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Digital Inclusion vs. Innovation Momentum: Is There a Tradeoff?

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The fifth policy paper of the Digital Revolution and New Social Contract Research Program examines the link between digital inclusion and innovation through different case studies and offers policy recommendations so both can coexist.

Governments place enhanced focus towards continuously advancing digital societies, competing to be at the forefront of growth in talent, intellectual property, and cutting-edge research and development. The Covid-19 pandemic highlighted the relevance of having digitally innovative societies to cushion the economic impact of the pandemic, and to allow individuals to maintain social connections, remain informed, and keep the knowledge and information-based parts of the economy functioning. However, the pandemic has also highlighted the importance of and need for inclusive digital advancement.

To investigate whether there is a tradeoff between innovation momentum and socioeconomic inclusion, the authors have drawn on years of empirical observations. They have used their triennial empirical scorecard, the Digital Intelligence Index (DII), which measures the state and rate of digital evolution across 90 economies.

They begin by exploring whether such a tradeoff manifests across digital economies around the world or whether this occurs only in digitally advanced economies (top 1/3 of the economies in their DII). The analysis is conducted by plotting the progress to socioeconomic digital parity of the 90 economies (data on digital access and literacy between a country’s richest and poorest citizens) and a metric for innovation momentum (including inputs into innovation, processes of innovation and outputs of innovation). 

Having ascertained through regression analysis that this is an advanced economy phenomenon, the authors assess which component of innovation momentum is driving the tradeoff between innovation and inclusion. The regression analysis reveals that inputs momentum—a measure encompassing the factors of production and value creation in the digital economy such as investment capital, intellectual capital, and entrepreneurial capital—bears the most significant negative relationship with digital inclusion. Reflecting on the origins of the tradeoff, they observe that once societies reach a critical mass of users in the digital economy, the factors of production and value creation in the digital economy tend to gravitate towards creating and capturing value from the attendant network effects of existing, oft-adept and affluent users. This leaves those at the socioeconomic margins further behind and exacerbates the gaps between the digitally affluent and the digitally deficient in a society in the absence of policy interventions channeling these inputs into inclusive innovation by design.

The authors then conduct an archetypal analysis to understand this phenomenon better. They consider the United Kingdom and Spain as archetypal of countries at the crossroads of innovation and inclusion with three approaches to potentially emulate: the first, New Zealand, is also their primary motivation for the study. As noted by the authors, policymakers New Zealand consciously recalibrated towards ensuring digital inclusion of those marginalized, sacrificing some innovation momentum. The inverse archetype is South Korea, an exemplar of innovation-driven growth with glaring socioeconomic digital inequalities. Finally, they consider the socioeconomic inclusion and innovation dynamics of Germany, which straddles both quite well. 

The conclusions show that advanced governments that choose to prioritize innovation will face the challenges of wider socioeconomic disparities and distrust in the digital economy among those citizens that are left behind.

Fostering an innovative digital economy that is inclusive is possible, as the German model shows, and deserves to be researched in greater detail. 

The authors provide three concrete policy recommendations for policymakers. Firstly, since the most significant driver of the tradeoff is inputs momentum, policymakers should provide incentives to entrepreneurs to target their innovations towards those at the margins, support entrepreneurs from marginalized communities, and encourage capital to flow towards ventures that are inclusive by design. Secondly, there should be more investment into equitable and affordable digital skills training through both the formal education system and through continuing education initiatives for adults and seniors. Lastly, governments should ensure that small and medium-sized enterprises (SMEs) have the digital resources to compete in the global markets. Since SMEs employ a majority of any country’s population, raising the digital skill levels of the employees and the technology absorption capacities of SMEs will go a long way in forging an innovative and inclusive digital economy.

 

Bhaskar Chakravorti, Digital Planet, The Fletcher School, Tufts University

Ravi Shankar Chaturvedi, Digital Planet, The Fletcher School, Tufts University

Chris Compton, Digital Planet, The Fletcher School, Tufts University

 

To read more about the topic and download the full paper, click here.