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Digital Communities
Industry Members
U.S. Lead Fading as Internet Economy Surges Ahead
June 13, 2011 By Indrajit Basu
Two billion people are now connected to the Internet and that number is growing by 200 million annually. It is obvious that the Internet has a huge impact on our lives -- indeed, few can think of life without it. But despite the fact that the Internet embraces all -- individuals, government and businesses, and the fact that business generates as much as $8 trillion in revenues through the Internet every year -- little has been known about how much value it contributes to the overall global economy.
A new study conducted by the McKinsey Global Institute attempts to fill this gap. After studying Internet usage in 13 economies that constitute 70 percent of the world's economy -- the G8, UK, Sweden, Brazil, China and India -- it has come to some interesting conclusions.
The Internet has delivered significant economic growth, creating jobs and wealth. Somewhat surprising however, is the magnitude of the Internet's contribution. If Internet consumption or expenditure were sectors, its weight on the GDP would be bigger than energy or agriculture as well as several other critical industries. According to Michael Chui, one of the authors of the report, at the broader level 75 percent of the impact of the Internet is in sectors outside of the traditional high-tech sectors, or sectors that do not define themselves as pure Internet players.
In fact, the Internet economies of these 13 countries are bigger than the GDP of Spain or Canada and it is growing faster than the economy of Brazil.
The study -- called Internet Matters: The Net’s sweeping impact on growth, jobs and prosperity, also found that in mature economies the Internet contributed as much as 10 percent to the economy, while in developing countries its contribution varies between 0.8 percent and 4 percent.
"In the past 15 years, in terms of real GDP per capita the Internet has approximately created as much value as it took the industrial revolution of the 19th century to create in 50 years," says Eric Hazan, another author of the report.
Over the past five years, the Internet’s contribution to GDP growth on the 13 countries doubled to 21 percent. And the Internet has been a powerful catalyst for job creation as well. The survey finds that it created 2.6 jobs for every job it destroyed.
The Internet is also contributing strongly to wealth. It has not only sired new waves of business models and entrepreneurship but has also led to radical innovations for accessing, using and delivering goods.
Finally, said the report, it has transformed governments through innovative approaches and changed how governments engage citizens.
But while the U.S. is still leading in this regard, lack of a national broadband policy has slowed its rate of growth so that it is falling behind the UK, Sweden, China and India, said experts.
The U.S. still leads in the global Internet supply ecosystem, capturing over 30 percent of global Internet revenues and 40 percent of net income, but the UK and Sweden are changing the game.
These two countries have leveraged very strong Internet usage across the boards to gain greater importance within the global Internet system.
Besides these two European countries, the McKinsey study also found that France and Germany are using their Internet very efficiently to increase their presence in the global supply ecosystem. Notably, so are India and China.
And this is disheartening, say experts.
"The issue with the U.S. is that it is falling behind due to the absence of a national broadband policy," says the Milken Institute's Kevin Klowden, managing economist, and California Center director. "Most competing countries like the U.S., Sweden, and even South Korea had much more effective national broadband policies that allow these economies to offer competitive Internet that people can use widely and efficiently."
He added that the U.S.’s biggest hurdle is that most of its Internet service providers are monopolies. "The problem is that in many cases they might charge more money than the market can bear and the end results is that it is not used by many. There are capacity issues as well, in the sense that in many places the infrastructure cannot handle all the data," he added.
“Like some of the European and Asian countries, the U.S. too should craft a broadband plan that encourages ISPs to increase capacities and work out a standard so that everything works together effectively," says Klowden.
But according to Hazan, not only the U.S., but governments across the world should "initiate measures that encourage the usage of Internet throughout the whole economy and throughout the administration" so that public spending could be used as a catalyst for innovation.
"Governments' own use of the Internet encourages the citizens to use it [while] government e-transformation crates large-scale and complex demand that stimulated the supply ecosystem," the report said.
Technology may the one of the greatest enablers of good things in life, but even until recently, it was mainly a phenomenon that benefited the more resourceful section of the world. That's changing though. Thanks to its constant evolution in the last few years, technology, particularly digital technologies, have ceased to be the privilege of a select few. From a hungry child in Niger, to the downtrodden lavatory cleaner in India, to the lonely billionaire widower living in a swanky Manhattan apartment, digital technologies are radically changing the lives of all these days.
As an international correspondent for Digital Communities, I have covered the power that ICT wields, particularly over the inhabitants of the developing world. But often a 1200-word feature does not bring forth the magic of ICT fast enough. My endeavor in this space would be to do just that; highlight some notable ICT-related developments as fast as I can.
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