Page - 13 - in options, Volume winter 2019

O The pace of digital transformation is accelerating and in the process redefining traditional industry sectors and how we live and work. ver the last two decades, digital technology has radically transformed our world. Global Internet Protocol (IP) traffic, a proxy for data flow, has grown at a mind-boggling rate from 100 GB of traffic per day in 1992 to 46,600 GB per second in 2017, and it is projected to reach 150,700 GB of traffic per second by 2022. The impacts on our world have however been far more wide reaching than the mere introduction of new technologies. The digital revolution has completely overhauled how we exist in the world and interact with it. IIASA researchers are exploring how new digital technologies can leverage collective action towards ensuring a more sustainable future for our planet. A digital world economy Digitalization – the process by which digital technologies are used to change the way business is conducted – is creating new trade opportunities for firms to sell more products to more markets. It is increasing trade in goods and services across all sectors and allowing countries to draw greater benefits from their trade agreements. With that said, it is however also important to note that the digital era brings with it a host of new challenges and there are questions about how well adapted current frameworks are to the new realities of trade in the digital era. New business models that are used in e-commerce, peer-to-peer networks, and the transition of consumers from physical products to the consumption of digital services are, for example, posing a problem for governments as they are reflected as smaller economic activity in a country’s national accounting. The blurring of the boundary between producer and user, and the high growth of assets generated to platforms like Google or Facebook, are in fact not visible in the gross domestic product (GDP) at all. Leena Ilmola-Sheppard, a researcher with the Advanced Systems Analysis Program has been involved with ongoing research to address this issue for the Finnish Government. “In Finland, Google serves users for free and covers 77% of all global searches. In return, Google collects revenue from advertisers that are buying focused advertising space, and users allow Google to use data related to their search behavior to generate additional income. Although it is evident that the consumer will get added value and is generating more value for Google, it is less clear how this part of ‘production’ that is not monetized during the transaction, should be taxed,” she explains. This means that the relative revenue flow of taxation is radically decreasing and governments need concrete measures for adapting to this development. The research indicates that to compensate for national tax revenue flow that is lost, new sources of income should be found, while paying careful attention to not discourage the use of soft innovation resources. The researchers identified a number of government actions that can both support national economies and prepare countries for a future shaped by digitalization. This includes governments investing resources UNRAVELING THE COMPLEXITIES OF A DIGITAL FUTURE IIASA PO LICY BRI EF #20 OCTOBER 2018 © Jm 10 | Dr eams time Digitalization will transform th e global economy New researc h has identified se veral adaptive act ions that can both support nati onal economies a nd prepare coun tries for a future s haped by digitalizat ion. J Digitalization is advancing at an unpreced ented pace, w hich means it is essential for global an d national de cision makers to understan d what drives d igital develop ment and wh ere trends in digitalization will lead the glob al economy a nd society. J Using Finland a s a case stud y, new resear ch involving I IASA researchers id entified a num ber of govern ment actions that can both support natio nal economie s and prepare countries for a future shap ed by digitalizati on. J According to th e research, g overnments s hould conside r investing resources to f ast track the development of technologie s that will enhance the competitivene ss of their na tional econom ies. J The inevitable d ecrease of tax revenue that accompanies large-scale digitalization should be rep laced with ne w sources of income, while paying carefu l attention to not discourag e the use of s oft innovation resources. J Governments co uld consider r eplacing tradi tional corpora te taxes with a shareh olding system that would a llow the gove rnment to ow n a small numb er of compan y shares as c ompensation for the use of public goods. J The establishme nt of a talent center that ‘s ells’ the servi ces of local researchers a nd experts di rectly to forei gn growth ce nters, could h elp to ensure tha t scarce huma n resources s tay in the cou ntry. J Governments co uld productize service delive ry as a Gover nment as a Service ( GaaS) concep t or provide h igh quality glo bal digital companies wi th “quality of operations” ce rtificates to ex tend consumer pro tection regula tions to these certified com panies. J As it is unlikely that just one country or ec onomic area w ill have a significant imp act on how gl obal digital co mpanies oper ate, small countries like Finland shou ld actively co ntribute to th e creation of international rules and reg ulations in th is regard. 13Optionswww.iiasa.ac.at Winter 2019/20