Professor Diane Coyle gave a fascinating InstEAD Annual Lecture on how current definitions of Gross Domestic Product (GDP) are inadequately accounting for the digital economy.
Diane’s lecture addressed how historically economics has dealt with new technological developments and how the current measure of GDP accounts for the buying and selling of goods and services but excludes non-financial activities such as caring for children and open source innovation that has emerged online.
Diane argued that the digital consumption of goods has had a wider impact on the economy. For example, movie rental and music shops common on our high streets 20 years ago have been replaced by Netflix and Spotify consumed digitally in our homes or mobiles. The impact has been that investment in buildings by retail companies has declined and a further drop can be seen in capital investment by the banking and finance industry.
A correlation can be observed between the productivity problem of the UK – where real GDP has not increased significantly since 2007 – and the sharp increase in smartphone sales around the same time. Diane argued that many of the goods we would buy such as games, books, maps, watches, diaries and calculators are replaced by smartphones and their apps.
Finally, Diane discussed moving away from GDP to a new measure of our economy that uses metrics such as living standards and wellbeing rather than simply transactional goods and services. An example of such a measure is the Social Progress Index.
Diane outlined an initial cost to countries that adopted this new measure. But if there were sufficient early adopters who switched, there could be collective benefits.
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