GDP a bad measure of digital economy

Standard gross domestic product statistics miss the bullseye of technology’s benefits. ILLUSTRATION | NATION MEDIA GROUP

What you need to know:

  • Because of the rapid technological transformation, it is even more important to get reliable information on the condition of the economy and changes in economic structures.
  • GDP fails to account for the productivity gains achieved by technological advancement. It ignores the efficiency that modern technology provides us with.

How technology transforms the economy and society is one of the most storied subjects.

Digital technologies have risen to prominence as a critical determinant of economic growth, national security, and international competitiveness.

The digital economy has a profound influence on the world’s trajectory and the well-being of ordinary citizens. It affects everything from resource allocation to income distribution and growth.

As the economy has evolved from industrial to services, to information and digital, our basic measurement systems have not kept pace.

Gross domestic product (GDP), the oft-used barometer of prosperity, was developed during the industrial age. But it’s a distortive measure, one that is grotesquely inadequate for measuring the digital economy.

Using GDP as the archetype for a country’s welfare has well-known problems but in the digital age, those problems compound. Standard GDP statistics miss the bullseye of technology’s benefits.

GAPS

Conceptually, the digital economy comprises goods and services that either are produced using digital technologies or include these technologies.

But GDP fails to account for the productivity gains achieved by technological advancement. It ignores the efficiency that modern technology provides us with.

It turns a blind eye to the widespread tech tools that keep the word in business, just because we don’t directly pay for them.

For example, GDP does not count free products such as open-source software, even though corresponding proprietary software is recorded and valued at its market price.

This measurement fails to account for the time saved by drivers who use Google Maps or researchers who, instead of a trip to the library, turn to freely available online resources.

Think about the immense time gained by consumers when they shop online.

Even the use of facilitative services like mobile money transfer services is grossly undervalued, yet they are critical to our lives.

UNINFORMED DECISIONS

The ubiquitous social media platforms such as Facebook, WhatsApp, and free email applications that play a pivotal role in facilitating communication and boosting businesses by providing means for entrepreneurs to advertise their goods and services do not feature in GDP computations.

GDP assigns a zero value to goods with a zero price, yet those goods aren’t worth nothing.

Changes in quality occasioned by technology and global intellectual capital are perhaps the most significant challenges associated with the measurement of digitalisation.

Given that we live in a digital and interconnected world where the use of physical capital is shrinking, GDP is simply an inadequate measure of welfare and growth.

Wrong measurements of our prosperity lead to poor decision-making.

Because of the rapid technological transformation, it is even more important to get reliable information on the condition of the economy and changes in economic structures.

In sum, the age-old GDP measurement is off-kilter; it is a bad barometer for the digital economy. It’s about time it’s amended or axed.

Wambugu is an informatician. Email: samwambugu@gmail.com Twitter: @samwmambugu2