Did Big Tech Save the World From an Even Bigger Economic Meltdown?
It helped, but the countries that fared best had other factors at play.
It is just over a year since the World Health Organization declared a “public health emergency of international concern” as the new coronavirus started ripping through the world. Even as the virus took its grim toll, governments responded by locking down, and the world economy went into reverse, the past year has been one of unparalleled acceleration—of the digital kind. Work, school, doctor visits, entertainment, weddings, goodbyes, and so much more “real life” moved online. The adoption of digital tools advanced by five years in a matter of eight weeks—and many believe that is what buffered us all from an even more devastating economic collapse.
This point is particularly relevant as newly released International Monetary Fund data projects a global economic turnaround of around 5.5 percent growth in 2021. Every country in the G-20 is projected to grow; and the U.S. economy is expected to return to its pre-pandemic size by mid-2021, according to the Congressional Budget Office. Some of this optimism is, no doubt, predicated on an effective vaccine rollout, but much of it hinges on digital ecosystems playing their part.
It is true that digital connectivity helped preserve some semblance of normalcy. Internet usage surged in tandem with increased COVID-19 case rates. Adoption of digitization and automation accelerated across 85 percent of companies surveyed by McKinsey. In March 2020, Netflix had to downgrade its streaming resolution to make room in the pipes, but internet speeds in most parts of the world have stabilized to pre-pandemic levels, a testament to the remarkable resilience of the technological infrastructure despite the spikes in traffic.
Remote work and schooling have had a mixed record. But in some instances, behavior changes may deliver positive benefits over time; for example, as schools went remote across India, almost 70 percent of respondents to a survey reported getting help from the community in educating children remotely. Such a collective approach to education across school, family, and community is likely to be one of the longer-term dividends of digital schooling even after physical schools reopen.
For ordinary users, all the hours spent online was a mixed bag. The fact that “office work” was virtual for so many was reflected in Zoom’s revenues, which by the end of October 2020 were up 367 percent from the previous year. Other sites associated with work and education, like Wikipedia, and with shopping, like Amazon, were the eighth- and 12th-most-visited websites in December 2020, which is good economic news. Of course, both were overtaken in popularity by an adult website, which may put that statistic in context. Meanwhile, meditation and sleep apps, which arguably promote mental health and productivity, surged, dropped, and surged again during 2020.
Another remarkable outcome of the extended periods of time online was an unprecedented surge in grassroots activity, principally over social media. These digital movements spanned a dizzying array of organizing forces and objectives—from a summer of protests to demand racial justice following the killing of George Floyd, to misinformation campaigns that transcended both the pandemic and politics, to masses of amateur investors convincing others to buy stock in underperforming companies. The movements were not just limited to digitally savvy young people on TikTok or Twitch; even illiterate farmers in India organized and sustained protests by learning how to go live and click on like and share buttons on social media. The economic impact of such movements will take some time to sort out, but suffice it to say they recast the idea of productivity in a way that cannot be ignored.
Of course, not everyone had the luxury of leaning on digital technologies as a substitute for the “real” economy. Although around 60 percent of workers in countries such as Singapore, Switzerland, and Sweden can telecommute, that proportion drops to below 30 percent in Mexico, Thailand, and India. Even within any given country, there are wide variations. In the United States, when it comes to readiness to work from home, it makes a difference if one is in Nebraska or in New York. It also makes a difference if one is Black, Latino, white, or Asian.
And so, a natural question emerges: Did the nations with better digital readiness experience greater economic resilience during the COVID-19 meltdown? The Digital Planet research initiative, which I direct at Tufts University’s Fletcher School, found that while an advanced state of digital evolution was certainly helpful for most economies, its potential to cushion the economic blow was dependent on several additional factors: the makeup of the economy, the efficacy of public policy, and citizens’ trust of public officials. We developed a measure for the state of digital evolution for 90 countries and mapped the scores against the percentage fall in GDP growth from the second quarter of 2020 as compared to the same quarter in 2019, adjusted for inflation. We found that digital evolution could explain at least 20 percent of the reduction in the gap between the 2019 and 2020 growth figures. There are several things that can help explain this association.
First, the more digitally evolved economies tended to derive a larger share of their GDP from high-tech and information services sectors, the more significant portions of their workforce could shift from offices to working from home.
Second, digitally evolved economies tend to be better at delivering public services online due to superior infrastructure, a track record of digital transformation for vast parts of the public sector, and accessible, affordable internet. Such capabilities are an asset even in normal times—and particularly so in the context of a lockdown, a public health emergency, and socially distanced activities.
Third, many digitally evolved countries used their advanced status in different ways that contributed to economic resilience. Consider the cases of Ireland and South Korea. The Irish economy, more than that of any other European Union member state, scored high on the integration of digital technology into the economy and the digitization of businesses in general, with 35 percent of businesses selling online, 20 percent using big data, and a strong track record of digital public services. These translated into significant economic continuity even as the country locked down.
In South Korea, digital advancement and one of the highest rates of smartphone penetration anywhere in the world were key to a highly effective COVID-19 response. The public authorities and companies used multiple digital tools, from a government-issued contact tracing app to a smart city database to credit card transactions data, closed-circuit television footage, and smartphone location data to track COVID-19 exposure and transmission. It was even able to publish anonymized patient routes. This gave South Koreans the confidence to maintain economic and social activity with fewer restrictions than was the case in other countries. With recent memories of Middle East respiratory syndrome (MERS) and severe acute respiratory syndrome (SARS) outbreaks, there was a greater public willingness to trade off privacy for more aggressive steps to manage the pandemic. This extensive use of technology in managing the pandemic helped to buffer the negative economic impact.
The positive associations between advanced digital evolution and economic resilience are notable but not universal. Among the exceptions, the United Kingdom presents a striking contrast. It is highly digitally evolved. High-tech and information services contribute significantly to its GDP, and a high percentage of its labor force can work from home. Yet, its economic decline was significant, where quarterly GDP growth dropped nearly 22 percent between the second quarters of 2019 and 2020.
The United Kingdom’s unfortunate economic state matches the deadly impact of the virus: Since the start of the pandemic, more people have died there than anywhere else in Europe. Some of this failure can be attributed to a poor government response. Despite being relatively better prepared digitally to lock down, the government did not opt to do so until late March, weeks after other European countries. Moreover, the services sector as a whole makes up around three quarters of the British economy. The economy is disproportionately reliant on in-person activities within the service sector, with around 13 percent of total output based on activities like eating out, going to the movies, transportation, or attending live sporting events, as opposed to 10 percent in the rest of Europe. The slow government response and the makeup of the British economy led to the economic impact being severe despite a high state of digital advancement.
At the other end of the digital evolution spectrum, some less digitally advanced countries found ways to buffer the economic shock. Consider the cases of Indonesia and Vietnam—two economies scoring relatively low on our digital evolution scorecard. Both avoided the worst economic reversals. The Indonesian government increased government spending by nearly 10 percent. In Vietnam, the government was able to keep the virus under control through aggressive restrictions. Both the government and the citizenry, with recent experience in dealing with infectious diseases, were willing to tolerate preemptive actions such as shutting down borders, closing schools, and investing in a resource-intensive contact-tracing program. It also helped that Vietnam was a primary beneficiary of the manufacturing exodus from China.
There is no question that the crisis was a period of expansion for Big Tech. Microsoft snapped up three cloud computing companies. Amazon hired hundreds of thousands of new workers and added 12 Boeing 767s to its fleet. Apple bought a weather app, a virtual reality company, and a digital assistant and speech recognition software company, among others. Facebook launched work on an undersea fiber network encircling the African continent. It dropped $5.7 billion into India’s Reliance Jio, while Google committed $10 billion to expand across the board in India, even as the country was reeling from one of the world’s most devastating economic reversals. Facebook CEO Mark Zuckerberg said it was their “responsibility and duty to invest” and added, “We’re in a fortunate position to be able to do this.”
Indeed, Zuckerberg was speaking without a trace of irony and was in a fortunate position. There is no question that Facebook and Big Tech broadly prospered during this past year. But did Big Tech’s good tidings raise all ships? There is no question that it helped soften the blow. But the fortunes were not spread uniformly around the world. It all depended on what we did with that time online and where we lived while we were logged in.