The Digital Economy. Tim Jordan
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or may not have been affected by any new kinds of economic activity related to the internet and the digital. The issue then becomes one of identifying if there is any distinctively new economic activity. The simplest way to explore this question is through a sectoral analysis that looks for a new digital sector existing alongside and intersecting with the sectors that already existed. If such digital economic activity can be identified it will then be possible to consider what effect such new activities might have on other economic activities. Knowing what is specific to the digital economy is the first step to understanding its effects on the economy.
The first attempt at identifying an economic sector that is distinctively digital will be to review statistical evidence for a digital economy, hoping to establish if such an economy can be counted and, if so, how significant it is. The initial hypothesised picture of the economy is then that it is made up of distinct yet interacting economic sectors, one of which is relatively new and is called the digital. Counting this can be done by determining which existing companies operate in the digital sector. A first approximation may be possible by developing existing definitions and using these to help establish what a digital company might look like; for example by looking at the difference between an Apple, Tencent or Google compared to a Petrobas, China Bank or Walmart.
To develop this strategy while also offering something more substantial than common sense, I will present a view first through the work of the Organisation for Economic Co-operation and Development (OECD) analysis of what it called the ‘information economy’. It is not entirely clear that an information economy is the same as a digital economy – though all companies usually thought of as digital were included by the OECD within the information economy – but for the purposes of this initial discussion it can be taken as an indicator of the potential scale of the economic activity under analysis. Second, I will develop an analysis based on the 500 largest companies by market value looked at in relation to key indicators: revenue, assets, profit (net income) and employment (numbers of workers employed). Centring on market value allows for a direct comparison between different kinds of economic activity, which is crucial for the case being made here. Market value is also less subject to short-term economic tactics when compared to indicators like revenue or profit. For example, profit can be affected by a company working on its figures by writing-down costs; similarly revenue does not adequately allow for a comparison between different industrial sectors (with the financial sector being particularly different here) (Dullforce 2015).
An understanding of the size and value of the digital economy can appropriately, if cautiously, begin from the market value of existing companies. Of course, caution should be taken here as market value reflects what buyers are willing to pay for the shares of a company, and accordingly, especially during booms and busts, it may reflect a market view not necessarily connected to other ways of understanding economic activity. Limiting my analysis to the top 500 companies creates a workable statistical base that is generally considered to cover around two-thirds of economic activity. Despite these limitations, the point is to create a first view through OECD and top 500 company statistics; for reasons that will become clear while exploring these numbers it is not worth undertaking any more substantial work.
The Digital Economy as Seen Through the OECD and Market Values
In 2014, an OECD report addressed the extent to which the information economy had survived the global financial crisis of 2008 and whether it was contributing to increased economic activity after the crisis. In reviewing its results, I will set aside the question of the difference between an information and a digital economy, partly because the digital is folded within the OECD’s statistical definition of the information economy and partly because definitions are a topic that will be discussed further below. The report judges the information economy both to have survived the 2008 crisis relatively well, though with a drop in research and development expenditure, and to be a key contributor to innovation in other economic sectors. ‘While the role of ICTs in science has become pervasive and demand for products from the information industries has increased significantly over the last decade, the aggregate weight of these activities declined slightly in the average of OECD economies, to little less than 6% of total value added and 3.7–3.8% of employment’ (OECD 2014: 37). In these terms, the information/digital economy is smaller than might have been thought; however, the OECD measures also emphasise how central ICT and the information economy is to other industries, making it difficult to separate a specific sector out.
Another measure is the international trade in ICT goods: ‘Between 2000 and 2012 world exports of manufactured ICT goods grew by 65% to more than USD 1.5 trillion. However, their share in total world exports of goods decreased by about 5 percentage points, partly due to widespread falls in unit prices’ (OECD 2014: 144). In other words, while the sale of goods deemed informational or digital grew rapidly, it still fell as a proportion of the overall economy, hovering at around 4 per cent of total world exports, varying from over 12 per cent in India down to negligible figures for some nations (OECD 2014: 145). Depending on where in the world the measure is taken, the information economy fluctuates between just over 10 per cent of an economy down to zero.
The next sets of figures draw on the categorisations underpinning the Financial Times and Fortune1 analyses of the 500 most highly valued companies in the world at three points: 2006, 2015 and 20172 (Fortune 2017; FT 2015, 2006). These figures (see Table 1.1) suggest that the digital economy makes up around 20 per cent of the total economy – possibly up to 30 per cent – and is worth around 6.5 trillion US dollars. There are discrepancies between the methods for the 2017 (Fortune) and the 2015/2006 (both FT) figures, with the significant increase in the percentage of the digital in 2017 related to values decreasing in other sectors to such an extent they are likely to be definition related. These figures also suggest that the proportion the digital sector occupies expanded slightly during the period after the 2008 financial crash, though not by an amount that seems overly significant or that is comparable to fluctuations in other sectors (the 5 per cent increase in manufacturing for example). Broadly, the digital sector appears to be as important as the financial and manufacturing sectors and roughly twice as important as the retail, service and extractive sectors.
Table 1.1 Economic Sectors – Total Market Value (USD millions)
| Manufacturing | Financial | Retail | Service | Digital | Extractive | Total | |
| 2017 | |||||||
| Market Value | 3,885,168 | 3,400,038 | 1,462,153 | 4,329,598 | 6,650,784 | 1,865,371 | 21,593,112 |
| % of Total | 17.99 | 15.75 | 6.77 | 20.05 | 30.80 | 8.64 | |
| 2015 |