Economic terms can civilise the ascent of digitalisation

Sami Mahroum is a professor of management practice at Solvay Brussels School of Economics and Management. In this post, he argues that it’s time to rethink the economic definitions of goods to aid governments in their responses to technological progress.

Technological revolutions have long been opposed by luddites, and championed by wide-eyed optimists. To reach the best possible outcomes, society as a whole needs to ensure both sides are taken into account.

The advances of our current era — such as AI, robotics, automation, and digitisation — provoke questions related to job security, privacy, and new forms of monetisation. Those questions have their place. But the calibre of the answers officials can provide to them depends on how we frame the debate. In this regard, economists can help.

Here’s how.

Economists classify goods into four key categories: private, public, common and club goods.

Briefly, private goods are those that, once possessed, become exclusive to their owners. A home, for instance.

A ‘club good’ is one that is exclusive to its members only, but available to anyone within that group. A Netflix subscription is a good example.

A ‘common good’ is open to everyone, but users compete for its use. Think of the UK’s NHS. Finally, a public good, like clean air and street lighting, belongs to everyone in an equal way.

But what counts as each is not set in stone. And technology can quickly upend the nature of goods. Here’s an example. Car drivers in the Middle East used to regularly listen to the Arabic version of BBC Radio when it was commonly available on regular FM radio. On June 30, 2015, the BBC switched the service from free-to-air to digital. At the time, the channel had an audience of around 36 million people, whether this number shrank or increased after the decision is not important for the millions of people who either don’t afford digital services or don’t know how to access them. Technology had converted what was, assuming you had access to FM radio, a public good into a club good.

Sometimes technology expands the class of a certain good too. Many cities now provide free public wi-fi; converting what used to be a club good, available for fee-paying member only, into a public good The same trick is repeated by open access scientific libraries and free learning platforms, such as Khan Academy.

In some instances, goods can straddle two camps. A concert in the Metaverse can be a club good, where only a paying member can watch it live, and then be made open to all after the fact. But digitalisation also offers the possibility of making some private goods into common goods, such as when musicians put their creations on SoundCloud or YouTube.

Transport, until very recently, was available either as a private or as a common good. Technological advances, especially GPS and Big Data technologies, have made it possible to offer transport services as a club good consumed by members of a ride-sharing app (such as Uber, Lyft, or BlaBlaCar).

Why does the changing nature of goods matter for public policy?

Governments need to support the creation and maintenance of public and common goods. Think, for instance, of drives to make a telephone landline available to every household. Or the continuation of universal postal services, where it costs the same price to send a first class letter regardless of where you’re sending it from and to. But deciding what is, and isn’t a public good, becomes trickier when new technology is shifting the classification boundaries.

Many ‘common goods’ such as BBC Radio are becoming ‘club goods’ as it becomes easier to place a digital perimeter around — and charge a membership fee for — the service. The digitalisation of government services has meant that some are now accessible only through an internet connections, which may or may not require membership with both a service provider and for the user to have access to online banking services for an e-payment. Meanwhile, users’ private data, supposedly a private good, is increasingly appropriated, becoming a common good for the “owner” of the information in the process.

The reclassification of goods raises two key questions.

The first lies in how governments deal with the impact of the digital revolution on transport services — an area where a great deal of public spending takes place. Technology is increasingly making it possible for privately owned cars to be deployed for dual private and public use. Governments may opt to provide a subsidy to private cars owners to help them convert their cars for dual usage for ride-sharing or carpooling. This would both lower costs and raise the supply of publicly available transport, increasing the value-added to the economy in the process.

A second, more broad, question is whether government intervention in the marketplace for technology ought to take place only to correct market failures, or whether there are other ethical and social dimensions that ought to be considered. The shift of many goods from public or common goods to club or private ones suggests ethical and social issues ought to play a role. Think, for example, of when the Icelandic government sold the genetic data of its entire population to Roche, a Swiss pharmaceutical company, turning what was personal information into a private good.

There are clearly ethical issues in making an entire nation a guinea pig for a company’s R&D. What this tells us is that, ultimately, governments must ensure that the provision of what ought to be public services is taken on by private sector actors only if it occurs within agreed ethical guidelines that guarantee transparency and fair use. Otherwise, we could all end up losing out.