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Matt Hancock is Secretary of State for Digitial, Culture, Media and Sport, and is MP for West Suffolk.

Britain is one of the leading tech hubs of the world.  Of that we are rightly proud. And the nexus of creative ingenuity and digital excellent is at the heart of future success. 

All this is obviously true. But how true? Measuring the digital economy may not be the only topic in the Dog & Duck, but it imission critical that we get it right – and on this, there’s just been a big step in the right direction.

Just this month, the Office for National Statistics (ONS) set out a new way of measuring inflation in the telecoms sector in an attempt to capture its performance within the economy more accurately than it has been doing soThe new approach to calculating productivity would, in effect, move telecoms from being one of the worst performing sectors in the UK economy to one of the best.

The significance of this is not to be balked at. Because measuring the economy is already pretty imperfect, and this latest news helps to show that new technology is only making it harder.

For decades, statisticians have measured productivity essentially by taking GDP as a measure of output and dividing it by the amount of inputs – e.g. dividing GDP by the number of hours worked to calculate labour productivity, or by the amount of investment and employment for total productivity. Economists, in turn, have long taken GDP to be a proxy for the sum of human happiness, and productivity for the improvement in the human condition.

This may have been fine for a world where output was mostly physical: coal, cars, and widgets of every sort. And it just about works when the economy is mostly services – from haircuts to holidays.

But do these assumptions hold any longer? We have funded a £10 million project for the ONS to improve the way we make these measurements. For what we mean by productivity is being fundamentally challenged by the digital revolution, largely because so many new services are free. It’s vital we get this right.

Take Google maps. Using data from millions of travellers, my phone can tell me that it’s quicker to walk across the park than take a taxi. Great! This improves my health, is more pleasant, and saves me time and money. Good for the economy, right? Great for us, great for the economy. But this cuts GDP, and so shows up in the productivity statistics as a fall in productivity.

Thanks to the internet, I now book holidays entirely from my home. Again, that’s great. I get more choice, better value for money, and can do it all from the comfort of my armchair. But because there’s no travel agent fee, GDP as measured falls, and so too does the measure of productivity.

I’ve picked two, but these sorts of changes are happening on a mass scale. Traditionally, technology changed the relationship between input and output. This technology is changing the relationship between an input and the value that you get out. And this is much harder to measure.

Often new digital services that aren’t free are increasingly done at home, and so stop counting towards the “economy” too. And lots of new digital technology is completely different to what came before, so progress can’t be measured in an easy percentage increase. What is the increase in productivity of a phone on which all the world’s information is immediately available – so long as you have a signal?

Many of the challenges come back to the fact that the fuel that powers the digital economy is data. But unlike normal goods and services, data can be replicated for free.

The whole subject of economics is built on the idea of supply and demand and the price at which someone is willing to sell and another person is willing to buy. In the physical world, if you buy my apple, I can no longer have it. However, with data that doesn’t work anymore: if I give you my data, I still have it.

The consequences of these changes are huge. And in truth, nobody knows what the exact impact is, even if it could be properly measured. But what we do know is there is huge, unchartered value in being a world leader in the development and adoption of digital technology. From broadband, to digital skills, to support for the tech sector itself, we must back these new technologies and be the go-to place for their development.

The digital revolution throws up a legion of big policy questions too.

How should we think about competition policy, once we can shape it ourselves outside the EU?  How do we think about the big internet companies, given they have what are in many ways market dominant positions, but where that dominance gives us services for free? How do we ensure more high paid jobs are created to replace those lost to automation? How do we make sure the benefits of the new technologies are hewn to the good of humanity, so the dark risks around robotics and artificial intelligence are controlled?

And then there’s the social consequences: How do we ensure democratic debate is fair and based on objective facts in a social media age? How do we ensure the internet is a force for good, and children are protected online?

We have a huge and exciting agenda before us. It must be underpinned by the right values: that we cherish freedom, innovation, and the progress that brings, yet we care too about stopping harms and protecting the vulnerable. From the ethics of AI to stopping terrorism online, Britain is uniquely placed to lead the global debate in thinking about the future of the internet.

We can make a start by getting the measurement right.

17 comments for: Matt Hancock: The challenge and big implications of measuring productivity correctly

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