Digital technology helps firms to innovate and scale up quickly, challenging traditional production patterns and blurring boundaries
There are many ways to ‘Make in India’. What we know is that technology is going to be at the forefront of the quest to create more jobs in India. But how can India benefit from the opportunities that the advent of new technologies provide?
In its latest World Development Report, The Changing Nature of Work, the World Bank examines the global implications of the ongoing technological shift that is dramatically altering the nature of work. In so doing, it highlights many of the challenges facing India and other emerging economies as they seek to create jobs for their people.
As Asia’s third-largest economy, India needs to create jobs on a huge scale to absorb the large number of young people entering its working age population. The challenge is to turn this technological shift to everyone’s advantage, so that its benefits are shared more widely.
Technology is also reshaping every industry and setting new demands for skills in every profession. The skills needed for work are changing, literally, every day. New jobs will require specific skills—a combination of technological knowhow, problem solving, and critical-thinking skills, as well as soft skills such as perseverance, collaboration, and empathy. That means countries must invest much more—and more effectively—in their people to build human capital.
Investing in human capital is the key mechanism to ensure that the next generation is ready for the changing nature of work. However, too many countries are under-investing in these critical areas—especially in the early formative years of childhood, when the ability to learn new skills quickly is decisively molded. When countries don’t invest in good education and health to build human capital, it puts successive generations—especially the poorest—at a severe disadvantage, exacerbates inequalities that already exist, and threatens to create instability when rising aspirations are met with frustration instead of opportunity.
Some features of the current wave of technological progress are notable. For instance, digital technology helps firms to innovate and scale up quickly, challenging traditional production patterns and blurring boundaries. New business models—digital platform firms—evolve rapidly from local start-ups to global behemoths, often with few employees and tangible assets, or “scale without mass".
Think of IKEA, today a ubiquitous global brand. Yet it took IKEA 75 years to reach the point where it generates $45 billion in global revenues across 50 countries. Now compare IKEA’s glacial pace of expansion with the turbo-charged ascent of Alibaba, which reached a million users in just two years.
The rise of digital platform market places allows the impact of technology to reach more people more quickly than ever before, bringing economic opportunity to millions who do not live in industrialized countries, or even in the industrial areas of the developing world.
Platform-based businesses are on the rise in India too, harnessing technology to reach more people faster than ever before. For instance, the online consulting platform Indiez, founded in 2016, brings together a widely distributed community of talent from remote locations—mainly from India, Southeast Asia, and Eastern Europe. Indiez takes a team-based approach to online freelancing and works on technology projects all over the world. Their clients include the Domino’s Pizza restaurant chain in India, as well as the Aditya Birla Group, the Indian multinational conglomerate.
So what are the downsides of new technology?
First, digital markets create new opportunities for firms to stifle their competitors through user data and lead to the emergence of monopolies. Second, firms that possess “scale without mass" create new challenges for taxation. It is difficult to determine where value is created when businesses have a combination of users and ideas and production takes place across borders.
Profit shifting continues to be a challenge, despite recent multilateral efforts to combat it. Multinationals—digital and traditional—shift about 45% of their profits to tax havens, resulting in a loss of 12% of global corporate tax revenue. India, along with Australia, Brazil, France, Japan, Mexico, and the US, as well as much of Africa, are among the countries estimated to be most hurt by profit-shifting.
Revenues generated through digital advertising can also be hard to capture. Two years ago, the government of India introduced a 6% equalization levy on online advertising revenue paid by Indian companies to non-resident e-commerce companies.
These are hurdles that must be overcome because providing the new kinds of social protection that people need in the changing nature of work will be costly but achievable with sensible tax reforms. Even so, it’s clear that digital platforms provide new economic opportunities to people. As long as they have access to the internet, women and people living in rural areas have the ability to create their own businesses, or work from home for employers who are thousands of miles away.
The internet and digital technology are the new superhighways of trade. India, where most workers are employed in the informal sector and the participation of women in the labour force is low, has an opportunity to seize the opportunities that digital technology provides. Innovation is also a friend to entrepreneurs and India’s entrepreneurial spirit makes it an ideal incubator for start-ups to thrive.
Federica Saliola is joint director of the World Development Report 2019.