Effect of Closing the Digital Divide on Global Economic Growth & Participation

Introduction

In today’s technological world, many tasks once performed by humans have been automated and moved to digital interfaces accessible from a personal computer or a smartphone. According to the Pew Research Center, 77% of the United States owns a smartphone and can access the internet; however, average smartphone usage in developing countries is a mere 45%.[1][2] As we have advanced, information people rely on has increasingly become digitized. Online searches provide those in developed nations with access to information and services that aid them in performing everyday tasks and managing their responsibilities and money. However, many in developing countries lack these important tools. Considering financial transactions are increasingly being performed online, many will be left without the technology to access the internet, and one-quarter of the population will remain unbanked.[3] In the United States, a developed nation, 87% of the population has access to traditional banks and the modernized, saving and investment tools they provide.[4] As depicted by Figure 1, the divide in access to technology around the world has been growing between developing and developed countries. As shown by the global average, more are negatively affected by the divide than those who have access to modern technology.

[5]

Figure 1. Global Digital Gap

  1. Current Actions Being Taken

In the past decade, companies and nonprofits have entered developing countries to study how the lack of technology and infrastructure is holding back economic growth. A belief held by many in the public is that the hardware to access the internet needs to be distributed amongst those who would otherwise not be able to afford such devices.[6] Additionally, as of now, most rural areas do not have the infrastructure that provides them with internet access.[7] Nonprofits and companies in the area are trying to work with local governments on reforms that will help bring technological and economic growth to the area. Firms such as McKinsey & Company have pushed for less economic regulation to increase regional economic competition.[8] Companies have succeeded in building infrastructure in villages and have drastically changed the economies of those communities. FinTech firms have rushed into India to take advantage of the competitive economy.[9] Where villages may have once stood, factories and other businesses will be built. Workers will receive regular paychecks, and can worry less about their income each month.

In addition to the creation of infrastructure and distribution of devices, many in rural areas need access to a bank. Researchers at the University of South Wales Faculty of Law recognized that many FinTech firms offer their services for lower costs than most banks. The researchers observed that these firms offer more generous interest rates and use simpler interfaces.[10] One example is Kenya’s M-Pesa which helps workers deposit and transfer money through their cell phones and removes the physical bank from the picture.[11]

Several countries are taking advantage of the technology to help make government banks more accessible to the poor and have created laws to govern and regulate these services. Upon the inauguration of Prime Minister Narendra Modi, the Indian government opened state bank accounts for all Indian citizens as a part of their financial inclusion program called “Pradhan Mantri Jan Dhan Yojana” meaning “Prime Minister’s People’s Wealth Plan.”[12] The program’s slogan “Mera Khatha, Bhagya Vidhatha,” means, “My account brings me good fortune.” Citizens can earn interest on their deposits while knowing the Indian government insures their accounts. The program increased the percent of Indian citizens with a bank account from 53% in 2014 to almost 80% percent in 2017.[13] In the Indian state of Bihar, public schools are required to open bank accounts for students and deposit scholarship money for further education.[14] Indian politicians are also giving out free smartphones to constituents in exchange for the vote.[15] Although corrupt, it benefits all parties involved as it allows more people to become involved in the economy and set and achieve financial goals for themselves.[16]

Many of these programs are moving the world in the right direction; however, there are still many people who live in countries that will not give them the tools that they need and refuse to allow their participation in the country’s economy. Some governments target minorities and women, whom they treat as a lower class of society. Work and educational opportunities are often taken away, and they are often forced to be laborers for those deemed as the superior or ruling class. These show how, although progress has been made in some countries, the solution is an international one led by organizations such as the United Nations.

  1. An International Solution

To tackle the global digital divide, policy solutions by individual governments will not work as many choose not to empower their citizens as a way to consolidate power. A step in the right direction would be increasing access to functional and financial literacy programs, formal education and job training, and opportunities to attain specialized certificates run by an international education organization such as the United Nations Educational, Scientific and Cultural Organization (UNESCO) which should be funded by an international trust paid into by all United Nations member nations.

Teaching communication with those outside their country will encourage businesses to enter these developing markets as workers can understand tasks assigned to them and will be able to execute them. While teaching them to communicate, their education should focus on workers’ soft skills.[17] Soft skills allow workers to communicate their concerns with their bosses and allow them to communicate with foreign investors. Along with functional literacy, many of these people would benefit from basic education in personal finance to become financially literate. However, the most essential form of literacy needed is technological literacy. Companies are moving their businesses to the internet and are looking for workers who can work with technology.[18] Increasing financial and technological literacy will bring more jobs as such knowledge proves to foreign investors that they are investing their money into people who understand the value and purpose of money and goods that they may produce, or the purposes of the service that companies may provide from that location.[19]

Teaching marketable skills will attract foreign businesses and increase investments made into communities. When large amounts of these companies enter these underdeveloped areas, there will be competition for workers; thus, wages and benefits will be very generous. Workers will not have to worry about being taken advantage of and can have peace of mind that their rights will be protected. This also takes down the predominant barrier for an education today, which is cost. More students will be able to finish their primary and secondary education instead of having to leave school to work and support their families. Students will earn a significant return on their investment into their diplomas and will have opportunities to land prestigious and high-paying jobs at respected firms and build a network outside of their small town or village with upper-level employees of large companies and can use their skills to bring more investments to their community and advance their careers.

For older students or adults, who may still have difficulty affording a college education, or never received a primary education, receiving a certificate in a specialized area, such as Information Technology (IT), can attract attention from international businesses looking for global opportunities.[20] Firms can confidently enter these markets knowing that workers are skilled and certified to practice a specialized trade. Even without traditional college degree, they have in-demand skills that pertain to specific industries such as IT, customer support, and increasingly data science and web development, fields that once required a computer science degree.[21] As shown in Figure 2, developed countries have taken advantage of this industry to help grow their GDP’s (Gross Domestic Product) while many developing countries have their GDP’s held back by their lack of technological industries. Training in this field can change this statistic and make these countries more competitive in the technological world.

[22]

Figure 2: Africa’s iGDP Vs. Other Economies, 2012.

Businesses will know that an investment in the area will pay off because the people there are not only skilled, educated, and literate, but also understand economic, political, and social aspects of business.[23] Workers will understand the value of their work and companies will know they are dealing with people who can help them grow.[24] With additional investments into communities, more will have access to the technology that many banks use today and families would be able to afford better internet access to support devices for everyone in their household. Such tools will help them invest wisely so that they can live a comfortable life and be able to set their children up for success by investing in college savings funds and spending money on healthcare. Furthermore, those with money in their accounts can make purchases to help them build credit for larger purchases in the future such as a vehicle, house, or college education.[25]

Those who choose to educate themselves in the field can also invest their money in stocks and bonds that will grow in value over time. These days, anyone can access the stock market from an application on their phone. Many of these apps offer low trading fees which means those who are still building their finances can invest in hopes of strengthening their financial portfolio and will have financial security, even when they retire.[26]

Economics tells us that financial prosperity, a determinant of demand, will increase household spending on goods such as cable television. This increase can be created by educating those without access to an affordable education. Many of the world’s most influential leaders have repeatedly accentuated the value of education in one’s life and the lives of those in their communities. Nelson Mandela, a revolutionary anti-apartheid leader in South Africa, who went on to become its first black president, said, “Education is the most powerful weapon which you can use to change the world.”[27] The key to fixing this issue is investing not just in infrastructure, but in the people.[28]

  1. Possible Effects on Society and the Global Economy

Closing the digital divide and increasing the number of educated citizens, will mean a substantial increase in economic participation. Currently, the labor force participation rate is decreasing due to an increase in automation and a lack of movement on building infrastructure.[29] However, if companies noticed a large educated population, employment would increase as companies are looking for skilled workers in countries with few regulations and taxes and many of these countries are looking for ways to increase their GDP and decrease unemployment.

Educated workers in these developing countries will be more than eager to accept any job offer that they can get and are less likely to form unions that often hinder economic growth.[30] A job that an unemployed citizen in the Western World would be repulsed by could be the dream job of many living in poverty as many of these countries cannot afford welfare programs.[31] Due to their willingness to work, firms will want to hire them as the most important factor in business is efficiency. If the company knows that workers will always be on the job when they need to, they can increase investments into local infrastructure, such as broadband internet, as they know that they will get a return on their investment.[32] Companies, wanting to maintain their workers’ trust, will provide benefits, such as healthcare, and a competitive salary. As more companies move in, there will be more opportunities for people to join the business and be able to climb the corporate ladder.

This would additionally increase corporate diversity and bring new innovative ideas to help reshape firms’ global presence as those from different parts of the world see things differently. Companies with employees of only well-developed countries will be out of touch with the issues in developing countries and may struggle to spread in these countries. According to former Massachusetts Mutual Life Insurance Company Chief Technology Officer, Mark Roellig, “Fostering diversity and inclusion is a direct path to customer centricity… If MassMutual wants its customers to be comfortable working with the company, the teams serving them ought to look like them, share common experiences with them, and fundamentally understand their concerns.”[33] Companies need diverse points of view that align with views of the people they want to serve.[34] Those who rise from such areas can advocate for their communities and fix the problems like former Goldman Sachs CEO Lloyd Blankfein who grew up in public housing. He grew wealthy and created a charitable organization with his wife called the Lloyd and Laura Blankfein Foundation which focuses on issues within the New York City, where Blankfein grew up.[35] A majority of the donations went to Robin Hood, an education focused non-profit that provides school supplies and invests in improving teachers to revitalize the classroom environment.[36]

Such organizations could form in these developing countries due to successful citizens wanting to give back and open doors for others. Implementing such programs would profoundly affect economic growth and could cause the Fourth Industrial Revolution in the sector of technology. Many would have the opportunity to take advantage of digital financial services and access to credit to invest in stocks or other assets of their choosing, stimulating economic growth not only locally but around globally.[37]

Such programs would increase economic diversity and help strengthen and stabilize the economies. Nations would no longer have to depend on a single export, such as crude oil, coal, or precious metals that often fluctuate in price, causing drastic swings in the market.[38] Technological industries would bring stable ways for countries to increase their GDP and decrease their dependence on a singular unstable resource.

[39]

Figure 3: Fuel Exports As Percentage of Merchandise Exports, 2013 Unless Otherwise Indicated

As shown in Figure 3, many developing countries, such as Iraq and Libya, have oil-dependent economies. When the oil prices falls, countries who depend on oil exports will suffer and so will their citizens. Many of these countries are developing countries with non-democratic theocratic governments, such as Iran, and formerly Iraq, that are often unstable and abuse their citizens.[40] With a combination of an unstable government and an unstable economy, many of these countries suffer from famine and sectarian violence.

Bringing in new industries can stabilize these economies by making them less oil dependent and decreasing sectarian violence due to increase in unity through a common goal of economic prosperity. As best stated by 2020 United States presidential candidate, Andrew Yang, “by getting the economic boot off of people’s throat… we can help alleviate tribalism.”[41] New economic opportunities can politically stabilize countries and contribute to increases in economic growth and participation. A stable government and economy can do more for its people and generate better social programs by pulling in resources from other countries. They could provide free public education to more students and increase the quality of education by bringing in teachers and educational resources, including educational technology, from developed countries.

The government would also now have the resources to regulate the economy instead of focusing on defense and security. According to the World Economic Forum, the world combined spends 13.6 trillion dollars yearly on violent conflicts. 13.3% of the world’s GDP, which amounts to approximately 10 trillion dollars, is lost from the costs of violent conflicts.[42] Governments can invest in economic stimulation and limited regulation to lure in foreign companies and investors to build factories and move their offices to their country. Regulation could include limited antitrust laws to protect the public and prevent the rise of monopolies and monetary policy to control and prevent hyper-inflation while still promoting laissez-faire economics.

These solutions will close the digital divide and bring people once isolated from the global economy together with those of developed countries who have had accessed for many generations. Many of those currently left out of the digital era will be able to participate in the markets through the products of their labor, or their ability to invest their money into stocks, bonds, or even small businesses. Better access to education will increase access to technology and lead to extensive economic growth and a sharp increase in market participation and bring together large private sector companies with rural citizens.

Conclusion

Closing the digital divide will have an invaluable effect on economic growth as it will greatly decrease global unemployment and lead to substantial increases in the number of global market participants. Closing the divide will bring together shareholders from all sectors of the economy and international non-profit organizations who can work together to build the economies of these developing countries and to build up the infrastructure and the societal models of these areas. Fewer will suffer from the economic, social, health, and political disparities that often result from the divide. Where resources such as water may have been retrieved from a single well for an entire community, a public sewage and plumbing system may be installed to provide everyone with the necessary resources to live hygienically. Where electricity may have never run before, a power grid may be installed along with cables connected to homes and schools. Companies will continue to bring new opportunities to those living in developing countries and develop local connections that can lead to innovation and the creation of businesses.[43] Rural communities could be urbanized and become large cities that could become global trading hubs which could result in increases in imports and exports and make many of these countries extremely competitive in the global economy. A once undeveloped region could become the world headquarters for new technology companies in industries including manufacturing and automation. Increasing access to education and job training will motivate companies to move their businesses to developing countries and encourage entrepreneurs to start their own firms in these regions, which will bring infrastructure and technology to help close the digital divide and help more citizens access and participate in the global markets leading to overall global economic growth.

Sources:

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[2] Smartphone Ownership Is Growing Rapidly around the World, but Not Always Equally.” Pew Research Center, www.pewresearch.org/global/2019/02/05/smartphone-ownership-is-growing-rapidly-around-the-world-but-not-always-equally/.

[3] Klasa, Adrienne. “Fintech fights the good fight in the developing world.”TheBanker, www.thebanker.com/Transactions-Technology/Technology/Fintech-fights-the-good-fight-in-the-developing-world?ct=true.

[4] Consumer Banking: Statistics and Trends in 2019.” ValuePenguin, lendingTree, www.valuepenguin.com/banking/statistics-and-trends.

[5] Teklemariam, Mekuria. “The Global Digital Divide Widening Gap from 1997 to 2014 Trends.” Econstor, www.econstor.eu/bitstream/10419/168520/1/ Mekuria-Kwon.pdf. Chart.

[6] Barzilay, Omri. “New Fintech Platforms Herald the Rise of Mobile Trading.” Forbes, www.forbes.com/sites/omribarzilay/2017/04/12/

new-fintech-platforms-herald-the-rise-of-mobile-trading/#1b079c5910ba.

[7] Kendall, Jake. “Fintech Companies Could Give Billions of People More Banking Options.” Harvard Business Review, 20 Jan. 2017, hbr.org/2017/01/ Fintech-companies-could-give-billions-of-people-more-banking-options.

[8] Cabral, Armando, et al.

[9] What’s Driving India’s Fintech Boom?” Knowledge@Wharton, Wharton School of the U of Pennsylvania, 11 Feb. 2018, knowledge.wharton.upenn.edu/article/ whats-driving-indias-fintech-boom/.

[10] Buckley, Ross P., and Sarah Webster. Fintech in Developing Countries: Charting New Customer Journeys. UNSW Law. University of South Wales Law.

[11] Shaolin, Yang

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[13] “Number of Adult Indians with Bank Accounts Rises to 80%.” The Economic Times,Times Group, 20 Apr. 2018, economictimes.indiatimes.com/industry/banking/ finance/banking/number-of-adult-indians-with-bank-accounts-rises-to-80/ articleshow/63838930.cms.

[14] Middleton, Emily. “How Human-Centered Design Can Help Make India’s Digital Transformation More Inclusive.” Harvard Business School, digital.hbs.edu/ fintech-digital-currencies/ how-human-centered-design-can-help-make-india’s-digital-transformation-more-inclusive/.

[15] Goel, Vindu, and Suhasini Raj. “In ‘Digital India,’ Government Hands out Free Phones to Win Votes.” New York Times, New York Times Company, 18 Nov. 2018, www.nytimes.com/2018/11/18/technology/ india-government-free-phones-election.html.

[16] Barzilay, Omri.

[17] Engel, Emily. “Workforce Development for Chicago’s Youth.” Federal Reserve Bank of Chicago, 1 Mar. 2018, www.chicagofed.org/publications/blogs/cdps/2018 workforce-development-for-chicago-youth.

[18] Closing the Digital Divide a Framework for Meeting CRA Obligations. Federal Reserve Bank of New York, www.newyorkfed.org/medialibrary/media/ outreach-and-education/cra/reports/DallasFed-Closing-the-Digital-Divide.pdf.

[19] Cabral, Armando, et al. “Digital Divide: The Impact of Closing Africa’s Internet Gap.” McKinsey & Company, Mar. 2014, www.mckinsey.com/business-functions/ marketing-and-sales/our-insights/

[20] Rayome, Alison DeNisco. “Google Launches Professional IT Certificate, 10,000 Scholarships Available.” TechRepublic, CBS Interactive, 6 Jan. 2018, www.techrepublic.com/article/google-launches-professional-it-certification-10000-scholarships-available/.

[21] “IBM Data Science Professional Certificate.” Coursera, www.coursera.org/specializations/ibm-data-science-professional-certificate.

[22] Cabral, Armando. “Africa’s iGDP Vs. Other Economies, 2012.” McKinsey & Company, Mar. 2014, www.mckinsey.com/business-functions/marketing-and-sales/our-insights/digital-divide-the-impact-of-closing-africas-internet-gap.

[23] Digital Divide.” Stanford Helps, Stanford University, cs.stanford.edu/people/ eroberts/cs181/projects/digital-divide/start.html.

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[25] What’s Driving India’s Fintech Boom?” Knowledge@Wharton, Wharton School of the U of Pennsylvania, 11 Feb. 2018, knowledge.wharton.upenn.edu/article/whats-driving-indias-fintech-boom/.

[26] Barzilay, Omri

[27] Mandela, Nelson Rolihlahla. Speech. Madison Park High School, 23 June 1990, Boston.

[28] Shaolin, Yang. “Bridging the Digital Divide and Maximizing Digital Dividends for All.” The World Bank, World Bank Group, 4 Dec. 2017, www.worldbank.org/en/ news/speech/2017/12/04/ bridging-the-digital-divide-and-maximizing-digital-dividends-for-all.

[29] Labor Force Participation Rate.” The World Bank, World Bank Group, Apr. 2019, data.worldbank.org/indicator/sl.tlf.cact.zs.

[30] Gitis, Ben. “Union Membership and Economic Growth.” American Action Forum, 26 May 2016, www.americanactionforum.org/research/ union-membership-economic-growth/.

[31] Rodriguez, Jacobo. “An Export That Developing Countries Don’t Need.” CATO Institute, www.cato.org/publications/commentary export-developing-countries-dont-need.

[32] “The Digital Divide: Financing Broadband in Our Communities.” Federal Reserve Bank of Richmond, 21 Sept. 2018, www.richmondfed.org/press_room/our_news/2018/20180921_broadband.

[33] “MassMutual CTO: Diversity, Inclusion Underwrite Success.” Wall Street Journal,

Dow Jones & Company, deloitte.wsj.com/cio/2018/08/07/ massmutual-cto-diversity-inclusion-underwrite-success/.

[34] Jackson, Dylan. “Frustrated with Big Law Diversity, Many Companies Are Looking Elsewhere.” The American Lawyer, 3 June 2019, www.law.com/americanlawyer/ 2019/06/03/ frustrated-with-big-law-diversity-many-companies-are-looking-elsewhere/.

[35] Blankfein Foundation Gave More than $1.7 Million in 2009.” Philanthropy News Digest, Candid, 10 July 2010, philanthropynewsdigest.org/news/ blankfein-foundation-gave-more-than-1.7-million-in-2009.

[36] Who We Are.” Robin Hood, www.robinhood.org/programs/who-we-fund/#education.

[37] Ameh, Shamel. “Why Strengthening the Global Economy Means Closing the Digital Divide.” World Economic Forum, 1 Mar. 2018, www.weforum.org/agenda/2018/03/ closing-the-global-economy-s-new-digital-divide.

[38] Nogrady, Bianca. “Your Phone Is Full of Untapped Precious Metals.” BBC, 18 Oct. 2016, www.bbc.com/future/story/

20161017-your-old-phone-is-full-of-precious-metals.

[39] Hutt, Rosamond. “Fuel Exports as Percentage of Merchandise Exports, 2013 Unless Otherwise Indicated.” World Economic Forum, 10 May 2016, www.weforum.org/ agenda/2016/05/which-economies-are-most-reliant-on-oil/.Chart.

[40] Lefton, Rebecca, and Daniel J. Weiss. “Oil Dependence Is a Dangerous Habit. Center for American Progress, 13 Jan. 2010, www.americanprogress.org/ issues/green/reports/2010/01/13/7200/oil-dependence-is-a-dangerous-habit/.

[41] Andrew Yang Pressed on Support from White Nationalists. CNN, 2019.

[42] Schippa, Camilla. “Conflict Costs Us $13.6 Trillion a Year. and We Spend Next to Nothing on Peace.” World Economic Forum, 5 Jan. 2017, www.weforum.org/ agenda/2017/01/how-much-does-violence-really-cost-our-global-economy/.

[43] Ameh, Shamel

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Rahul Mahesh is a 18-Year Old student from Connecticut attending New York University with interests in business, politics, economics, and law.

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Rahul Skanda Mahesh

Rahul Skanda Mahesh

Rahul Mahesh is a 18-Year Old student from Connecticut attending New York University with interests in business, politics, economics, and law.

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