Public policies in the age of digital disruption

We are witnessing a new wave of technological progress with enormous potential to profoundly transform our societies. Together with globalization, climate change, demographic transformations, and the risk of pandemics such as covid-19, digital disruption is generating far-reaching changes in the global economy. Economic growth is almost exclusively a feature of industrial revolutions and is relatively recent in human history. The social adaptation to the structural changes that technology has brought about has generally been slow, making it a reasonably smooth process. In the case of the digital revolution, however, there are already some signs of a much more abrupt disruption in businesses, markets and societies, reducing the time of response to deal with the new challenges. The success of this response will determine our societies' capacity to improve productivity, create employment, and grow in an inclusive way.

Content by BBVA.

The digital revolution does not call for heightened optimism about the ability of robots or of artificial intelligence to fully substitute us in our jobs while we enjoy more leisure and higher levels of income. Nor does it call for the pessimism of those who think we are heading for massive technological unemployment and bound to lose our livelihood to robots. There is no call for utopias or dystopias. As in previous industrial revolutions, there is nothing inexorable or predetermined about the effects of the digital revolution. Some societies will be successful because they will be able to make the most of the opportunities created by these changes to social welfare. At the other extreme, those countries which fail to adequately manage this process well may see an increase in unemployment and inequality, with sluggish or stagnant productivity. Well-designed public policies in four key areas will be required to strengthen the positive effects of technological change:

The efficiency and quality of the welfare state and institutions is essential to guarantee equal opportunities first, and then provide a safety net for individuals facing unexpected adverse situations.

1. Education and new digital skills. New occupations increasingly require a capacity for analytical reasoning, critical thinking, creativity, originality and initiative, personal leadership, social influence, and emotional intelligence. Language command, social and technical skills, along with the ability to manage and coordinate teams and projects, are also important. It is essential to continue learning and skills development , and public policies must ensure high-quality programs that meet these new needs and provide companies and workers the opportunity to continue their training and acquire new skills for the duration of their professional careers.
2. Policies for a new labor market. It is essential to remove barriers to job creation, investment, innovation, and growth; to increase legal certainty in labor relations; to strike a balance between labor market flexibility and employment security for workers in the gig economy; to facilitate the financing of startups; and to simplify and improve labor regulations to make them more efficient.
3. Competition and regulations in goods and services markets. As well as closing the digital divide, public policies should prevent new sectors and firms from gaining excessive market power that limits competition and innovation to the detriment of social welfare. Competition policies must be reshaped to closely monitor changing market conditions and ensure there is effective competition between firms. Measures that can be used to achieve this objective include the diffusion of technological advances and patents to facilitate the entry of new competitors and the financing of startups; the protection of consumer rights; access to small and medium-sized firms to big data, supercomputers, and cloud computing; and data sharing, when permitted by data owners.
4. Equal opportunities and redistribution. The efficiency and quality of the welfare state and institutions is essential to guarantee equal opportunities first, and then provide a safety net for individuals facing unexpected adverse situations. Societies that are already doing better in terms of equal opportunities and ex-post redistribution have a head start when it comes to facing the challenges of digital revolution inequality.

Used wisely, new technologies can be placed at the service of these policies to identify new needs, design solutions, deploy measures quickly and efficiently, streamline processes, reduce costs and improve services, evaluate results, or select their beneficiaries.

There are reasons to be optimistic about the future, but only if our societies can properly manage the changes, promote economic growth, and provide a welfare state that adapts to new individual and collective needs. It is very likely that some countries will do this more successfully than others. The social impact of new technologies will depend on how the new challenges are managed. In this process of change, there is no trade-off between fairness and efficiency: societies that can design a welfare state that works more efficiently will make the most of new technologies to increase social welfare, while at the same time attaining lower levels of inequality and greater intergenerational equity.

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