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| Edited By: K Yatish Rajawat |Source: DNA |Updated: Sep 10, 2018, 05:50 AM IST
Flavio Menezes, a professor of Economics at the University of Queensland, works in the fields of market design and auction theory, incentives, regulation and competition. Menezes speaks one-on-one to K Yatish Rajawat, Editor in Chief, DNA, about how digitization is being oversold as a solution and creating unwanted disruption in the market. Menezes also talks about the way the government in both developed and developing countries are increasingly misinterpreting the use of technology and why is this problem likely to cause more problems in future than we can imagine. Excerpts
It depends on what you mean by regulation. After establishing themselves in a new country, a lot of these companies will have to comply with labour and safety regulation. They don't have shops like Amazon, which has warehouses. Therefore, one has to comply with a bunch of regulatory regimes. The challenge is that most of the Competition law is based on the US and the UK model, and they do not account for digitization and how it leads to consolidation.
Competition regulators do not have experience of managing monopoly or dominance by a single player in the digital world. They look at an industry and seek out cases of cartelisation. Their cases are based on competition between say two brick manufacturers. The dynamics of the digital and the offline world competition is very different. When Google or Facebook buys companies from different sectors, they do not raise the concern of the competition regulator. By the time the regulator understands the digital product, several different industries have been affected adversely.
Yes. Economist and competition practitioners don't understand the impact of several digital services. We don't have a good grasp of what we should do and how to look at the subjects. because we're in transition. We are always talking about digitization in the Smart Cities. We always think of technological innovation as displacing employment. Over time, of all these technological progress, the global economy now is many, many times larger than it was at the time of industrial revolution and the average quality of life has improved dramatically.
No, I will not classify that as growth. Let's look back at 1848. The average human life expectancy during that period in Britain was 40 and so was it across a heap of socio-economic dimensions. But, it has improved over the years.
What I'm saying is that we had these technological innovations and, now, in 2018, we're in a position that I don't think you'll find anywhere. Now, I agree to what you said that there is no clear direct relationship between technological innovation and economic growth, also the notion of what does economic growth mean because you just talked about GDP but it does not capture everything.
Even the wealth of a country is completely idiotic because why do I caretake if the profit of a company like BHP grows. I mean if 50% of its profits are in the UK, why do I count these profits in my GDP, it doesn't make any sense. So, GMP is better but, maybe less. We don't measure, for example, the heap of things without measure: We don't measure our enjoyments; we don't measure the time we spend watching movies or we don't measure the time we spend I claim that in the past technological innovation overall hasn't reduced wellbeing and growth overall.
Urban mobilization, for example, has created the most successful poverty reduction programme ever. However, it displaces people, but my point is that there is no guarantee that digitization will improve people's lives.
Broadly speaking, there are inequality issues. But, somehow, the global economy has grown and we enjoy that growth. But that doesn't mean all people have grown. Some have not. Now, there is no reason why digitization can improve because the mechanisms are very different. digitization affects everything. But, obviously, automation is a big component. Some aspects of digitization can improve people's lives, but it is connected to the whole issue of mobility.
There is no guarantee of digitization of the labour market that it is improving the overall job scene. You have less secure jobs, how you value job security is changing or under threat. The unemployment rate might be the lowest in history, but there is no job security. How do you compare today with an economy that has a somewhat higher unemployment rate but it had better job security. It's a completely unchartered territory. And, these are all happening because of the rise of the gig economy.
That's right. You have the impact of digitization on the nature of labour markets, the nature of the employment relationships. People who live with high degrees of uncertainty. You don't know whether you're going to have a job tomorrow. Which means you'll be reluctant to make long-term investments into business, into your own human capital, into a house, so you fundamentally change the economy. So, digitization also promises efficiencies, higher utilization of existing assets like cars in case of Uber.
This high utilization can increase productivity, people can presumably live better lives. Digitization is not happening in a vacuum, it's happening alongside climate change, it's happening alongside densification, urbanization or densification of our major metropolitan areas and so they all are happening at the same time and they all have different implications as well. If you think about some of them are good and I'll give you an example and this is a piece of research that my colleagues did.
If your office is closer say less than 5 kilometres from your home you might walk or might cycle for example? If your office is within 10 kilometres will you take public transport?
Essentially to reduce the car usage. Putting more roads, the more roads you put the more cars increase, it never wanes and at the same time, you exclude cyclists. Even in cities where people used to walk or cycle they don't do that anymore because it' not possible. I was in Sao Paulo two years ago, I run marathons, I do long distance Iron Man, so I had a meeting at 6 o'clock roughly 20 kilometres. I got a taxi at 5 o'clock, at 6 o'clock I was still 10 kilometres away from the taxi driver it's going to be another hour. I could run 20 kilometres easily and I could run 10 kilometres in 50 minutes, 45 minutes but I couldn't because there was no path, there was no footpath.
What I am trying to say is digitization is not the only solution –densification sometimes is. Urbanization at a rapid scale is leading to climate change although digitization can help by reducing the number of cars, densification can improve the economics and drive usage of public transport.
What these guys did they densified the six cities and then they look at three things. One is a cardiovascular disease because what happens is as you densify more people walk and cycle and then they looked at numbers. They calculated the number of healthy days, so it's called this ability to adjust days on average healthy days like 622 days for Melbourne, 565 days for Delhi on an average…
Respiratory diseases affect less when people walk and cycle
Yes, correct. That's where I'm coming from, but also these are all speculations because people will change… No, not densification but what I'm saying is.
Yes, exactly. , the behaviour is all speculation because we don't know exactly how people are going to react, so we need to set up. So let us go now fully back to the smart city. Often the notion of smart cities is to be quite blunt often a speech of tech companies.
It will not help you in any way, I mean it will help you in a very minor way, instead of buying a ticket you just buy a card. You have to look for a job. How will you make the whole process of getting a job or economic growth possible in the city without affecting the quality of life?
Correct, now I will do a full circle. Lots of cities because of climate change are changing the luminaries- the public light with LED. Now, LED by itself is a much more efficient than the standard vapour light bulbs, vapour mercury light bulbs but they also want to add some kind of technology so that they can control them…
To do that you need some kind of communication technology. Cisco and all these guys are big into it. Local governments want to replace their luminaries with this extra smart city network. A lot of these cities, including the US, is getting into a trap in a sense and creating a monopoly. There is a consortium typically telecommunications company, a technology company and LED luminaries. Their idea is to have a monopoly over the light bulbs which are remarkably underutilized. You have them everywhere in developing countries like in many cities in Brazil they are everywhere. They have electricity and they are usually high. The next wave in telecommunications is 5G requires a lot of near the ground technology due to high frequency and low distance nature.
So imagine a company, one of the telecommunications in India gets that contract for the whole of India. Then say another provider – wants to establish 5G and needs the access spots and can't get it because of a monopoly.
I'm not sure what's happening in India. I mean they're doing it across the country. Maybe they're doing it in India as well but it's a trap and clearly, those assets are going to be used by monopoly.
This is a very specific economic issue even though it potentially has a big impact. One government is very risk-averse. So, big consulting companies propose a solution and go for it because they have sort of external validation. Two governments often are not equipped to deal with complex issues. Their attitude is to hire consultants. They don't assess what the consultant did is any good they don't have the expertise to even analyze the work. They do not want to build this capacity internally or even externally. They feel proud that they have been able to beat down the consultant on pricing and able to get a policy done almost fee.
I think this has weakened the capacity of government to respond to these issues and that's kind of a big challenge ….
I think it is lack of capacity – call it analytical ability, that capacity used to be more common in governments. That capacity even in developed countries experiencing reduction. That means problem-solving ability is going down, the problems are getting more complex because of all this interaction that didn't exist. Now, we live in a globalized society, so complexity is increasing but analytical capacity has decreased.
Politics might end up making politicians choose inefficient outcomes and inefficient solutions. I mean certainly, it's an issue for a large population like Brazil and India. Now, often the best solution from a society point of view might favour a small group and that small group might have a proportionally larger voice.
People think of the government as one entity. But, the reality is that government agencies and departments had different priorities. So these I won't be able to name the government because I can't but – so this one I had people from treasury was just interested in replacing the lights at a minimum cost. Then we had people from the technological side who had the best possible cutting edge and doesn't matter they call it solution and so two divergent objectives looking for a solution.
There are issues of inequality... the global economy has grown. But, that doesn’t mean all people have grown. Some have not. Now, there is no reason why digitisation can improve because the mechanisms are very different.
There is no guarantee of digitisation of the labour market. Now, the jobs are less secure. We also need to check how to value job security, whcih is under threat.
High utilisation can increase productivity, and, will lead to people living better lives. Digitisation is not happening in a vacuum, it’s happening alongside climate change, alongside densification, urbanization or densification of our major metropolitan areas, says the noted economist.
