Since the advent of the internet, the computer and mobile technologies as well as the powerful tools like Google, Instagram, Facebook and WhatsApp etc. also with initiation of digital e-businesses like Amazon and Ali Baba, the face of world economics has changed. This change is more visible in this era of COVID-19 when countries have put physical lockdowns on businesses and therefore virtual businesses through digitalization of the economy have thrived.
Digitization is the process by which IT technology lowers the costs of storing, sharing, and analyzing data and makes a link between consumers and suppliers without the help of middlemen and more inefficient human interactions.
Digitalization of the economy can help business expand towards international markets, helps governments to assimilate GDP and tax data more accurately, helps researchers (R&D) to analyze the economic trends of businesses more successfully and helps consumers make better choices from a wider array of goods and services at a shorter period of time and lesser costs. Digitization also helps social sectors to redirect their philanthropic activity towards the needy and poor with faster and pinpoint accuracy. All this reduces poverty, enhances employment levels and reduces government social security expenses in the long-run.
This digitalization process has changed how consumers behave in the virtual market, how industrial activity is organized, and how governments operate.
Digitalization of the Economy is fundamentally changing the economy and our society from outdated colonial 19th Century mind frames into a modern 21st Century mind frame and working methodology using new technologies, techniques and know-how.
Digitalization of the Economy drives entrepreneurial innovation, productivity, and regional economic growth.
Digitalization of the Economy also has implications for growth, the labor market, and political participation. Digitalization of the Economy places new demands on education and training, not only in the field of information and communication technologies, but also in other related disciplines like marketing, finance, accounting, e-businesses, economics and even sociology, psychology and political science.
Policymakers today face an environment transformed by information and communications technology (ICT). According to GSM Association 2020, Pakistan has adopted the 2017 Digital Pakistan policy and “subsequent 2019 initiative provides the spark and mandate for change, but structural transformation will not be instantaneous, and government departments must be held accountable for driving forward the policy agenda”. More people today have access to mobile phones (100 Million in Pakistan) than to electricity; the amount of data generated globally is expanding exponentially.
These choices have enormous consequences. Countries that have achieved advanced levels of digitization, defined as the mass adoption of connected digital technologies and ICT applications by consumers, enterprises, and governments, have realized significant economic, social, and political benefits. For them, digitization is a pathway to prosperity. Other countries are falling disproportionately behind.
Our central interest in the future will be the question of how quickly digitalization penetrates in Pakistan’s economy, trade and industry and how it changes productivity, employment, and competitiveness in different companies and sectors.
Especially from the perspective of tax culture, economics, people’s ability to adapt to the changing world of work through the education and training system is of fundamental importance.
Digitization of the economy not only promotes employment of young graduates in finance, accounting, marketing, law and tax consultants, but also gives us the exact data of the economy and makes it easier for the government to calculate its revenue sources, to provide incentives to the industry and businesses that are tax payers and to canalize its policy towards growth and exports. Digitalization helps link small businesses to large businesses and promote a free flow of supply chain management.
It also provides a greater international recognition to the Pakistani economy and makes it difficult for corrupt practices, money laundering, smuggling and terror financing. Compliance to human and environment conventions also becomes transparent.
In short both the government and the businesses become more accountable and focused in supplying essential goods and services to the general public without minimal human interventions.
Research in the economics of digitization touches on several fields of economics including industrial organization, labor economics, and intellectual property. Consequently, many of the contributions to the economics of digitization have also found an intellectual home in these fields because consumers can buy commodities from the safety of their homes and even small service providers, especially of intellectual nature and services can work with their computers, laptops and mobiles from home and link importers (buyers) to exporters (sellers) and vice versa through the internet.
According to authors in the field of Digital economics and e-commerce, “An underlying theme in most of the work in the field is that existing government regulation of copyright, security, and antitrust is inappropriate in the modern world. For example, information goods, such as news articles and movies, now have zero marginal costs of production and sharing. This has made redistribution without permission common and has increased competition between providers of information goods. Research in the economics of digitization studies how policy should adapt in response to these changes”. The government regulations and monitoring will have to encompass the issues of technological standards in transferring of data, the supply of internet access freely and unhindered to more people in Pakistan and the demand of cheap and 5G Internet by consumers around the country.
Following are a few effects that digitalization of the economy would provide:
The effects of digitization on industrial organization will be on the platforms and online marketplaces that are changing rapidly from physical markets to virtual markets. User generated content and open source production has been influenced by changes in technologies, consumer choices and preferences and because of decrease in information costs due to the internet, especially in the era of COVID-19. Digitalization has also changed the face of Advertising, especially due to the extensive use of social media networks. Another issue is that companies with new, Internet based business models, such as Ali Baba and Uber, pose challenges for regulation aimed at traditional service providers. These internet based companies would force the traditional commodity providers to change or lose their business to rapidly growing e-businesses in the near future.
The effects of digitization on consumer choice will be enormous due to the extensive use of more powerful search engines and recommendation systems that have been introduced on the internet today. Also the enforcement of Reputation systems on the web have forced the businesses towards ethical behaviors and to provide more cost-effective, quality products that are in competition with their rival service providers.
The effects of digitization on labor markets. Digitization has partially or fully replaced many tasks that were previously done by human laborers. At the same time, computers have made some workers much more productive. Economists are interested in understanding how these two forces interact in determining labor market outcomes. Another consequence of digitization is that it has drastically reduced the costs of communication between workers across different organizations and locations. This has led to a change in the geographic and contractual organization of production.
Many production functions and intellectual services (software, financial, legal etc.) that were being done in technologically and industrially advanced countries have rapidly been shifted to less developed, but specialized in these fields countries like China and India helping them earn much needed foreign exchange (India due to sub-contracting has become the fourth largest foreign exchange earner in the world). Pakistan should follow suit and help its youth capture these fast changing opportunities due to digitalization of the world economies.
Government policy and digitization. The Government of Pakistan will have to evolve very quickly and develop mechanisms in order to enforce policy and laws pertaining to intellectual property and digitization of its virtual economy. Protect Privacy, security, and digitization of businesses and individuals from fraud and misrepresentations by scruples people working the ‘Dark Net’.
Other issues that are important when digitalization of the economy is concerned, are:
Digitization may affect government effectiveness and accountability. Digitization also makes it easier for firms in one jurisdiction to supply consumers in another. This creates challenges for tax enforcement, but it is imperative that the economy and businesses should be digitized for better information and data sharing that helps consumers make choices, businesses to decide whether to outsource or to produce domestically and labor to canalize their skills from less paid jobs towards more paid jobs. The government can lower the tax rate, but broaden its tax base and enforce efficiency into its tax systems for greater transparency and enforcement of the revenue regime as well as its expenditures from current to development. Many economists think that, “Many safety and quality enforcement regulations may no longer be necessary with the advent of the online reputation system”.
Dangers of digitalization of the economy are he dangers to the socio-economic fabrics of Pakistan are that with the advent of robotics, digitalization of the economy and artificial intelligence (that is inevitable in the COVID-19 era and the built up to the DSDG in the next 30 years) what is the future of uneducated and unskilled labor force, especially youth and the less educated individuals with the modern technological businesses and SMEs, especially in the rural areas of the country.
Today is the right time to reform and to upgrade to new technologies and to educate the youth towards this era of digitalization.