The global economy is increasingly digitalized. Oxford Economics estimated that in 2016 the digital economy accounted for 22.5 percent of global gross domestic product (GDP). Going forward, analysts at the research firm IDC have estimated that as much as 60 percent of global GDP will be digitalized (meaning largely impacted by the introduction of digital tools) by 2022. Countries that wish to successfully compete in the global digital economy must cultivate workforces possessing the requisite digital skills so that industries, enterprises, and even individuals can thrive in the digital environment. This report explores the state of digital skills across the U.S. economy, examining what they are, why they matter, the current extent of workforce digitalization, and how the United States fares in international digital skills comparisons. It concludes by providing a brief overview of some of the best practices and programs being introduced by nonprofit, academic, and corporate organizations to deepen the U.S. digital skills base and suggesting policy recommendations to further foster U.S. digital skills development.

To read the full report from the Information Technology & Innovation Foundation, please click here.

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Nigel Cory (@NigelCory) is an associate director covering trade policy at ITIF. He focuses on cross-border data flows, data governance, and intellectual property, and how they each relate to digital trade and the broader digital economy.

Luke Dascoli is the economic and technology policy research assistant at ITIF. He was previously a research assistant in the MDI Scholars Program at the McCourt School of Public Policy’s Massive Data Institute. He holds a B.A. in Political Economy from Georgetown University.

To read the original research report from the Information Technology & Innovation Foundation, please visit here

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To read the original report from the Information Technology Industry Council and the National Foreign Trade Council, please visit here.

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The past decades have been characterized by a strong expansion of global production networks: driven by falling transportation, communication, and coordination costs, production has become increasingly fragmented internationally. In 1970, approximately 37% of the world’s total exports contained inputs that had been imported before. This share rose to over 50% in 2008 and has remained relatively stable since then, according to the World Development Report 2020 (World Bank, 2020).

These GVCs, like all trading activities, have created winners and losers. On the one hand, specialized firms and their workers (often also in emerging and developing countries) have been able to participate in global production networks and have benefited from investment and knowledge transfer. On the other hand, firms and workers who previously carried out these activities (mostly in developed countries) have had to cope with labour market adjustments such as lower wages or even unemployment spells as production activities moved elsewhere. Consumers, for their part, have generally benefitted from lower prices and larger variety.

Increasing the scope for automation

With the recent digital transformations there is growing potential to further automate production. While automation is not a new phenomenon, the digital transformation —with innovations such as the Internet of Things or advanced manufacturing techniques including 3D printing— makes it possible to link production stages by a digital thread. This will allow for smaller, if not individual, batches in production: mass customization rather than mass production.

How will automation impact the global division of labour? One of the major reasons for building up GVCs was saving in labour costs. Automation means that machines (robots) can substitute labour at a lower cost, so it is possible that automation eradicates the comparative advantage of low-wage countries, leads to reshoring of production, and hence shortens GVCs. Furthermore, the possibilities of enhanced customization may also move production closer to consumers.

The evidence for reshoring is unclear. In an analysis examining international operations of US firms, “no evidence of a widespread reshoring trend” was found. However, something is going on: an ILO analysis on the global use of robots found that, between 2005 and 2015, there was a negative impact of robot usage on worldwide employment. This is mainly the case across emerging economies rather than developing ones. Furthermore, the use of robots in developed countries decreases offshoring. This evidence suggests that, while production may not have shifted back to developed economies (reshoring), machines have nevertheless been a substitute for labour.

Automation of labour-intensive production tasks in GVCs becomes critical if countries are highly dependent on exports within a specific industry. The fast-paced retail industry is a good example of this. Retail exports account for over two-thirds of total exports in countries such as Bangladesh or Cambodia, where sewing tasks are carried out. Even though the automation potential for sewing tasks is currently limited, the countries may be hit hard once technological innovations compete with their comparative advantage in sewing. 

The growing role of services in GVCs

The proliferation of global production networks would not have been possible without a range of services: telecommunication, transportation, financial, etc. Thus, services have always been an important part of GVCs. Yet, during the past decades, trade in services has grown significantly more rapidly than trade in goods, as can be seen in Balance of Payments statistics. Figure 1 shows that trade in services that can potentially be digitally delivered has grown significantly stronger than services that can only be physically delivered (such as tourism or construction). Due to the digital transformation, an increasing number of services can also be easily traded digitally, while the production of services has increasingly become internationally fragmented, e.g. when tax returns are prepared in one country and finalized in another.

The digital transformation has also spilled over onto the manufacturing industry, e.g. when goods are bundled with insurances or repair services, with financial services, or with subscriptions to a regular delivery of supplies. In fact, for many manufactured goods the services are central to product differentiation. Thus, the line between goods and services becomes increasingly blurred.

How does this impact the global division of labour? With the emergence of digital platforms everyone can offer a service and every company can essentially source its service inputs from anywhere around the globe. This has enabled specialized suppliers, especially small- and medium-sized enterprises (SMEs), to become part of GVCs – both upstream and downstream. For example, digitally connected SMEs tend to import a higher share of their production inputs, because they can find – and be found by – specialized suppliers worldwide. At the same time, this “globalization of the labour market” drives competition among local workers and suppliers, which must be addressed by flexible skill upgrading and innovation.

Geoeconomic implications

Overall, it is clear that the digital transformation will continue to expand production possibilities, change GVCs and, thus, have geoeconomic implications. On the one hand, the digital transformation will support and perhaps enhance GVCs, as it provides better ways to control supplier relationships, it offers new possibilities for GVC participation, and it enables new products blending goods with services. Countries with a better digital infrastructure and an adequately skilled workforce are likely to have a competitive advantage and capture higher shares of value added in this world. At the same time, these developments will promote a concentration of power in firms and countries that control the underlying platforms. The geopolitical battle for dominance in the platform economy is already ongoing, for example when Chinese suppliers are banned from public tenders.

On the other hand, the digital transformation increases the scope for automation and customized production. Countries abundant in low-skilled labour are likely to lose their comparative advantage, as the size of the home market becomes more important than labour costs in choosing production locations. At the same time, digitalization may also enable countries to leapfrog development: while it was previously important to have an industrial base to participate in GVCs, digital infrastructure or innovative SMEs may now be more important factors. 

Figure 1 – Growth in services trade by mode of delivery, EU-28, 2010-2018, in %

Source: OECD (2019) – Trade in services – EBOPS 2010, trade in services by partner economy; classification of digitally-deliverable services based on UNCTAD (2015). The following services are classified as digitally deliverable: insurance and pension services; financial services; charges for the use of intellectual property; telecommunications, computer and information services; other business services; and audio-visual and related services.

To read the full report from the Italian Institute for International Political Studies, please click here.

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Many in Washington are concerned about what China’s leadership in fintech and pioneering efforts to launch a new form of the renminbi (RMB), a central bank digital currency (CBDC), could mean for the United States and the role of the US dollar. In her confirmation hearing, multiple senators prodded Treasury Secretary Janet Yellen on China’s digital currency and her plans to keep the US dollar and financial system on top. She said the United States “must be a leader” in fintech and digital assets and that, “[s]trategic competition with China is a defining feature of the 21st century.” Yet, the US Federal Reserve has not committed to launching its own digital currency to take on the Chinese one currently undergoing trials. Should the United States be worried? My argument is that it should not, and that the Federal Reserve and Treasury have been right to proceed cautiously, with the idea of getting any digital currency plans “right” instead of “first.”

China’s fintech success has been impressive, but it remains mostly a domestic affair. Its fintech giants Ant Group and Tencent have achieved enormous valuations, but their attempts to gain users internationally other than Chinese tourists abroad have so far made few inroads, and national security concerns in jurisdictions around the world mean that this is not likely to change anytime soon.

Hype has far outpaced the reality in digital currencies, CBDCs, and China’s digital RMB in particular. Cryptocurrencies like bitcoin are booming, but these are mostly for speculation, as they are ill-suited to large volumes of payment transactions. We are still at an early stage in which the benefits of CBDCs have not yet been proven in practice, and the risks (cyber, operational, financial) are serious enough that most central banks will be hesitant to issue any until these can be resolved with a high degree of certainty. China’s eCNY efforts have similarly yet to prove they will be any cheaper, more efficient, more private, or more convenient than the existing domestic and international payment systems. Therefore, it is unlikely to represent any more a threat to the dollar’s international dominance than the current forms of RMB, at least over the short and medium term. Nothing is certain over the long term, however, so the United States should continue to carefully monitor China’s CBDC efforts and other digital currency innovations and incorporate any useful lessons to ensure that dollars and the payments systems that carry them remain competitive long term.

chorzempa-testimony-2021-04-15

To read the original testimony from the Peterson Institute for International Economics, please click here

Martin Chorzempa, senior fellow since January 2021, joined the Peterson Institute for International Economics as a research fellow in 2017. He gained expertise in financial innovation while in Germany as a Fulbright Scholar and researcher at the Association of German Banks. He conducted research on financial liberalization in Beijing, first as a Luce Scholar at Peking University’s China Center for Economic Research and then at the China Finance 40 Forum, China’s leading independent think tank. In 2017, he graduated from the Harvard Kennedy School of Government with a masters in public administration in international development. He is working on a forthcoming book on fintech in China. He has been quoted in the Wall Street Journal, New York Times, Washington Post, Financial Times, MIT Technology Review, and Foreign Affairs.

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This report on the future of work after COVID-19 is the first of three MGI reports that examine aspects of the postpandemic economy. The others look at the pandemic’s long-term influence on consumption and the potential for a broad recovery led by enhanced productivity and innovation. Here, we assess the lasting impact of the pandemic on labor demand, the mix of occupations, and the workforce skills required in eight countries with diverse economic and labor market models: China, France, Germany, India, Japan, Spain, the United Kingdom, and the United States. Together, these eight countries account for almost half the global population and 62 percent of GDP.

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Click here to read the report, or here to read an executive summary.

The report asserts that this new global digital strategy must include two interrelated pillars: Investing in America and Leading Globally. At home, it calls for landmark investments in digital training and connectivity, the development of a digital governance regime, and measures to upgrade America’s technological competitiveness among other topics. The report emphasizes that these investments must come with implementation of diversity, equity and inclusion policies to ensure that the benefits are widely shared among all Americans.

To lead globally and address the challenge posed by China’s growing technological power, the report calls for increases in U.S. federal research and development, immigration reform, along with a “Digital Marshall Plan” for developing countries to level the playing field for American internet and communications workers and businesses competing abroad with Chinese companies benefitting from subsidized financing, while supporting sustainable development. It also calls for moving away from the go-it-alone, nationalist approach of recent years, instead repairing relationships with U.S. allies to build a foundation for global digital governance that embraces democracy, accountability and transparency and developing a coordinated approach to addressing China’s policies.

To view the original report by the ALI, please click here. 

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