms increased load factors by about dence linking the two is still missing. one-third for U.S. domestic flights between 1993 and The rapid adoption of digital technologies in 2007. The parcel delivery company UPS famously the economy has meant that its benefits are widely uses intelligent routing algorithms to avoid left turns, dispersed and its indirect growth impacts difficult saving time and about 4.5 million liters of petrol per to estimate. Like energy or transport, the internet year. Many retailers now integrate their suppliers in overview 13 Figure O.10 The size of the ICT sector and its contribution to GDP growth is still relatively modest a. Share in GDP, OECD countries, 2011 b. Contribution to GDP growth, 1995–2014 14 7 12 6 10 5 8 4 Percent Percent 6 3 4 2 2 1 0 0 U S J ep. D pub c N er nce d er n ng nd U Hu dom bo s Es urg Sw onia C ak inl n ch p d m c an k Fr da re s e S ia lg n Ice ium Po and rtu d or l ia a, d Lu d S ry rla y ov ly Au ay N ga m te G nd i he an en li C ar ec Be pai te tz a e ze Re an Po lan re lan S l Ita Re ubl te ga 9 4 9 4 9 4 9 4 str en w ov F ed ni wi ap Ki la a xe ta R –9 –0 –0 –1 –9 –0 –0 –1 G a et m l t ni n Ko Ire 95 00 05 10 95 00 05 10 19 20 20 20 19 20 20 20 Sl OECD average (6%) Developed countries Developing countries ICT capital All other factors Sources: OECD 2014; Conference Board Total Economy Database, January 2014; WDR 2016 team. Data at http://bit.do/WDR2016-FigO_10. Note: GDP = gross domestic product; ICT = information and communication technology; OECD = Organisation for Economic Co-operation and Development. real-time supply chain management to keep inventory Figure O.11 Vietnamese firms using costs low. Vietnamese firms using e-commerce had on e-commerce have higher TFP growth, average 3.6 percentage point higher TFP growth than 2007–12 firms that did not use it (figure O.11). Chinese car com- 4 panies that are more sophisticated users of the inter- net turn over their inventory stocks five times faster Percentage points 3 than their less savvy competitors. And Botswana and Uruguay maintain unique ID and trace-back systems 2 for livestock that fulfill requirements for beef exports to the EU, while making the production process more 1 efficient. 0 Advancing competition Labor TFP growth When fully automated internet-based services drive productivity effect growth effect marginal transaction costs to zero, the consequences e-commerce for market structure are somewhat ambiguous. Low Internet use marginal costs imply large economies of scale, which Source: Nguyen and Schiffbauer 2015 for the 2016 WDR. Data at http://bit favor natural monopolies. In the offline world, such .do/WDR2016-FigO_11. sectors—for example, electricity production—often Note: For more details see figure 1.9 in the full Report. TFP = total factor productivity. require some form of regulation to protect consumer interests. But the characteristics of internet-based services could also encourage competition. Price- consumers based on search history, geographic loca- comparison websites, for example, should reduce tion, or other information collected about buyers. prices for consumers, even though the evidence The internet can also facilitate market entry. Inter- shows that price dispersion on the internet persists, net firms can start and scale up quickly with relatively in part because companies are getting better at price little staffing or capital investment. Cloud comput- discrimination—offering different prices to different ing—the leasing of computing and data storage 14 WORLD DEVELOPMENT REPORT 2016 services—reduces startup costs and allows firms to technology will have an advantage. But even the poor add capacity as the need arises, which also reduces benefit to some extent through indirect job creation risk to investors. Although many internet firms seem and better access to work and markets. As governments to operate in separate markets, most if not all com- and the private sector get better at tailoring digital ser- pete with offline firms. Instant messaging apps com- vices to the poor, those gains will likely increase. pete with telecoms, search engines and social media sites compete with traditional media for advertising Creating jobs revenue, e-commerce firms compete with brick-and- The number of direct jobs created by digital technol- mortar firms, and mobile money competes with tra- ogies is fairly modest, but the number enabled by it ditional banks. Innovations triggered by this online- can be large. In developing countries, the ICT sector offline competition generally benefit consumers, accounts for only about 1 percent of the workforce on especially when offline markets are distorted. Trans- average: less than 0.5 percent in Bolivia and Ghana, port service companies such as Uber, Lyft, Olacabs, and just under 2 percent in Colombia and Sri Lanka. and Didi-Kuaidi Dache have disrupted taxi markets In OECD countries, about 3–5 percent of the employ- that tend to be overregulated with restricted entry and ment is in this sector. Instagram, a photo sharing app, high prices. Similarly, TransferWise and Xoom have had just 13 employees in 2012 when it was bought by reduced regulatory rents in the financial sector and Facebook for US$1 billion. Facebook had 5,000 employ- cut the prices of international currency transfers by up ees at the time—compared with 145,000 at Kodak at its to 90 percent. In Uganda, eKeebo allows independent peak in photographic film in the 1990s. Yet Facebook’s or amateur chefs to provide and share home-cooked market value is several times what Kodak’s was back meals, circumventing restaurant licenses. then.13 ICT jobs, however, tend to pay well, and each high-tech job generates 4.9 additional jobs in other The internet supports job creation and sectors in the United States.14 In Kenya, the M-Pesa makes workers more productive digital payment system creates additional income People have an enormous desire to communicate for more than 80,000 agents. And China’s State Infor- and connect. The personal welfare gain from having mation Center estimates that the recent boom in the access to digital technology is clearly great. Does it country’s e-commerce sector has created 10 million also increase people’s economic opportunities? People jobs in online stores and related services, about 1.3 certainly use mobile phones and the internet more percent of the country’s employment. New opportu- for social purposes than for professional ones. But an nities for entrepreneurship and self-employment are emerging literature also indicates that people realize also growing rapidly in the digital economy. tangible economic benefits. Quantifying these benefits The internet’s ability to reduce transaction costs is difficult, but qualitative evaluation of the evidence increases opportunities for people who face barriers shows that benefits accrue most to those already better in finding jobs or productive inputs. This promotes off (table O.1). Those who have the skills to leverage inclusion for women, for persons with disabilities, Table O.1 Benefits of digital technologies for workers and consumers: A scorecard Impact so far Potential impact Channel Poor Nonpoor Poor Nonpoor Creating jobs In the ICT sector and occupations Negligible L Negligible L In sectors that use ICT L M L M Increasing worker productivity Increasing returns to human capital L M L H Connecting people to work and markets M H H H Benefiting consumers Increasing consumer surplus M H H H Source: WDR 2016 team. Note: Poor refers to the bottom 20 percent of the welfare distribution. The differential impact summarizes the discussion in chapter 2 in the full Report and is a qualitative assessment of the evidence. ICT = information and communication technologies; L = low; M = medium; H = high. overview 15 Box O.3 Bridging the disability divide through digital technologies Over 1 billion people around the world have disabilities, and message service (SMS), instant messaging, telephone relay, 80 percent of them live in developing countries. Persons and video captions reduce communication barriers for with disabilities face barriers to communicate, interact, persons with hearing and speech disabilities. Hands-free access information, and participate in civic activities. navigation and gesture-controlled interfaces assist persons Digital technologies are helping overcome some of these with severe mobility impairments in using digital devices. barriers. Technology enables multiple means of commu- But the mere existence of technology is an insufficient nication—voice, text, and gestures—to access information condition to bridge the gaps in the socioeconomic inclu- and engage with others. Voice recognition, magnification, sion of persons with disabilities. A supportive ecosystem and text-to-speech functionality benefit persons with is needed to drive the implementation of accessible digital visual, cognitive, learning, and mobility disabilities. Short technologies. Source: Raja 2015, for the WDR 2016. and for people in remote areas (box O.3). Impact out- remain high—almost 15 percent for an additional year sourcing brings internet-based jobs to the poor and of tertiary education in developing countries. vulnerable. The government of the Indian state of The biggest gains from digital technologies for the Kerala set up the Kudumbashree project to outsource poor are likely to come from lower information and information technology services to cooperatives of search costs. Technology can inform workers about women from poor families; 90 percent of the women prices, inputs, or new technologies more quickly and had not previously worked outside the home. Sama- cheaply, reducing friction and uncertainty.15 That can source and Rural Shores link clients in the United eliminate costly journeys, allowing more time for States and the United Kingdom with workers in work and reducing risks of crime or traffic accidents Ghana, Haiti, India, Kenya, and Uganda. Of global (box O.4).16 online workers on the Elance freelancing platform, Using technology for information on prices, soil part of Upwork, 44 percent are women, and many quality, weather, new technologies, and coordination wish to balance work and family life. Among respon- with traders has been extensively documented in dents to a survey of online workers for this Report, agriculture (see sector focus 1 in the full Report). In the ability to work flexible hours from home is con- Honduras, farmers who got market price information sidered the greatest advantage of online work. via short message service (SMS) reported an increase of 12.5 percent in prices received.17 In Pakistan, mobile Increasing labor productivity phones allow farmers to shift to more perishable but For the economy as a whole, the most profound higher return cash crops, reducing postharvest losses impact of the internet on individuals is that it makes from the most perishable crops by 21–35 percent.18 workers more productive. By handing off routine and The impacts of reduced information asymmetries repetitive tasks to technology, workers can focus on tend to be larger when learning about information activities with higher value. Judicious use of massive in distant markets or among disadvantaged farmers open online courses (MOOCs) or online teaching who face more information constraints.19 tools like Khan Academy lets teachers spend more time fostering discussion and working with students Increasing the consumer surplus who fall behind. Researchers can dedicate more Where the internet has led to a full automation of time thinking and innovating rather than searching services, many jobs have been lost—few travel agents, for information or duplicating other people’s work. booksellers, or music store employees are left. But Managers can work more easily with teams across these same dynamics have been a boon to consum- borders. These benefits are largest for the higher ers. There are new digital goods and services—such skilled. In fact, there has never been a better time to as e-books, digital music, and search engines. And the be a high-skilled worker, as the returns to education internet has transformed existing ones—such as taxi 16 WORLD DEVELOPMENT REPORT 2016 Box O.4 Digital dividends and the bottom billion The poor benefit from digital technologies, but only connected to the internet. In the Central African Republic, modestly in relation to the true potential. Nearly 7 of 10 one month of internet access costs more than 1.5 times the people in the bottom fifth of the population in developing annual per capita income. Even mobile phones are expen- countries own a mobile phone, improving their access to sive: the median mobile phone owner in Africa spends over markets and services. In rural Niger, agricultural price infor- 13 percent of her monthly income on phone calls and text­ mation obtained through mobile phones reduces search ing. And many poor lack the basic literacy and numeracy costs by 50 percent.a In rural Peru, access to mobile phones skills needed to use the internet. In Mali and Uganda, about boosted household real consumption by 11 percent between three-quarters of third-grade children cannot read. In 2004 and 2009, reducing poverty by 8 percentage points Afghanistan and Niger, 7 of 10 adults are illiterate. and extreme poverty by 5.4 percentage points.b In advanced economies the poor face the prospects The poor can benefit from digital technologies even when of stagnant wages and fewer opportunities, as they are they don’t own a mobile phone or a computer. For exam- increasingly forced to compete with those displaced by ple, a digital ID, by giving millions of poor people an official automation. Digital technologies can also exacerbate identity, increases their access to a host of public and private socioeconomic disparities. For example, the internet voting services. In Narma Dih—a village in Bihar, India, with no on municipal budget proposals in the state of Rio Grande electricity or all-weather roads—poor farmers benefit from do Sul in Brazil and citizen engagement initiatives such as digitally enabled agricultural extension services from Digital Uganda’s U-report show that the new users are more likely Green, an NGO (nongovernmental organization) that trains to be male, young, university educated, and wealthy—those farmers using locally produced how-to videos.c  already better off before the internet’s advent.d Yet the poor are capturing only a modest share of Rapid technological progress will increasingly enable the digital dividends. While a majority of the poor have the poor to afford and use many digital services. But their a mobile phone, they can’t access or afford the internet. ability to reap dividends from these investments will be In Latin America, fewer than 1 in 10 poor households is largely determined by providing the analog complements. Source: WDR 2016 team. a. Aker and Mbiti 2010. b. Beuermann, McKelvey, and Vakis 2012. c. Chomitz 2015. d. Spada and others 2015; Berdou and Lopes 2015. and hospitality services, health, education, and retail. an average of US$50 a month for services it now gets This has increased the variety of goods and services for free on the internet. Time-use data in the United available, including those for leisure. The internet States suggest that the median individual gains more thus enhances consumer welfare, but in ways that are than US$3,000 annually from the internet. In Estonia, hard to measure. digital signatures saved 20 minutes per transaction. People’s perceptions are that digital technologies And a study of the time costs of searching for infor- have certainly made them better off. In 12 countries mation shows that the average online search tends surveyed in Africa, 65 percent of people believe that to be 15 minutes faster, the results are more accurate their family is better off because they have mobile and relevant, and the experience more enjoyable than phones, whereas only 20 percent disagree (14.5 per- offline search in a library. On average, people might cent not sure).20 And 73 percent say mobile phones realize a consumer surplus as high as US$500 a year help save on travel time and costs, with only 10 per- from such services, adding up to vast benefits when cent saying otherwise. Two-thirds believe that having aggregated over all users. a mobile phone makes them feel more safe and secure. Some studies have attempted to quantify the The internet can make governments more economic value of these gains. A McKinsey survey capable and responsive of consumers in France, Germany, the Russian Fed- Governments provide services that are typically eration, Spain, the United Kingdom, and the United nontradable, often lack scale, and are not subject to States in 2010 found that a household is willing to pay market competition. Raising efficiency in the public overview 17 sector is thus challenging, and one might expect improved service efficiency. E-procurement helped the internet to bring large benefits in public service India and Indonesia inject more competition into the provision. There are indeed many examples where process by increasing the probability that the win- the internet has raised the capabilities of the public ning bidder comes from outside the project’s region. sector. Better tools for communicating with citizens This also improved the quality of infrastructure. But and providing information also allow greater partici- a majority of public sector digital technology projects pation—through inclusion in government assistance fail to achieve the project objectives, resulting in con- programs, or feedback to and monitoring of public siderable fiscal waste.22 officials. And the internet helps citizens to connect Digital technologies can also improve management online and organize for collective action in order to by monitoring the performance of workers. A small but put pressure when government performance falls growing impact evaluation literature reports generally short of people’s expectations. positive effects of technology-based monitoring on worker absenteeism when combined with other insti- Expanding participation tutional reforms.23 In Uganda, where teacher absen- Lack of identity is an impediment for poor people to teeism is estimated at 27 percent, head teachers use exercise their basic democratic and human rights. mobile phones to record attendance and transmit data Where civil registration systems are weak or non- to a central database that generates weekly reports. existent, many of the poor are simply not counted. Combined with incentive pay for teachers tied to atten- Digital identification can help overcome barriers dance, the program reduced absenteeism by 11 percent- to participation. Many countries have introduced age points. The internet also provides real-time data for general-­purpose digital identity (ID) schemes or better planning and management of service facilities. specific systems for elections or to manage postcon- In Ghana, Kenya, Tanzania, and Zambia, health work- flict transfers—with numerous benefits, including ers use mobile phones to report counterfeit drugs and making the public sector more efficient. Nearly 900 stock-outs. Aggregated in a central database and geo- million Indians have been issued digital IDs in the graphically mapped, this information helps adminis- past five years, which they are using to open bank trators address drug and equipment shortages. accounts, monitor attendance of civil servants, and Providing citizens the opportunity to give specific identify recipients of government subsidies. Nigeria’s feedback quickly has helped improve performance in e-ID revealed 62,000 public sector “ghost workers,” many instances. Mobile-phone apps like SeeClickFix saving US$1 billion annually. But the most important and FixMyStreet in the United States and the United benefit may be in better integrating marginalized or Kingdom let users report potholes, graffiti, and illegal disadvantaged groups into society. dumping. Governments can report back on fixes, clos- Digital technologies also enable the poor to vote ing the feedback loop. Internet call centers enabling by providing them with robust identification and citizens to report problems and track the status of by curtailing fraud and intimidation through better their requests are now standard in Barcelona, Buenos monitoring. Mobile phones enable citizens to report Aires, Muscat, Rio de Janeiro, Seoul, and Ulaanbaatar, instances of violence and voter intimidation, improv- to name a few cities. The Nairobi water company uses ing electoral participation. In Mozambique, SMS MajiVoice, and one of the electricity supply com- messages allowed citizens to report electoral irregu- panies in the Dominican Republic, EDE Este, uses a larities and increased voter turnout by 5 percentage similar system to receive complaints, track their reso- points.21 Ushahidi and Uchaguzi are crowdsourced lution through an automated workflow, and regularly applications that report and map election violence update citizens on progress. When implemented well, in Kenya. By multiplying the sources of information, citizens eagerly take up the opportunity to give feed- the internet can reduce the risk of media capture and back, and resolution time declines (see figure O.12). make censorship difficult. Advancing voice Improving public sector capability Governments, particularly those in digitally advanced The internet raises efficiency and productivity countries like Estonia, the Republic of Korea, and through automation and data-driven management. Singapore, are beginning to take advantage of data Almost all countries have tried to automate tax and analytics and digital platforms for faster, more customs administration, as well as budget preparation, informed, and integrated policy making. The internet execution, and accounting. Results have been mixed. also opens new avenues for participatory democracy. E-filing reduces tax compliance costs, and one-stop Iceland has experimented with crowdsourcing its computerized service centers and online portals have constitution, and Brazil and Estonia have explored 18 WORLD DEVELOPMENT REPORT 2016 Figure O.12 More complaints were resolved more quickly in the Nairobi water utility after the The risks: Concentration, introduction of digital customer feedback inequality, and control 120 60,000 So, the internet can be an effective force for develop- ment. But as the Report documents, the benefits too Number of cumulative complaints 100 50,000 often are not realized, and the internet sometimes makes persistent problems worse. Why? The key 80 40,000 insight is that for complex occupations, business Days to resolve activities, or public services, the internet usually can 60 30,000 make only a portion of tasks cheaper, more efficient, or more convenient through automation. Another 40 MajiVoice 20,000 portion still requires capabilities that humans possess introduced in abundance but computers do not. Many traditional 20 10,000 tasks of an accountant or bank teller are now auto- mated, such as making calculations or processing 0 0 withdrawals. Others require complex reasoning or June December June December 2013 2013 2014 2014 socioemotional skills, such as designing tax strategies or advising clients. Likewise, many public services Resolution time Complaints submitted involving provision of information or routine permis- Complaints resolved sions can be automated. But others, such as teaching or policing, need a high degree of human discretion, Source: World Bank 2015. Data at http://bit.do/WDR2016-FigO_12. tacit knowledge, and judgment. Note: For more details see figure 3.11 in the full Report. Many problems and failures of the internet sur- face when digital technology is introduced but the important analog complements remain inadequate. participatory lawmaking. By dramatically lowering What are these complements? The main ones are the cost of communication and coordination, social regulations that ensure a high degree of competition, media can overcome the traditional barriers to citizen skills that leverage technology, and institutions that collective action. A growing empirical literature has are accountable (figure O.13). also shown that cellphones and the use of Twitter and Facebook aided protests during the Arab Spring in the •   When the internet delivers scale economies for Arab Republic of Egypt,24 antiwar demonstrations in firms but the business environment inhibits com- the United States,25 and citizen mobilization across petition, the outcome could be excessive concen- Africa.26 tration of market power and rise of monopolies, inhibiting future innovation. Figure O.13 Without strong analog complements, When the internet automates many tasks but •   opportunities may turn into risks workers do not possess the skills that technology augments, the outcome will be greater inequality, rather than greater efficiency. DIGITAL TECHNOLOGIES When the internet helps overcome information •   barriers that impede service delivery but govern- ments remain unaccountable, the outcome will be greater control, rather than greater empowerment and inclusion. Information Automation Scale The interplay between internet investments and without accountability without skills without competition reforms in complementary areas is at the core of pol- icy debates about technology impacts. A 2008 study by Claudia Goldin and Lawrence Katz,27 drawing on CONTROL INEQUALITY CONCENTRATION earlier work by Jan Tinbergen, framed these dynam- ics in the labor market as a “race between education and technology.” As technology progresses, some Source: WDR 2016 team. skills become obsolete. Workers must acquire new overview 19 skills that help them become more productive with Figure O.14 Factors explaining the lower adoption of the help of that technology. Adjustment takes time digital technologies by businesses and will be painful for many, but this is how econo- mies progress. The sections that follow discuss risks Vested and complements in the private sector, in labor mar- interests kets, and in the public sector. Regulatory uncertainty Growing concentration: The nexus Analog economy Digital between regulations and technology economy One of the main mechanisms for the internet to pro- (4–5% of GDP; 1–2% of jobs) mote economic growth is competition. Information flows increase and speed up so that customers have Digital monopoly more choice and can compare prices more easily. Firms that use technology more effectively will do Source: WDR 2016 team. well and force others to follow suit. There is consid- erable evidence that this is happening throughout the economy, but three potential problems could emerge. First, while the internet has spread quickly in the or oligopolies. The risk of allowing underregulated private sector of some countries, adoption among entrants into a market must therefore be weighed non-ICT firms has been slow in other countries. against the benefits to consumers from lower prices Larger, fast-growing, skill-intensive, export-oriented, and greater convenience. and urban firms tend to use digital technologies The third potential risk comes from the dominant more. The causes of these differences are not well position of many online platforms and internet inter- understood. Differences in adoption rates may simply mediaries. Economic history shows that firms are reflect differences in income, sector characteristics, tempted to exploit a dominant position. Large inter- and management capabilities, but they could also be net firms may be no exception. The economics of the due to barriers to adoption (figure O.14). One possibil- internet favor natural monopolies,28 and some plat- ity is high import duties for digital goods and services forms now dominate their markets. They enjoy such in some countries. Another is market distortions high profits that they can quickly capture new mar- and protections that allow firms to maintain profits kets by buying out competitors or developing a rival without threats from more innovative entrants. For service; local startups, including those in developing example, firms in Mexico that faced competition countries, are left with tiny niche markets. Some of from China increased the number of computers per the biggest internet firms now face scrutiny from employee and became twice as likely to use the inter- regulators. Google, which captures almost one-third net for purchasing as those that didn’t face significant of global digital advertising revenue,29 has been inves- competition. tigated for preferential placement of its own prod- Second, when online businesses enter the turf of ucts, exploiting third-party content, and exclusionary their offline counterparts, disruption can be great, practices in its placement of advertising.30 Amazon, and regulators are often unsure whether or how to the largest sales platform for book publishers, has react. Recently, “on-demand economy” firms Uber used its market power to enforce its pricing policies. and Airbnb have challenged established taxi and Safaricom, operating the M-Pesa payment system, hotel industries. Their platform business model is resisted the entry of competing service providers. scalable and global and has spawned numerous local The vast amount of identifiable personal information imitators. In cities from Paris to Delhi to Beijing, that many of these companies collect raises further the reaction has been a scramble by offline incum- challenges (box O.5). bents to keep these new competitors out, usually by It is too early to tell whether these problems will appealing to regulators to enforce established sector diminish the overall economic benefits from the regulations such as the knowledge of the city (in the internet or be mitigated by the sector’s low entry costs case of London cabbies) or insurance requirements. and rapid technological change. Consumers have This can be a valid appeal when regulations protect generally benefited from the internet-based busi- public safety and ensure minimum service levels. But ness models of existing and new firms. Markets are these new models often succeed because they enter extremely dynamic, so many advantages from scale heavily distorted markets with virtual monopolies or moving first may be temporary. And greater size 20 WORLD DEVELOPMENT REPORT 2016 Box O.5 What Facebook “Likes” reveal—the convenience-privacy trade-off When economists such as George Stigler and Richard Data collectors often sell the data to others. One data Posner wrote about privacy and economics in the early broker assembled an average of 1,500 pieces of informa- 1980s, they raised many issues debated today, but at that tion about more than half a billion consumers worldwide time the “storage and retrieval of information, and its accu- from information people provided voluntarily on various rate dissemination, [were] often extremely expensive.”a websites. But even easily accessible data such as Facebook Today, an enormous collection of identifiable information is “Likes” can predict sensitive characteristics including making service delivery more efficient and more relevant. “sexual orientation, ethnicity, religious and political views, Service providers can better target or price their products personality traits, intelligence, happiness, use of addictive based on known characteristics and preferences. Search substances, parental separation, age, and gender.”b And engines provide more relevant search results. Health and smartphone sensors can infer a user’s “mood, stress levels, auto insurers can better price premiums with verifiable personality type, bipolar disorder, demographics (e.g., gen- information about exercise or driving behavior. And gov- der, marital status, job status, age), smoking habits, overall ernments can use data systems to reduce the bureaucratic wellbeing, progression of Parkinson’s disease, sleep pat- burden for citizens. In Estonia’s e-government system, terns, happiness, levels of exercise, and types of physical citizens never have to provide the same information twice. activity or movement.”c The problem is that few people know how these large The risks? Cybercrime such as identity theft when data amounts of data are collected and used—and who controls stored insecurely fall into the wrong hands. Discrimination them. Users are not always aware of and providers often when customers are charged a higher premium or inter- don’t tell what information is collected. The secret snoop- est rate, or denied a job based on erroneous information ing by governments can be for legitimate law enforcement they can’t easily correct. Persistence of dated information reasons, but sometimes violates laws and rights, as the that denies protection from embarrassing but irrelevant Edward Snowden revelations about spying by the security information or a second chance, which prompted Europe’s agencies of the United States, the United Kingdom, and “right to be forgotten” ruling. And perhaps most impor- others have shown. A consequence has been a new “data tant, reduced trust and thus suboptimal use of the internet. nationalism,” where countries are demanding that data These concerns vary across societies. Fifty-eight percent of about their residents be stored within their territory or Nigerians and 57 percent of Indians believe private infor- favoring domestic technology that may be inferior or more mation on the internet is very secure, but only 18 percent of expensive, but is trusted more. French and 16 percent of German respondents do.d Sources: WDR 2016 team, based on Peppet 2014; Castro 2013; Economist 2014; Kosinski, Stillwell, and Graepel 2013. a. Posner 1981. b. Kosinski, Stillwell, and Graepel 2013. c. See Peppet (2014) for individual references. d. CIGI and Ipsos 2014. allows large firms to provide services and products at Rising inequality: The race between skills low cost or free of charge, and their high profits fuel and technology investments in research and development (R&D). At If the internet and related technologies promote the same time, it is clear that competition and market growth, how are the gains shared in the labor market? structure on the internet are in many ways not so dif- While digital technologies raise productivity and ferent from the offline world. Policies need to ensure enhance overall welfare, labor market disruptions that all innovative companies can enter markets and can be painful and can result in higher inequality. compete on equal terms. Otherwise, the economic Global trends provide some indication. One is that performance between firms of different size and in the share of national income that has gone to labor, different countries could diverge further and contrib- especially routine labor, has fallen quite sharply ute to similarly divergent performance of national in many developing countries—though Brazil and economies. Ukraine are exceptions (figure O.15).31 Inequality has overview 21 Figure O.15 Labor shares of national Figure O.16 Falling labor shares in national income income are falling in many countries, are associated with rising inequality including some developing countries Change in Gini coefficient vs. growth in labor share in national income, 1995–2010 Trends in labor shares in output since 1975 30 percentage points every 10 years 25 CHN Change in the Gini coefficient in Poland 20 consumption or income (%) Mexico FIN 15 DNK Hungary LVA Estonia 10 Bahrain BGR EST Slovenia 5 CRI Lithuania GBR South Africa 0 ITA Norway NOR ESP HND BLR –5 Luxembourg GRC Micronesia, Fed. Sts. –10 ARG PAN PRY Namibia TUN IRL Latvia –15 New Zealand –20 China –30 –25 –20 –15 –10 –5 0 5 10 15 20 25 Finland Tunisia Change in the share of national output going to labor (%) Argentina Slovak Republic Source: Eden and Gaggl 2015, for the WDR 2016. Data at http://bit.do/WDR2016-FigO_16. Germany Austria Sweden increased more where this shift in incomes toward France Italy capital and away from labor has been higher (figure Australia O.16). A number of recent studies have linked techno- Taiwan, China logical change to this rising inequality (see chapter 2 Canada in the full Report). Japan Denmark A related trend is the polarization—or “hollow- Switzerland ing out”—of the labor market, not only in advanced United States economies, but increasingly also in many developing Netherlands Belgium countries. The share of employment in high-skilled Czech Republic occupations is up, as is the share of low-skilled jobs. Spain The share of middle-skilled employment, in contrast, Singapore is down in most developing countries for which United Kingdom Portugal detailed data are available (figure O.17). And these Bolivia types of jobs are often near the top of the income Turkey distribution in low-income countries, as in Africa. Armenia A notable exception to these global trends is China, Colombia Kenya where growing mechanization in agriculture has led Thailand to a (perhaps temporary) increase in routine, mid- Costa Rica level labor. Exceptions also include some countries Iceland Belarus rich in natural resources and commodity exporters, Moldova which include several countries in Central Asia and Korea, Rep. Latin America. Ukraine What explains all this? Machines can increasingly Brazil perform routine tasks more quickly and cheaply than –15 –10 –5 0 5 10 humans, and much of what is considered nonroutine Change in labor shares today—such as translation, insurance underwriting, in national income or even medical diagnostics—computers might do Source: Karabarbounis and Neiman 2013. Data at http://bit.do just as well tomorrow. Unlike previous technolog- /WDR2016-FigO_15. ical transformations such as the mechanization of 22 WORLD DEVELOPMENT REPORT 2016 Figure O.17 The labor market is becoming more polarized in many developing countries Annual average change in employment share, circa 1995–circa 2012 2.0 1.5 1.0 Percentage points 0.5 0 –0.5 –1.0 –1.5 –2.0 –2.5 te a Tu la A s al a ica n a pu s au c nz s U nia U ine Se a ia Sa via ai r nd Ja dia yp Sri ica ab a Bh p. os an za ica N stan on a G lia Pa ana n rb u r s tsw a Et na C ia na So lipp y Pa YR Th do ut ine Re a Ta itiu ica o e M bli Ba er sta ua am M fric in Ho ysi nd Ar nk M ibi Bo agu a rb op Re Ph rk n ur N ad go ,F C ut a hi la El Boli a Ka ta R a P a m In lva t, La am a r ga h kh ki m d kr hi n ia h on i G ed ac Eg M om D High-skilled occupations (intensive in nonroutine cognitive and interpersonal skills) Middle-skilled occupations (intensive in routine cognitive and manual skills) Low-skilled occupations (intensive in nonroutine manual skills) Sources: WDR 2016 team, based on ILO KILM (ILO, various years); the International Income Distribution database (I2D2; World Bank, various years); National Bureau of Statistics of China (various years). Data at http://bit.do/WDR2016-FigO_17. Note: The figure displays changes in employment shares between circa 1995 and circa 2012 for countries with at least seven years of data. The classification follows Autor 2014. High-skilled occupations include legislators, senior officials and managers, professionals, and technicians and associate professionals. Middle-skilled occupations comprise clerks, craft and related trades workers, plant and machine operators and assemblers. Low-skilled occupations refer to service and sales workers and elementary occupations. For more details see figure 2.15 in the full Report. agriculture or the automation of manufacturing, the than in more advanced ones, where many of these internet affects well-paying white-collar jobs even jobs have already disappeared (figure O.18). But it will more than blue-collar jobs. likely take longer in lower-income countries. Most Some mid-level workers will have additional skills of them are still fairly low-tech, with only about one- that allow them to switch to better-paid nonroutine third of urban jobs in a sample of developing coun- occupations in which technology tends to augment tries using any ICTs at work. And wage rates are still human capital and make skilled workers more pro- low, with a larger share of manual nonroutine labor, ductive. These workers will gain from technological so investments in technology will be less profitable disruption. In developing countries, returns to educa- for firms. This does not mean, however, that lower­ - tion are highest among those with tertiary education, income countries need not pay attention to these and they are higher and rising faster in ICT-intensive trends. Most important, even without significant occupations.32 Those who do not have such skills will employment shifts, the nature of jobs is changing need to seek work in lower-skilled, nonroutine occu- toward skills that remain hard for technology to emu- pations, such as janitorial services, hospitality, or per- late: that is, advanced cognitive and socioemotional sonal care. Demand for such services could increase, skills. The policy response, besides rethinking social but perhaps not enough to prevent downward wage protection systems, is better and more responsive pressure as the available workforce in these sectors education and training—areas where reforms take grows. These dynamics are consistent with the rising many years to pay off. returns to education and income inequality we see in It is important to keep in mind the historical per- many countries. spective that job displacement and job losses from The implications for developing countries depend technological change are an integral part of economic on the pace of technological disruption. The share of progress. It is precisely rising productivity—as tech- occupations that could experience significant auto- nology replaces some human labor but augments the mation is actually higher in developing countries skills of remaining and new workers—that generates overview 23 Figure O.18 From a technological standpoint, two-thirds of all jobs are susceptible to automation in the developing world, but the effects are moderated by lower wages and slower technology adoption Estimated share of employment that is susceptible to automation, latest year 100 Share of employment that can 80 be computerized (%) 60 40 20 0 ria te or u a Al and p n jik ic U aza N ige e C rag a k e tan d gia bo a Bo dia N via M In l go a ia Ba Pan ala So S esh C ia, F ia m or ai ia An nia Lit Ch a hu ina hi a El rag lic la a A a au ca ed al us M ia O ta La D ge ia a Se Cyp ia h s ru s G alv ay C uay ta R a ga yc ru U elle N in os Y Re sta ica ri on di Ec Ric am u Et li ng am h bi l in Ta ubl EC ep op s Th an go an Ar oat tv al ua ad Ro ad Pa b ac M riti S u M fri l on ay li a ba nt m an or ut er an G is d pu g G l Bu yz ki kr r rg be Re Ky Uz n ica in M tB om es D W Adjusted (technological feasibility + adoption time lags) Unadjusted (technological feasibility) Source: WDR 2016 team. See figure 2.24 in the full Report for more details. Data at http://bit.do/WDR2016-FigO_18. Note: For more details see figure 2.24 in the full Report. OECD = Organisation for Economic Co-operation and Development. growth and frees human and financial resources technology and education, and the winners will be for deployment in sectors with higher returns. It those who encourage skill upgrading so that all can also reduces the need for humans to do physically benefit from digital opportunities. hard, repetitive, or dangerous work. Such trends will be welcome in countries that are rapidly aging or Engendering control: The gap between where the population is declining, or in professions institutions and technology where skills are in short supply. Telemedicine and The internet was expected to usher in a new era of automated diagnostics, for instance, allow medical accountability and political empowerment, with experts to serve many more people, even remotely in citizens participating in policy making and forming areas with a shortage of doctors. self-organized virtual communities to hold gov- And fears of “technological unemployment” go ernment to account. These hopes have been largely back to the industrial revolution. Even such think- unmet. While the internet has made many govern- ers as the economist John Maynard Keynes and the ment functions more efficient and convenient, it has writer Isaac Asimov submitted to this fallacy. Keynes, generally had limited impact on the most protracted in the 1930s, predicted 15-hour workweeks by the problems—how to improve service provider account- end of the 20th century, and Asimov, in a 1964 essay, ability (principal-agent problems) and how to broaden expected that one of the most pressing problems for public involvement and give greater voice to the poor humanity by 2014 would be boredom “in a society of and disadvantaged (collective action problems). enforced leisure.” Yet over the centuries, economies Whether citizens can successfully use the internet have adapted to massive changes in labor markets— to raise the accountability of service providers depends the largest by far, being the shift out of agriculture. In on the context. Most important is the strength of 1910, there were 12 million farmworkers in the United existing accountability relationships between policy States. One hundred years later, there were only makers and providers, as discussed in the 2004 World 700,000 in a population more than three times larger. Development Report, Making Services Work for Poor People. Still, nobody can predict the full impact of techno- An examination of seventeen digital engagement ini- logical change in coming decades, which may be tiatives for this Report finds that of nine cases in which faster and broader than previous ones. What is clear, citizen engagement involved a partnership between however, is that policy makers face a race between civil society organizations (CSOs) and government, 24 WORLD DEVELOPMENT REPORT 2016 Table O.2 Classifying the digital citizen engagement cases CSO partners Impact Additional offline with Collective Government Case Location mobilization government feedback Citizen uptake response Por Mi Barrio Uruguay L H I Change My City India M H Lungisa South Africa L H Pressure Pan Brazil H M Rappler Philippines H M Change.org World H M U-report Uganda H L Huduma Kenya L L Daraja Maji Matone Tanzania L L FixMyStreet Georgia L L Check My School Philippines L L Barrios Digital Bolivia L L e-Chautari Nepal L L I Paid a Bribe India M L Mejora Tu Escuela Mexico L L Karnataka BVS India L L Sauti Za Wananchi Tanzania L L Source: WDR 2016 team, based on Peixoto and Fox 2015, for the WDR 2016. Note: Examples are arranged by degree of government response. CSO = civil society organization. L = low; M = medium; H = high. three were successful (table O.2). Of eight cases that Grande do Sul, online voting increased voter turnout did not involve a partnership, most failed. This sug- by 8 percentage points, but online voters were dis- gests that, although collaboration with government proportionately wealthier and more educated (figure is not a sufficient condition for success, it may well O.19). Even in developed countries, engaging citizens be a necessary one. Another ingredient for success is continues to be a challenge. Only a small, unrepresen- effective offline mobilization, particularly because tative subset of the population participates, and it is citizen uptake of the digital channels was low in most often difficult to sustain citizen engagement. There of the cases. For example, Maji Matone, which facil- is no agreement among social scientists on whether itates SMS-based feedback about rural water supply the internet disproportionately empowers citizens or problems in Tanzania, received only 53 SMS messages political elites, whether it increases polarization, or during its first six months of operation, far less than whether it deepens or weakens social capital, in some the initial target of 3,000, and was then abandoned. cases even facilitating organized violence. Political participation and engagement of the poor The use of technology in governments tends to be has remained rare, while in many countries the inter- successful when it addresses fairly straightforward net has disproportionately benefited political elites information and monitoring problems. For more and increased the governments’ capacity to influence demanding challenges, such as better management of social and political discourse. Digital technologies providers or giving citizens greater voice, technology have sometimes increased voting overall, but this has helps only when governments are already responsive. not necessarily resulted in more informed or more The internet will thus often reinforce rather than representative voting. In the Brazilian state of Rio replace existing accountability relationships between overview 25 governments and citizens, including giving govern- Figure O.19 Internet voting can increase voter ments more capacity for surveillance and control (box participation but can be biased toward more O.6). Closing the gap between changing technology privileged groups and unchanging institutions will require initiatives Profile of online and offline voters in a participatory budgeting vote in Rio Grande that strengthen the transparency and accountability do Sul, Brazil, 2011–12 of governments. 60 Making the internet 50 universal, affordable, 40 open, and safe Percent First-generation ICT policies involving market 30 competition, private participation, and light-touch regulation have led to near-universal access and 20 affordability of mobile telephony, but have so far been less successful in spreading internet services. Much 10 of the explanation lies in continued policy failures such as regulatory capture, troubled privatizations, 0 inefficient spectrum management, excessive taxation 0 0 0 0 ry e y r 00 75 00 50 he ar al ta 6, < m nd 6, 1, ig en of the sector, and monopoly control of international > 0– 0– Fe H co em 50 75 Se gateways. At the same time the absence of global con- El 1, sensus in dealing with the next-generation issues— Gender Education level Income level (BRL/month) such as privacy, cybersecurity, censorship, and inter- net governance—is resulting in more circumspect Offline voters Online voters and diverse approaches to regulating the internet Source: WDR team, based on Spada and others 2015. Data at http://bit.do/WDR2016-FigO_19. (box O.7 and figure O.20). Note: BRL = Brazilian real. Supply-side policies: Availability, line), and mandating the incumbent to make local accessibility, and affordability access lines available to competitors at wholesale A useful framework for analyzing supply-side ICT prices (local loop unbundling). policies is to consider the value chain that stretches •   The most critical portion of the invisible mile from the point where the internet enters a country involves spectrum management, which requires (the first mile), passes through that country (the mid- increasing the amount of spectrum available, dle mile) to reach the end user (the last mile), and cer- ensuring competitive access, encouraging sharing tain hidden elements in between (the invisible mile). of essential facilities, such as radio masts, and liber- alizing the market for spectrum resale. The first mile can be improved by liberalizing the •   market for satellite dishes and eliminating monop- In addition to pure ICT policies, almost everything oly status over the international gateway and cable that the private sector, citizens, or governments do on landing stations. the internet requires some essential building blocks •   Strengthening the middle mile involves liberalizing (box O.8). the market for building and operating backbone networks, encouraging open access to the incum- Demand-side policies: Open and safe bent’s network, requiring all major infrastructure internet use programs (such as roads, railways, pipelines, and The challenges facing internet stakeholders today are energy distribution) to include provision for an as much about how networks are used (demand) as optical fiber link, setting up internet exchange how they are built (supply). Global interconnected- points, and creating local caches for frequently ness introduces new vulnerabilities in areas where used content. coordination mechanisms are weak, still evolving, or Government policies can encourage the provision •   based on nongovernment models. Threats to cyber­ of last mile connectivity by permitting competing security, and censorship are undermining confidence facilities, especially for intermodal competition and trust in the internet and increasing costs to busi- (between cable, wireless, and digital subscriber nesses and governments, resulting in economic losses 26 WORLD DEVELOPMENT REPORT 2016 Box O.6  Nailing Jell-O to the wall—restrictions on the flow of information Governments also interfere directly with digital networks result reflects broad societal preferences. In autocratic to control access to information. An early internet pioneer, countries, where use of the internet in government is often John Gilmore, claimed, “the Net interprets censorship as as high as in democratic countries (figure BO.6.1), leaders damage and routes around it.”a And Bill Clinton in 2000 face a dilemma. If they permit open discourse on the inter- said, “trying to control the internet is like trying to nail net, they risk challenges to their authority. If they do not, Jell-O to a wall.”b Yet private software vendors and state they risk isolating themselves from the global information institutions have figured out ways to censor access to inter- economy. This is a balancing act, and countries are becom- net content, whether by shutting down the entire national ing more sophisticated in calibrating their control—for web domain, as the Arab Republic of Egypt did in 2011 for example, censoring content that might encourage collec- five days; by preventing access to specific domestic or tive action, but not individual criticism. foreign websites; or by targeting individuals’ blog posts Internet filtering and censorship impose welfare and or other social media postings. Google received 6,951 economic costs. First, the cost of censoring or filtering inter- requests from governments in 2013 to remove content from net content diverts public funds from other uses. Monitoring search results, with the largest numbers from Turkey, the domestic internet traffic and selectively blocking foreign United States, and Brazil. Other countries, including China websites requires large financial resources, technical know- and the Islamic Republic of Iran, block Google and some how, and dedicated staff—all of which could be deployed other internet sites completely, although such restrictions for more productive tasks. Second, filtering and methods to may change in the future. circumvent it can slow the speed of internet access, which Governments of all types restrict access to content such hurts business users. Third, filtering can restrict access to as child pornography, hate speech, insults, or criticisms of economically or scientifically useful information, such as authority figures, challenges to cultural or religious morals, the Google Scholar search engine for academic papers— or reporting of uprisings or accidents. When accountable indispensable in universities and labs. Fourth, in the view governments determine what should be censored, the of the European Union, for instance, blocking foreign Figure BO.6.1 Autocratic governments have promoted e-government while censoring the internet a. e-government provision, b. Internet filtering level, by government type by government type 1.0 Substantial 0.8 Online service index Selective 0.6 0.4 Suspected 0.2 0 None –10 –5 0 5 10 Autocracy Democracy Autocracy Democracy Type of content filtered Political Social Conflict and security Sources: WDR team, based on Polity IV 2015; UN 2014; Open Net Initiative 2013. Data at http://bit.do/WDR2016-FigBO_6_1. Note: The Polity IV project defines government types based on characteristics such as competitiveness and openness of executive recruitment, constraints on the chief executive, and regulation and competitiveness of participation in the political process. The combined score varies from –10 for a pure autocracy to +10 for a pure democracy. See the Polity IV user’s manual for details. (Box continues next page) overview 27 Box O.6  Nailing Jell-O to the wall—restrictions on the flow of information (continued) websites may be considered a nontariff trade barrier. Local and domestic champions will not face as much innovation- companies will fill the gap. This could be considered an inducing competition. Fifth, widespread censorship means economic benefit or transfer rather than a cost. But it pre- that people avoid discussing and exchanging ideas openly, vents domestic users’ access to possibly better products, a prerequisite for an innovative and productive society. Sources: WDR 2016 team, based on Saleh 2012; King, Pan, and Roberts 2013; Bao 2013; HRW 2015. a. Elmer-Dewitt 1993. b. Clinton 2000. Box O.7 Is the internet a public good? The internet does not have all of the characteristics of a benefit when everyone else is better informed and when pure public good. Access to the internet often requires a public services are provided electronically at lower cost. fee, so individuals can be effectively excluded from its use. The private sector should take the lead in providing But once on the internet, the consumption of information internet infrastructure and services because the business by one user does not reduce its availability to others, so in case is usually compelling. But public investment or inter- that sense it is nonrivalrous (although capacity constraints vention is sometimes justified where the private sector is can slow down access). One way to describe the internet is unable to provide affordable access. Historical precedents as a club good that is excludable but nonrivalrous, similar include the United States Communications Act of 1934, to cable television; or if bandwidth is scarce, as a private which called for universal “wire and radio communication good with strong positive externalities—everyone benefits service,” even in remote rural areas. Some countries have as more people come online. As more essential services gone further. Finland, for example, has defined access to and information migrate to the web, anyone without access the internet at broadband speeds as a legal right and pur- almost becomes a second-class citizen. And all citizens sues a universal access policy. Source: WDR 2016 team. Box O.8 The four digital enablers The WDR 2016 looks at how the internet increases produc- e-commerce. Electronic transfers reduce the cost of sending tivity of businesses, opportunities for people, and the effec- remittances. Peer-to-peer lending can vastly improve the tiveness of governments. Across these domains, four major financial access of startups. Governments can make pay- enablers of digital development are critical. Four spotlights ments and social transfers at lower cost and with less fraud in the Report discuss their benefits and potential risks. and leakage. However, if financial regulations don’t keep pace with the rapid technological progress, these innova- Digital finance. Banks have been early and eager adopters tions could risk affecting the stability of the overall system. of digital technologies, but many of the major innovations, such as online payments, mobile money, and digital cur- Social media. Social networks are fundamental to human rencies, have come from nonbank institutions, including society, and digital technologies have accelerated their telecom and internet companies. Some of these innovations formation. More than one-fifth of the world’s population is took root first in developing countries, where they over- now believed to be a member of one or more social media came shortcomings in traditional financial systems. Their platforms. These platforms have been credited with facilitat- benefits are distributed widely. Secure online payments fuel ing economically beneficial interactions, channeling users’ (Box continues next page) 28 WORLD DEVELOPMENT REPORT 2016 Box O.8 The four digital enablers (continued) behavior in ways that are consistent with development, pro- system, including legally binding contracts and voting in viding a platform for information and dissemination during national elections. natural disasters and emergencies, and encouraging political mobilization and social change. Some analysts think that Data revolution. In harnessing data for development, atten- social media played a critical role in recent events such as tion focuses on two overlapping innovations: “big data” and the Arab Spring and Occupy Wall Street, and thereby were open data. Big data are voluminous or fast, and they come instrumental in spreading democratic ideas, although many from myriad sources—from satellites to sensors and from remain skeptical of their actual impact. There is still much to clouds to crowds. Big data analytics is being deployed to learn about the role social media can play in development. improve traffic planning, estimate macro aggregates (also While a source for innovative ideas, social media also remain referred to as “nowcasting”), track the spread of epidemics, conduits for gossip, slander, misinformation, harassment, and improve credit scoring and job matching. Open data are bullying, and crime. One important lesson is that the impact those that are freely and easily accessible, machine-read- of social media on development seems to be highly specific able, and explicitly unrestricted in use. Governments are, to context. Variation in access to technology, education, and or could be, the most important source of open data. broader sociopolitical context matters. For instance, there is Exuberant estimates of the current and potential economic evidence that people in more autocratic countries are less value of big data and open data range from hundreds of bil- likely to forward information (for example, by re-tweeting it). lions to trillions of dollars per year. Yet sustained, impactful, scaled-up examples of big data and open data in developing Digital identity. Being able to prove who you are may seem countries are still relatively rare. Most big data are in private trivial, but it can be transformational for those excluded hands—large telecom and internet companies—which are from jobs and services. Simple electronic identification sys- reluctant to share it for fear of jeopardizing customer pri- tems, often using biometric characteristics, have become vacy or corporate competitiveness. Public agencies, too, are an effective platform for secure bank transactions, voting, reluctant to share data, even when they have large public accessing social services, paying utility bills, and much benefits. For example, of countries surveyed by the Open more. Many countries, from Moldova to Nigeria and Oman, Data Barometer, one-third of the high-income countries have introduced digital IDs. India is on track to register its and 85 percent of developing countries had made little or entire population using its Aadhaar digital ID. In Estonia and no progress in opening map data. Reasons include lack of other countries, thousands of different types of public and technical skills, inadequate resources, and unwillingness to private transactions are verified with a unique electronic ID expose data to scrutiny. Figure O.20 A policy framework for improving connectivity First mile New technologies Competition policies Supply side Middle mile Last mile Public-private partnership Effective regulation Universalizing Invisible mile connectivity Censorship and content filtering Awareness and investment Cybersecurity Global cooperation Demand side Online privacy Multistakeholder approach Internet governance Open-access ecosystem for innovation, tech hubs, and maker spaces Source: WDR 2016 team. overview 29 as well as higher security spending. For privacy and Workers, entrepreneurs, and public servants who •   data protection, different countries are taking quite have the right skills to take advantage of opportu- different approaches. That makes it harder to develop nities in the digital world global services. Ensuring safe and secure access will •   An accountable government that effectively uses require enhanced international collaboration, based the internet to empower its citizens and deliver on a multistakeholder model. services. Analog complements for a What these priorities highlight is that core ele- ments of the development agenda—business regula- digital economy tions that ease market entry, education and training The internet has great potential to promote economic systems that deliver the skills that firms seek, and development, but only some of that potential has capable and accountable institutions—are becoming so far been realized. It disrupts established markets more important with the spread of the internet. Not for products, services, and labor, and it disrupts the making the necessary reforms means falling farther public sector—major reasons for the frequent reluc- behind those who do, while investing in both tech- tance to adopt and deploy the internet more broadly. nology and its complements is the key to the digital But the benefits will come to those who embrace the transformation. changes the internet brings, not to those who resist Internet use still varies greatly between countries, them. And the way to get internet-enabled inclusive as does the quality of complements, and both tend to growth without long-term disruption is to strengthen move up with income (figure O.21). Policy priorities the analog complements of digital investments (box change as countries move along the digital transfor- O.9). Three policy objectives emerge from the analysis mation (figure O.22). Countries where internet use is in the Report: still low should lay the foundation—such as removing barriers to internet access and adoption, promoting •   A business environment where firms can leverage basic and digital literacy, and using the internet for the internet to compete and innovate for the benefit elementary government functions like provision of of consumers information. As countries transition to higher levels Box O.9 Technology and complements: Lessons from academic research Recent research on growth, labor markets, and governance abilities will leverage technology to become more produc- has taken a fresh look at the interplay between technology tive. Consider a modern office assistant who uses digital and other factors. These insights inform the discussion of technologies to perform routine tasks quickly, and now policy priorities in this Report. spends far more time on personal interaction, complex scheduling, and other tasks that computers cannot easily Rules. Technology interacts with rules (such as regulations perform. and standards) to create new ideas, such as new ways of producing goods and services. Technology is traded across Institutions. Technology interacts with discretion. Many markets and borders, while most rules are established tasks in government can also be automated, but others locally. When it encounters rules that do not match, tech- involve a high degree of judgment. That means that even as nology fails to deliver the expected benefits. New busi- the internet can make many public service functions more nesses can acquire internet technology to reduce prices efficient, the benefits will be limited when government and increase convenience for consumers, but they will not officials and workers do not have the incentives to use the be able to enter the market and compete if local regulations technology for the public good. Teacher attendance can protect incumbents. be fairly easily monitored using digital technologies, but the quality of teaching depends on the teacher’s training, Skills. Technology interacts with workers’ skills. It allows resources, ability, and motivation. routine tasks to be automated. Workers with the right Sources: Romer 2010; Autor 2014; Pritchett, Woolcock, and Samji, forthcoming. 30 WORLD DEVELOPMENT REPORT 2016 Figure O.21 The quality of complements and technology rises with incomes 1.0 TR ANSF ORM ING FIN CHE SGP CAN NOR 0.9 NZL AUS DNK SWE NLD IRL BEL USA GBR EST SVN ISL LUX 0.8 DEU CYP FRA LTU LVA JPN PRT KOR MYS MLT AUT BRB ARE CZE CHL 0.7 HUN QAT ISR MUS ESP POL SVK GEO HRV ROU ITA TTO CRI BGR SYC GRC MKD URY 0.6 BWA PAN JOR SRB ARM GUY ALB RUS LKA UKR Complements MEX KAZ ZMB SLV TUN MNG TUR KGZ THA COL GHA RWA ZAF SAU BHR 0.5 LSO BLZ PHL MAR PER BRN BEN UZB CHN SEN VNM ARG IDN DOM LBR TJK KWT SWZ GAB NIC IRN NAM KEN GTM TZA ECU BRA BGD 0.4 LAO CMR NPL IND BDI SLE GMB HND EGY MOZ PRY PAK BOL MWI DZA MRT NGA TRANSITIONING 0.3 ETH YEM ZWE MLI LBY AGO VEN KHM 0.2 HTI 0.1 0 EMERGING 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 Technology High-income Lower-middle-income Upper-middle-income Low-income Source: WDR 2016 team. For more details see figure 5.3 in the full Report. Data at http://bit.do/WDR2016-FigO_21. Note: Technology is measured by the Digital Adoption Index (DAI). DAI is based on three sectoral subindexes covering businesses, people, and governments, with each subindex assigned an equal weight: DAI (Economy) = DAI (Businesses) + DAI (People) + DAI (Governments). Each subindex is the simple average of several normalized indicators measuring the adoption rate for the relevant groups. Similarly, complements is the average of three subindicators: starting a business; years of education adjusted for skills; and quality of institutions. of internet use, they require effective competition the internet for most functions of government and regulation and enforcement—including easy firm for more participatory policy making. entry and exit; a greater focus on advanced cognitive and socioemotional skills that are augmented by tech- Regulations that promote competition and nology; and effective e-government delivery systems entry for provider management and citizen engagement. Digital adoption by firms varies among countries, Countries in advanced stages of the digital transfor- and there are reasons for it to be slow. Most funda- mation need to tackle some of the most challenging mentally, adoption requires knowledge about the tasks. They need to find ways to facilitate “new econ- technology, access to it, and knowledge of how to omy” competition, to ensure lifelong learning and best apply it. But the most important driver is com- respond to the changing nature of work, and to use petitive pressure, as firms adopting new technology overview 31 Figure O.22 Policy priorities for countries that are emerging, transitioning, or transforming EMERGING TRANSITIONING TRANSFORMING REGULATIONS Competition Remove barriers Platform that promote regulation and to adoption competition competition and entry enforcement SKILLS Foundational skills Prepare for Facilitate to leverage and basic ICT careers lifelong digital opportunities literacy instead of jobs learning Mobile phone– e-government Participatory INSTITUTIONS based services delivery and policy making that are capable and monitoring citizen and digital and accountable engagement collaboration Note: ICT = information and communication technology. raise productivity and those who don’t fall behind. benchmarking exercises and information programs This highlights the critical role of a country’s business can be effective. And to allow more innovative com- climate. It includes laws and regulations that ensure panies to enter markets easily, countries need to easy entry and exit of firms, and an open trade regime improve firm registration and create greater market that exposes companies to foreign competition and transparency to reduce price collusion, market shar- investment. There is a political economy dimension ing, and rigged public procurement. E-government to this as well—special interests influence regulators systems such as online business registration and to keep markets closed to competition. This lessens e-procurement systems can simplify these processes the need for firms to reach for the technological fron- and produce more openness. tier. Where banks are heavily regulated and protected from new market entrants, they have less incentive Increase competition through effective to invest in efficiency-boosting technology that might regulation and enforcement also help them serve customers better or reach new State control in economic sectors, barriers to entre- ones. But competition policy and enforcement are preneurship, and restrictions on trade and investment complex, and many low-income countries lack capac- reduce the incentives for firms in protected sectors to ity to design and implement them effectively. use digital technologies. Most countries have a com- petition authority, although many were set up fairly Lower the barriers to digital adoption recently and enforcement varies, especially when In countries where the digital economy is still emerg- the state or politically connected firms benefit from ing, the priority is to facilitate connectivity and market restrictions. Moreover, the internet makes develop the foundation for effective competition reg- it easy to deliver services online from anywhere ulation. Although 74 mostly middle- and high-income in the world, so how trade in services is regulated countries have unilaterally removed tariffs on ICT becomes increasingly important. Ethiopia, India, capital goods, computers and smartphones are still and Zimbabwe have the greatest restrictions on ser- treated as luxury goods in some countries, including vice trade, but many other countries restrict specific Turkey, where taxation adds almost half to the price of services such as legal or accounting tasks. Countries mobile handsets.33 Djibouti’s tariff on computers is 26 can increase the competitiveness of their economies percent. Many countries treat their telecom firms as and encourage greater use of digital technologies by cash cows. Where firms may have limited knowledge gradually reducing market distortions while building about how the internet can improve their business, up effective competition enforcement. This applies as 32 WORLD DEVELOPMENT REPORT 2016 Box O.10 Opening the M-Pesa mobile money platform to competition Safaricom’s mobile money system is a well-known success because Safaricom incurred high costs developing the sys- story. It was able to grow quickly because Kenya’s banking tem. But in 2014, Kenya’s Competition Authority changed regulators initially decided to take a hands-off approach. the rules and opened the system to alternative mobile For seven years, Safaricom maintained a dominant position operators. The transaction cost of transfers of up to K Sh through exclusivity agreements locking agents into the 500 (US$4.91) fell from K Sh 66 to K Sh 44 (US$ 0.43). system. Initially such arrangements were perhaps justified Source: Plaza, Yousefi, and Ratha 2015, for the WDR 2016. much to traditional businesses that use the internet have the benefit of being able to learn from the expe- as to internet platforms (box O.10). rience in the transforming countries before devising their own solutions. Tailor “new economy” regulations to ensure competition Skills for the digital economy Internet firms create new business models and Technological change means that many routine tasks change market structure, posing new challenges for will soon be done by machines. In contrast to previ- regulatory authorities. On-demand economy firms ous episodes, the internet will also make many tasks like Uber and Airbnb scaled up traditional ride shar- carried out in white-collar jobs redundant. This puts ing and subletting to a global scale. But regulators a premium on different types of skills that automa- struggle to determine whether these companies are tion complements rather than replaces (figure O.23). taxi or hotel companies or simply software providers. Education systems have been slow to respond to this Offline competitors complain that they do not follow challenge. Furthermore, the pace of change is fast, the same regulations. Where these industries tend and the types of skills in demand change quickly. So to be overregulated and their markets distorted, as is workers will have to upgrade their skills frequently often the case in the taxi business, this new competi- throughout their careers. These dynamics already tion can encourage a general overhaul of the industry. play out in many transforming and some transition- In the United States, cities like New York and states ing countries, but even for emerging countries it is like Massachusetts have begun to develop appropri- not too early to prepare. ate regulations for these platforms, imposing safety and tax obligations but also reducing their competi- Start early with foundational skills tors’ regulatory burdens. Skills development starts at birth and lasts a lifetime. Similar regulatory puzzles are posed by firms Good parenting and early stimulation prepare chil- such as Amazon, Facebook, and Google. For example, dren for school, where cognitive and socioemotional Google is known as a search engine company but is foundations are laid. Technology can play a role. better described as an advertising firm. These firms Even though the record on simply providing laptops confound conventional competition law because they or tablets to students is mixed, videoconferencing do not act as traditional monopolies. Their services with English speakers from the Philippines has are often free to consumers. But given their domi- improved learning among first graders in Uruguay. nance in the markets for online ads and books, they Khan Academy provides resources for independent have considerable leverage over marketers and book- learning, and using a gaming approach to math sellers. This is similar to credit card companies’ posi- teaching benefited grade four children in Mumbai. tion with respect to retailers. Research by economists But in these and many other cases, one factor was such as Jean Tirole has shown that regulations in more important: the quality of teaching. It is no such industries must be carefully tailored to guaran- coincidence that Finland, one of the most connected tee competition and avoid harm to consumers. These and best-performing countries in educational test- are very challenging problems, and most pressing in ing, uses very little technology in the classroom. the transforming countries. Developing countries It takes time to improve the quality of teachers, overview 33 Figure O.23 The types of skills needed in a modern economy Cognitive Social and behavioral Technical Literacy, numeracy, and Manual dexterity and the use Socioemotional skills and higher-order cognitive skills of methods, materials, tools, personality traits (for example, reasoning and instruments and creative thinking) Openness to experience, Technical skills developed through Raw problem-solving ability conscientiousness, postsecondary schooling or versus knowledge to extraversion, agreeability, training or acquired on the job solve problems and emotional stability Verbal ability, numeracy, Self-regulation, grit, mind-set, Skills related to specific problem solving, memory, decision making, and occupations (for example, and mental speed interpersonal skills engineer, economist, IT specialist) Source: WDR 2016 team, adapted from Pierre, Sanchez Puerta, and Valerio 2014. Note: IT = information technology. however. But technology can help here as well, as that traditional education systems do not teach Rio de Janeiro’s Educopedia platform shows (box and that are hardest to measure. Many countries O.11). Using technology to closely guide teaching are rethinking their approach. Singapore is moving is a second-best option that can improve learning from a fairly rigid “efficiency driven” model that outcomes at modest cost where teacher training is tried to get the best results from inputs (teachers unlikely to improve quickly. This is the model used and finance) to an “ability driven” model that empha- by the for-profit Bridge Academy in Kenya and else- sizes project work and fewer assessments in place of where, where scripted instruction and automated frequent testing. Colombia’s Escuela Nueva model, administrative tasks help provide education at low now serving 5 million students in 16 countries, also cost. Although yet to be evaluated rigorously, such focuses on group learning and problem solving. These approaches hold promise to improve education. approaches change the relationship between teacher and student. No longer simply sources of information, Rethink curricula and teaching methods teachers now must instruct students in how to find Today’s education systems need to prepare students information and apply it in a new and unexpected for a career and not only a job. Modern labor markets context. This requires changes in teacher training. require creativity, teamwork, problem solving, and crit- There are many examples of how digital technologies ical thinking in ever-changing environments—skills can assist teachers and students—by allowing group Box O.11 Mobilizing technology in teaching in Rio’s Educopedia Rio de Janeiro’s education department developed the serves almost 700,000 students. It has yet to be formally Educopedia online platform of lessons and other resources evaluated, but together with other reforms it likely con- in 2010 to improve public school teaching. The system tributed to a more than 20-percent increase in the Basic focuses as much on providing materials for the teacher to Education Development Index in middle schools between improve lessons as on giving students access to learning 2009 and 2012. And 80 percent of Rio’s students agreed resources. The system uses multimedia resources including that Educopedia helps their learning efforts. videos, interactive quizzes, and digital libraries. It now Source: Bruns and Luque 2014. 34 WORLD DEVELOPMENT REPORT 2016 work among classrooms connected online, apps that Improve informational services and stimulate creativity and problem solving, and games monitoring designed for education (“gamification”). Although internet access is still low in many emerg- ing economies, mobile phones are widespread and Develop advanced technological skills and have great potential for improving services. In the encourage lifelong learning health sector, simple mobile phone–based remind- As more and more parts of the economy rely heav- ers for taking medications have been effective for ily on the internet, demand for advanced ICT skills HIV patients in Malawi and for providing maternal will also grow. Only a small share of the workforce health information in the Democratic Republic of will be involved in developing software or systems Congo. Phones can support the monitoring of teach- design, but exposing children to coding and basic ers or other government workers where absenteeism ICT concepts can influence career choices for some is a problem, even if monitoring alone is insufficient and impart a basic understanding to many. NairoBits, to improve service quality or outcomes (box O.12). a youth organization in Kenya, exposes underpriv- Monitoring also becomes important in provision ileged young people from informal settlements to by nonstate entities in weak institutional contexts, web design and other ICT skills, while AkiraChix where for-profit or non-profit organizations deliver reaches out to “geek girls.” Women tend to be under- services often funded by the government. And digital represented in ICT fields, and encouraging girls to technologies can improve electoral accountability. In enter such professions and ICT companies to create Afghanistan, Kenya, and Mozambique, election mon- welcoming environments for women will increase itoring using cellphones helped uncover fraud and the available workforce in fields with rising demand reduced election violence. This can complement— for labor. With technology likely continuing to get or, even in low-capacity settings, replace—more more advanced and affecting ever more occupa- demanding approaches such as biometric identifica- tions, workers need to continuously reevaluate and tion (see spotlight 4 in the full Report). upgrade their skills. Much of that will happen outside the formal education system, but governments can Strengthen e-government delivery and provide the incentives for firms and workers to create citizen engagement the mechanisms for lifelong learning. Where investments to automate government service delivery have advanced, complementary improvements Institutions that are accountable to in regulations, interdepartmental cooperation, and citizens streamlining become more important. Rather than just Although the internet has enabled many governments replicating cumbersome processes such as business to provide some basic services more efficiently, tech- regulations online, automation provides an opportu- nology so far has not strengthened accountability. For nity for simplifying steps, increasing the impact as well policies, this implies a dual strategy: tailoring the appli- as the transparency. E-procurement systems reduce the cation of digital technologies to environments with risk of corruption, but countries have invested less in limited accountability in the short term, and strength- them than in more complex budget or treasury systems. ening institutions in the longer term (table O.3). With greater internet use in a country, the scope for Table O.3 Priority policies for better service delivery Emerging countries: Laying the Transitioning countries: Building Transforming countries: foundation for more effective capable and accountable institutions Deepening collaborative institutions institutions • Improve information services to citizens • Strengthen government delivery systems • Improve collaboration across and beyond government • Strengthen monitoring of and payment • Strengthen provider management to providers • Enhance participatory policy • Get regular user feedback on service making • Establish population registers quality • Scale up nonstate provision of services • Increase transparency in priority areas • Increase electoral accountability overview 35 Box O.12 Can continuous monitoring and small sanctions improve provider performance? Traditional monitoring systems are expensive and complex. lower, violations become rarer. The idea could be extended New technologies lower these costs, allowing rewards or to public service monitoring. In Niger, a well-designed punishment to be more immediate and frequent. The idea monitoring system enabled by mobile phones motivated comes from criminal justice innovations. Usually lawbreak- teachers because they felt their far-away superiors cared ers face a low probability of being caught, but a large pun- about their work and looked out for them. ishment. When people face a high probability, but fines are Sources: Romer 2013; Aker and Ksoll 2015. digital engagement with citizens also increases. As long collection of identifiable information creates privacy as access is not universal, there is a risk of leaving those and security concerns. Automation changes work in unconnected behind. But citizen feedback systems ways that challenge existing social protections and have reduced problems such as petty corruption or poor reveal the inadequacy of existing labor laws. And scale services in the Dominican Republic, Nigeria, and Paki- economies create antitrust concerns. Digital safe- stan. As one Kenyan water utility manager said, “By guards that mitigate these risks become increasingly introducing an automated complaint management important as the digital transformation proceeds. system we took a noose and put it around our own necks. We are now accountable!” Developing privacy policies The flood of data collected on the internet brings many Deepen collaboration and participatory benefits to consumers and citizens but also raises the policy making risk of abuse through cybercrime, discrimination, Even in countries with advanced e-government or manipulation. As of 2014, some 107 countries had systems, their use remains surprisingly low. Many privacy laws, but only 51 of them were developing citizens prefer traditional ways of interacting with countries. The basic principles of privacy law are well the government such as phones or mail, so parallel established. They should give users more control systems remain in place and savings go unrealized. (and perhaps co-ownership) over their data and make Providing incentives such as faster tax refunds for e-filing or greater convenience through simplified Figure O.24 Digital safeguards in the WDR’s and closely integrated services across agencies framework increases their use. Estonia’s X-Road framework inte- grates services from all parts of government as well as DIGITAL private or civil society groups according to protocols TECHNOLOGIES that govern data exchange and security standards.34 Practically any transaction—from paying the parking meter to voting in national elections—can be done from a smartphone. Tangible benefits for citizens will lead to universal use of e-government services, making such platforms also suitable for broad-based Information Informalization and Winner-take-all participatory policy making. deluge job displacement economy Digital safeguards Strengthening analog complements will ensure a PRIVACY SOCIAL ANTITRUST POLICIES PROTECTION POLICIES high social and economic return from digital invest- ments. But a downside risk remains. Returning to the Report’s framework (figure O.24), large-scale Source: WDR 2016 team. 36 WORLD DEVELOPMENT REPORT 2016 opting out at the point of collection easier. Even when Governing the internet such laws exist, preventing abuse is difficult, espe- The internet emerged from U.S. government research cially where legal and enforcement capacity is weak. in the 1970s, but as it grew into a global network of networks, its governance structure has evolved. Adapting social protection systems to Today, the internet is managed by an international changing labor markets coalition of governments, industry, technical experts, Better skills will help many workers cope with the and civil society—in what is referred to as the multi- effects of internet-enabled automation. But changes stakeholder model. U.S. users are now a small minor- in the labor market also require rethinking social ity of total internet users, given the dramatic growth protection and tax systems. The on-demand economy in the number of users in developing countries, espe- leads to more informal employment, transferring cially in Asia. Many countries are demanding more insurance and occupational obligations to freelance meaningful representation in the discussions of how workers. Strict labor regulations, common in devel- the internet should be governed. In addition, the lack oping countries, and overreliance on labor taxation of trust among nations following the Edward Snow- encourage faster automation by making hiring more den episode, the surveillance by state agencies, and expensive. It would be better to strengthen work- the increasing conflicts between national policy and ers’ protection independently from work contracts regulations and global norms have raised questions by delinking social insurance from employment, about internet governance. offering independent social assistance, and helping Several countries have advocated for a mul- workers retrain and find new employment quickly. tilateral model of governance, which would give In many countries this requires major reforms. And national governments greater power in overseeing countries just starting to develop social protection the internet, much the same way the United Nations, systems and deepening labor laws should design the International Telecommunication Union, or the them for the 21st-century workplace, rather than copy World Bank are currently governed. The promoters what industrialized countries created for a very dif- of “multistakeholderism” argue that state control of ferent world of work. the internet would not leave space for the range of players currently involved in internet governance Building antitrust enforcement capacity and could pave the path for greater suppression of Regulatory reform that improves the business envi- privacy and restrictions on access to information ronment is the first priority. But even in countries and on rights of free expression. The inability of the with comprehensive competition policies, including stakeholders of the internet to reach a consensus on easy market entry and exit, there will be cases in future governance mechanisms can be costly; some which mergers, collusion, or discriminatory pricing have even suggested that the internet is at risk of harm consumers by creating overly dominant enter- splitting up into several local or regional internets. prises or by keeping innovative competitors out. The broad-based, participatory approach involving Because the internet is still quite new and its impact all stakeholders is seen by many to be best suited to on markets constantly evolving, developing the ensure an efficient and unrestricted global flow of capacity to investigate and prosecute complex vio- information essential for economic development. lations to competition law will take time. Cases pur- sued in high-income countries can provide guidance. Creating a global digital market The internet is encouraging more cross-border exchanges of goods and services, allowing consum- Global cooperation to solve ers and firms to bypass national borders. But cross- border issues—such as barriers to data flows and unco- global problems ordinated intellectual property rights regimes—are The internet is truly an international network. It can impairing the growth of internet firms and robbing be better managed with coordination across nations consumers of gains from increased digital trade. This and serve as a powerful platform to facilitate global has also meant that many startups from smaller coun- cooperation. Three priority areas are governing tries with relatively modest domestic markets, partic- the internet, creating a global digital market, and ularly in Europe (box O.13), are moving their business providing global public goods—including those to the United States as soon as they achieve a certain that promote poverty reduction and environmental scale. The small scale imposed by cross-border barriers sustainability. may also partly explain why e-commerce firms are overview 37 Box O.13 European Union: A fragmented market for digital trade Despite being a single market with free flows of goods, In May 2015, the European Commission (EC) announced services, and people for many decades, the European Union plans to create a Digital Single Market, in three main policy (EU) still functions like a fragmented market for digital trade. areas. First, the EC wants to increase the access for con- Consumers in the EU prefer to shop from online stores within sumers and firms to these digital goods and services by their national borders. While 44 percent of consumers made facilitating e-commerce, improving parcel delivery, and an online purchase from a domestic business in 2014, only 15 dealing with geoblocking, where access to online services percent did so from a business in another EU country. Firms or content is restricted to specific countries. Second, it will also face many difficulties selling their goods and services examine the regulatory environment for telecoms, media, online into other EU markets. For example, Copenhagen, online platforms, and data protection. Third, it will encour- Denmark, and Malmo, Sweden, are separated only by an age more ICT investment and innovation through better 8-kilometer bridge, but a package sent from Copenhagen standards and interoperability, and more use of “big data” to Malmo costs €27, whereas the same package sent from and cloud computing. If EU reforms to create a common Malmo to Copenhagen costs €42. Firms facing large costs digital market are successful, they could become a model to adapt to various national laws believe that the costs out- for other world regions. weigh the benefits of selling online. Source: European Commission (EC 2015). often losing money in Africa while being profitable in problems—climate change, ozone depletion, air pol- China and India. lution, epidemics—are features of globally intercon- Some countries are considering regulations that nected environmental, economic, and social systems make it legally binding for data of or about their and require global cooperation. What’s the role of citizens to reside within their national borders, also development agencies, nongovernmental organiza- referred to as data localization or data nationalism. tions (NGOs), and international organizations in a While such barriers may stem from legitimate world where their financial heft is small? The data concerns about privacy and security for their citi- and technology revolutions arrive in time to bridge zens’ information, they can be costly. A study of six the gap between their resources and ambition by developing countries and the EU-28 found that such amplifying the impacts of action and including more regulations can reduce GDP by up to 1.7 percent, people in the formulation and execution of plans. But investments up to 4.2 percent, and exports by 1.7 for this to work, development actors must tackle pol- percent.35 Restrictions on data flows face the risk of icy constraints, internal and external. becoming a new tool for protectionism—disguised to Start with the how of development operations. impede trade and economic activity or to encourage With new technologies, development agencies can domestic data-driven sectors. At the same time, coun- be more inclusive by tapping on beneficiary wisdom tries should make it easier for firms to protect their in designing interventions. They can raise efficiency intellectual property (IP) rights—but within limits by using rapid feedback to refine and improve their that do not give excessive protections to large, well- actions through trial and error. But these approaches connected firms at the cost of stifling innovation and won’t come easily in organizations that emphasize creativity. The process to apply for IP licenses should spending and outputs over results, have burdensome be harmonized, streamlined, and globalized—so structures for accountability, and see any failures as firms need only to register their patent or trademark damning rather than informative. If traditional agen- in any signatory country to protect it across member cies can’t adapt, some of their business may be taken countries. up by disruptive newcomers. Next, the what. Development agencies can support Providing global public goods information services that help individuals and sys- Sustainable development and poverty reduction are tems managers make better decisions in ways that a focus of global partnerships. Many environmental promote poverty reduction. These services have fixed 38 WORLD DEVELOPMENT REPORT 2016 set-up costs in software and data assembly, but can some of this. Difficulties in measuring technolo- have near zero costs for distributing information. So gy’s role are another partial explanation for the gap the private sector will tend either to shy away from between individual cases of substantial benefits providing these services, or will price them at a level and modest macro effects. Technology impact is that shuts out poor people who could benefit. One diffused throughout the economy, the world of work, and many aspects of personal life. And many area where the need for international cooperation benefits come in the form of higher quality or and support is particularly acute is the collection and convenience—nonmonetary benefits not reflected distribution of data on weather, climate, and trans- in GDP numbers. boundary water flows, which are critically important 3. Even if rapid progress in artificial intelligence could to tackle climate change, improve natural resource solve some of these problems, it could take decades management, and support agriculture. (see spotlight 6 in the full Report). In the meantime, External agents and international organizations it would be unwise for policy makers to simply wait can help with targeted funding—for instance, filling and watch. the gap in African weather stations. They can support 4. Acemoglu and Robinson 2014. the complementary investments for information plat- 5. See Comin 2014. forms. And they can find ways to encourage public and 6. See Graham and Foster 2014. private sectors, in both the developed and developing 7. While the internet reduces the cost of information, it does not necessarily reduce the effort it takes world, to open and share data for public goods. humans to process that information. In fact, infor- mation overload, in combination with behavioral biases, can promote herd behavior, amplify facts, or Reaping digital dividends even be abused for marketing or manipulation. for everyone 8. Overcoming information problems also improves market efficiency and could even lead to greater Digital technologies are transforming the worlds of innovation. For expositional simplicity, the Report’s business, work, and service delivery. These advances framework is simplified and focuses on the most are making the leading parts of the economy and important development outcome associated with society more productive—even as many still wait for each mechanism that is enabled by the internet. the most basic benefits of the digital revolution. This 9. Moreover, cross-country regressions measuring the Report argues that to ensure that everyone will reap impact of digital technologies on growth could suf- fer from several other problems involving measure- the dividends of the internet, focusing on access to ment issues, endogeneity of variables, and small technology is essential but far from sufficient. Why? sample size bias. Because technology needs to be complemented by 10. These results are based on Tan 2015; Osnago and Tan improvements in areas that determine whether firms, 2015. people, and governments can make effective use of 11. eBay 2013. new digital tools. The analog foundation cannot be 12. Baldwin 2011. strengthened overnight. It requires overcoming some 13. Brynjolfsson and McAfee 2014. of the most protracted development challenges: how 14. Moretti and Thulin 2013. to create an environment for firms to thrive, how 15. Goyal 2010; Aker and Mbiti 2010. to build effective education and training systems, 16. See Handel 2015; Best and others 2010; Jagun, Heeks, and how to make service providers more responsive and Whalley 2008; Aker 2011; Martin 2010. to citizens. The stakes are high, because the digital 17. Pineda, Aguero, and Espinoza 2011. 18. Asad 2014. revolution leaves behind countries that do not make 19. Aker and Mbiti 2010; Pineda, Aguero, and Espinoza the necessary reforms. For those that do, technology 2011. investments will produce ample digital dividends, 20. The survey was conducted by Research ICT for and these dividends will be widely shared among all Africa. stakeholders. 21. Aker, Collier, and Vicente 2013. 22. See box 3.5 in chapter 3 of the full Report. 23. Duflo, Hanna, and Ryan 2012. Notes 24. Acemoglu, Hasan, and Tahoun 2014. 1. References to this and other data and citations in the 25. Bennet, Breunig, and Givens 2008. overview may be found in the full Report. 26. Hollenbach and Pierskalla 2014. 2. The lag between technology creation, adoption, 27. Goldin and Katz 2008. and learning to use it most effectively explains 28. Varian 2003. overview 39 29. Data for 2014 of net digital worldwide ad revenue Bao, Beibei. 2013. “How Internet Censorship Is Curb- shares from eMarketer, an online market research ing Innovation in China.” Atlantic, April 22. http:// company. www.theatlantic.com/china/archive/2013/04 30. Wood 2011. /how-internet-censorship-is-curbing-innovation 31. Eden and Gaggl 2014. -in-china/275188/. 32. WDR 2016 team estimates, based on household sur- Bauer, Matthias, Hosuk Lee-Makiyama, Erik Van der veys. See chapter 2 in the full Report for details. Marcel, and Bert Verschelde. 2014. “The Costs of Data 33. A landmark agreement that will further boost dig- Localization: Friendly Fire on Economic Recovery.” ital adoption around the world is the Information ECIPE Occasional Paper 3/2014, European Centre for Technology Agreement, concluded by World Trade International Political Economy, Brussels. Organization (WTO) members on July 24, 2015. It Bennet, W. L., C. Breunig, and T. Givens. 2008. “Commu- will eliminate tariffs on more than 200 ICT prod- nication and Political Mobilization: Digital Media ucts, valued at $1.3 trillion in global trade. and the Organization of Anti-Iraq War Demonstra- 34. Vassil 2015. tions.” Political Communication 25 (3): 269–89. 35. Bauer and others 2014. 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Contents of the World Development Report 2016 Contents Foreword Acknowledgments Abbreviations Overview: Strengthening the analog foundation of the digital revolution Spotlight 1: How the internet promotes development PART 1: FACTS AND ANALYSIS 1 Accelerating growth Sector focus 1: Agriculture Spotlight 2: Digital finance 2 Expanding opportunities Sector focus 2: Education Spotlight 3: Social media 3 Delivering services Sector focus 3: e-Health Spotlight 4: Digital identity PART 2: POLICIES 4 Sectoral policies Sector focus 4: Smart cities Spotlight 5: The data revolution 5 National priorities Sector focus 5: Energy 6 Global cooperation Sector focus 6: Environmental management Spotlight 6: Six digital technologies to watch ECO-AUDIT Environmental Benefits Statement The World Bank Group is committed to reducing its environmental footprint. In support of this commitment, the Publishing and Knowledge Division leverages electronic publishing options and print-on-demand technology, which is located in regional hubs worldwide. Together, these initiatives enable print runs to be lowered and shipping distances decreased, resulting in reduced paper consumption, chemical use, greenhouse gas emissions, and waste. The Publishing and Knowledge Division follows the recommended stan- dards for paper use set by the Green Press Initiative. The majority of our books are printed on Forest Stewardship Council (FSC)–certified paper, with nearly all containing 50–100 percent recycled content. The recycled fiber in our book paper is either unbleached or bleached using totally chlorine free (TCF), processed chlorine free (PCF), or enhanced elemental chlorine free (EECF) processes. More information about the Bank’s environmental philosophy can be found at http://crinfo.worldbank.org/wbcrinfo/node/4. DIGITAL DIVIDENDS Digital technologies are spreading rapidly, but digital dividends— the broader benefits of faster growth, more jobs, and better services—are not. If more than 40 percent of adults in East Africa pay their utility bills using a mobile phone, why can’t others around the world do the same? If 8 million entrepreneurs in China—one-third of them women—can use an e-commerce platform to export goods to 120 countries, why can’t entrepreneurs elsewhere achieve the same global reach? And if India can provide unique digital identifica- tion to 1 billion people in five years, and thereby reduce corruption by billions of dollars, why can’t other countries replicate its success? Indeed, what’s holding back countries from realizing the profound and transformational effects that digital technologies are supposed to deliver? Two main reasons. First, nearly 60 percent of the world’s population are still offline and can’t participate in the digital economy in any meaningful way. Second, and more important, the benefits of digital technologies can be offset by growing risks. Startups can disrupt incumbents, but not when vested interests and regulatory uncertainty obstruct competition and the entry of new firms. Employment opportunities may be greater, but not when the labor market is polarized. The internet can be a platform for universal empowerment, but not when it becomes a tool for state control and elite capture. The World Development Report 2016 shows that while the digital revolution has forged ahead, its “analog complements”—the regulations that promote entry and competition, the skills that enable workers to access and then leverage the new economy, and the institutions that are accountable to citizens—have not kept pace. And when these analog complements to digital investments are absent, the development impact can be disappointing. What, then, should countries do? They should formulate digital development strategies that are much broader than current information and communication technology (ICT) strategies. They should create a policy and institutional environment for technology that fosters the greatest benefits. In short, they need to build a strong analog foundation to deliver digital dividends to everyone, everywhere. SKU 32984