Digital tech, data loss tearing poor

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Boosts profits of big firms, global debt soars

By Shivaji Sarkar

The most coveted digitalization and hyperglobalisation have come for severe criticism by the UN. It helps big firms, big countries and lead to concentration of financial and economic power. The worst sufferers are the poor emerging economies.

Trade wars, monopolisation of markets are creating mammoths and distorting markets. Digital tech is prying into the smaller economies and tearing these apart.

The digitalization leads to decline in demand for physical goods, ongoing decline in their price, long-term decline in the demand fixed capital formation as a share of GDP and jobless growth, says UN Conference for Trade and Development (UNCTAD) in its 2018 report.

Global trade war is running towards a “deeper economic malaise” at a time when many countries are growing below potential, even as BRICS nations are doing better because of domestic demand. Among the BRICS only Russia is doing better than others because of rising oil prices.

The US and the China have indulged in a bitter trade war, with both the countries slapping higher tariffs on each other’s imports. This year is unlikely to see a change of gear, the report said. The US government will gain $ 280 billion in tariff revenues.

The digitization affects production through computer-aided design or any other 3-D software or artificial intelligence that creates digital models.

The digital technologies are playing havoc in developing economies. Jobs are being outsourced to low-wage regions. This has caused stagnation of wages and hit job creation.

The report says the world economy is under stress. The immediate pressures are building around escalating tariffs and volatile financial flows. Behind these threats to global stability is a wider failure, since 2008, to address the inequities and imbalances of our hyperglobalised world.

After the global financial crisis, according to the report, the five largest exporting firms, on average, accounted for 30 percent of a country’s total exports, and the 10 largest exporting firms for 42 percent.

Since 2008, global debt has soared from $142 trillion to $250 trillion, which is three times the combined income of every nation. This situation is  worse than expected after global incomes failed to keep pace with rising debt levels.

The situation looks so familiar in Indian conditions though the nation has yet to realise that digitalization is not a solution. The stress the UNCTAD says is misplaced despite, according to the report, India is to have 7 percent growth.

The report even quotes IMF 2018 observation that says that available evidence suggests the digital sector is still less than 10 percent of most economies if measured by value added income or employment.

The report found that the ratio of global debt to GDP is one third higher than before the 2008 crash. And the situation was much worse in developed-world countries that had borrowed heavily in recent years from western banks offering ultra-cheap short-term loans.

It quotes another estimate of digital economy being just 5 percent of global output and 3 percent of global employment.

The growing mountain of debt, more than three times the size of global output, is symbolic of that failure. “Private debt has exploded, especially in emerging markets and developing countries, whose share of global debt stock increased from 7 percent in 2007 to 26 percent in 2017,” it says.

Over the same period, the ratio of debts racked up by non-financial businesses in emerging markets increased from 56 percent in 2008 to 105 percent.

While the public sector in advanced economies has been obliged to borrow, possibly like Air India or recent busting of IL&FS, more since the crisis, it is the rapid growth of private indebtedness, particularly in the corporate sector, which needs to be monitored closely; this has, in the past, been a harbinger of crisis.

What a prophetic observation! Is not India suffering from the same syndrome that gigantic NPA of banks represent? The growing corporate debt syndrome has almost bust into a political crisis.

It calls also for rethinking on bankisation of the society. The UNCTAD says developing countries will not be able to digitally leapfrog on their own. “While many developing countries are striving to develop their national e-commerce policies for linking their domestic producers and consumers to e-commerce platforms, there is a need to recongise the associated risks, especially these platforms are international.

It reduces the domestic markets and poor economies lose out on valuable data. This forces flooding of goods from mighty powers. It helps thrive unethical corporate.

The UNCTAD is critical of the WhatsApp and Google. It cited how European Commission fined Google euro 2.42 billion  for abusing its market dominance as a search engine by demoting shopping service of its competitors and denied European consumers a genuine choice of service and benefits of innovation. Is not India also becoming a Google prey and monopolization of groups like Amazaon?

The corporate rent seeking is leading to market concentration. The UNCTAD wants breakup of the large firms to prevent the concentration. The US had applied the anti-trust law to break monopolies, including the giant AT&T.

The UN wants a check on national data transfer – is it targeting digital identity system – and want that WTO to restrict governments outflow of the data of their producers and consumers. It is propagating for a strong regulatory regime. The lack of it is creating global disparity. The rich nations like the US and China are cornering global business and giving rise to trade wars.

Gains from e-commerce for developing countries can become a reality only if they protect national e-commerce platforms. This would improve the domestic and international market access of their producers. A Chinese e-commerce platform KiKUU operates in six African countries selling only Chinese goods

The UN organisation also does not support robotics and artificial intelligence. Robots are concentrated in very few countries, including China but it does not invalidate role of industrialization as a development strategy.

The use of computers and telecom is estimated to be less than 1 percent for most countries between 2000-2014.

Strong regulations are needed in a digital world to create anti-trust laws. Vietnam, Indonesia and the Philippines have introduced regulations.

But such regulations are not wide. This is leading to a global crisis in productivity, market monopolies and high debt. A supposed game changer in reality is bestowing the world with untold difficulties.