We live in a time of great resets. Even as globalization comes under attack in many parts of the world, the movement of data across borders is growing exponentially. Digital flows are now responsible for more GDP growth globally than trade in traditional goods. Automation, AI, the Internet of Things or business models such as the “sharing economy“ are changing how we conduct business and our lives. It is in this context that The Fletcher School at Tufts University, in partnership with Mastercard, present the Digital Evolution Index (DEI) 2017. It follows up on the earlier DEI, the world’s first pulse check of the global digital economy that was reported in the widely read 2015 Harvard Business Review article, “Where the Digital Economy is Moving the Fastest.”
The DEI 2017 is a data-driven holistic evaluation of the progress of the digital economy across 60 countries, combining more than 100 different indicators across four key drivers: Supply Conditions, Demand Conditions, Institutional Environment, and Innovation and Change. The resulting framework captures both the state and rate of digital evolution and identifies implications for investment, innovation, and policy priorities. DEI 2017 also highlights the evolving nature of the risks being created by our continuing reliance on digital technology. Towards this end, the study covers a key question of “digital trust.“ The DEI 2017 incorporates a newly devised analysis of digital trust that takes into account the trustworthiness of the digital environment for each country; the quality of users’ experience; attitudes towards key institutions and organizations; and users’ behavior when they interact with the digital world. This subject is of great interest to all participants in the digital economy, given the concerns about security of essential information, cyber-attacks, and consumers’ apprehensions—about the digital systems and their reliability, the digital companies and their growing dominance, and about the leaders of digital companies.
The DEI framework segments the 60 countries into Stand Outs, Stall Outs, Break Outs and Watch Outs. Three countries are notable as standouts even within the Stand Out segment: Singapore, New Zealand, and the UAE. Each has a unique policy-led digital strategy and a narrative that may be considered by other nations as worthy of emulation or adoption. The Nordic countries and Switzerland are at the top of the DEI 2017 rankings. China, once again, tops the list of countries in terms of the pace of change in its digital evolution, or momentum.
Our previous DEI study generated policy, executive, and investor interest worldwide. This edition offers new insights and directions for decision-makers at a time when the world is experiencing uncertainty on the geopolitical and economic fronts combined with the
The following two visuals capture how competitiveness and trust in digital economies vary across the world:
The Big Picture: Digital Evolution
The competitiveness of a country’s digital economy is a function of two factors: its current state of digitalization and its pace of digitalization over time, as measured by the growth rate of a country’s digitalization score over an eight-year period (2008—2015). We arrayed countries’ latest year (2015) score (state of digitalization) on the vertical axis against the growth rate over an eight-year period (pace of digitalization) on the horizontal axis to create the DEI Chart—an atlas for the digital planet. This chart helps to classify countries into four distinct trajectory zones: Stand Out, Stall Out, Break Out, Watch Out.
Stand Out countries are both highly digitally advanced and exhibit high momentum. They are leaders in driving innovation, building on their existing advantages in efficient and effective ways. However, sustaining consistently high momentum over time is challenging, as innovation-led expansions are often lumpy phenomena. To stay ahead, these countries need to keep their innovation engines in top gear and generate new demand, failing which they risk stalling out.
Stall Out countries enjoy a high state of digital advancement while exhibiting slowing momentum. The five top scoring countries in the DEI 2017 ranking—Norway, Sweden, Switzerland, Denmark, and Finland—are all in the Stall Out zone reflecting the challenges of sustaining growth. Moving past these “digital plateaus” will require a conscious effort by these countries to reinvent themselves, bet on a rising digital technology in which it has leadership, and eliminate impediments to innovation. Stall Out countries may look to Stand Out countries for lessons in sustaining innovation-led growth.
Break Out countries are low-scoring in their current states of digitalization but are evolving rapidly. The high momentum of Break Out countries and their significant headroom for growth would make them highly attractive to investors. Held back often by relatively weak infrastructure and poor institutional quality, Break Out countries would do well to foster better institutions that can help nurture and sustain innovation. Break Out countries have the potential to become the Stand Out countries of the future with China, Malaysia, Saudi Arabia, Kenya, and Russia leading the pack.
Watch Out countries face significant challenges with their low state of digitalization and low momentum; in some cases, these countries are moving backwards in their pace of digitalization. Some of these countries demonstrate remarkable creativity in the face of severe infrastructural gaps, institutional constraints, and low sophistication of consumer demand. The surest way for these countries to move the needle on momentum would be to improve access to the internet for their masses by closing the mobile internet gap—that is, the difference between the number of mobile phones and the number of mobile phones with internet access.
The Trust Landscape
Through combining the Experience and Environment scores, we capture the overall trust ecosystem supplied by governments and businesses—the guarantors of trust. We contrast these scores with how users—the givers of trust—behave in each digital trust system. Countries fall into four zones: High Trust Equilibrium, Low Trust Equilibrium, Trust Surplus, Trust Defecit.
High Trust Equilibrium: Much like Stand Out nations, these countries are rare. Singapore, Spain, Norway, Hong Kong, and Finland all have users that exhibit patient and engaged behavior online combined with a more trustworthy environment and relatively seamless experience. They are in equilibrium because their level of trust—as exhibited through their behavior—matches the environment.
Low Trust Equilibrium: Among countries in the Low Trust Equilibrium zone such as Pakistan, Jordan, and Egypt, user trust—as exhibited through their behavior—matches the less trustworthy and more friction-laden environment. This could cause users in these countries tend to be less engaged and less patient with friction online.
Trust Surplus: Countries like China, Turkey, and Malaysia enjoy a Trust Surplus. They have patient and engaged users despite high friction experiences online and relatively less trustworthy environments. This Trust Surplus may be partially due to the high momentum many of these countries are experiencing—for many users, a slow smartphone is far superior to the lack of connectivity they may have lived with just a few years prior.
Trust Deficit: Countries in the Trust Deficit zone are similar to High Trust Equilibrium countries in terms of their experience and environments; however, users in these countries such as South Korea, US, France, and Australia tend to be less patient and fickle when faced with friction online.
1. Use Public Policy as Key to the Success of the Digital Economy
Highly evolved countries typically have had strong government/policy involvement in shaping their digital economies. High momentum countries typically also have strong government/policy involvement. A sophisticated understanding of the state and drivers of the digital economy and its impact on the overall economy are essential for the success of a wide range of prominent policy imperatives such as: how Brexit negotiations are conducted; how India nudges its society towards a “less cash” future; and how the US and China compete for economic dominance.
2. Identify and Amplify Drivers of Digital Momentum
Digital momentum is powered by different drivers depending on a country’s level of digital evolution and economic advancement. This has different implications for what advanced economies and developing economies ought to prioritize: innovation and institutions, respectively.
3. Organize Digital Entrepôts As Linchpins of the Digital Planet
Smaller countries with strong institutions can create high value as early adopters and create a demonstration effect for the world by assembling the right ecosystem.
4. Reinvent the Digital Stalwarts through Re-focusing on Innovation
The digitally most advanced countries can put their maturity, scale and network effects to use to reinvent themselves and grow.
5. Play Digital Catch-Up by Closing the Mobile Internet Gap
The digitally least advanced countries must allocate limited resources wisely. Enabling internet access on the mobile phone provides the highest bang for the buck.
6. Work Harder to Earn Users’ Trust in More Digitally Evolved Countries
Technology providers and policymakers offering privacy, security, and accountability may need to prioritize their marginal resources towards the more evolved countries with slowing momentum, where they risk losing users experiencing a “trust deficit.”