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Wednesday, November 27, 2019

Digital GDP on Government's Mind. Can We Maximize Growth Through Cluster Development?

There is a growing body of evidence that the current economic measures are not capturing the full power of the digital economy. More particularly, digital content and the digital economy are not fully utilized. The Theory of Transactional Clusters starts to build a broad/general theory based on existing cluster research to better determine how information sharing within the digital economy impacts innovative growth.

Data has exploded over the past few decades. The value associated with digital services, software, and its impact on industry development is elusive at best. Older models are limited by the assumptions gained during their historical development. GDP is one such measure of national output but often doesn't do well in calculating digital value. Research has shown that digital content can increase GDP by as much as 6% (Byrne & Corrado, 2019).

From an economic standpoint, digital content represents only a sliver of total economic value. According to one of the largest Chinese technology manufacturers Huawei Technologies Co, we are skipping over a significant portion of our productive value in the GDP debate (Wladawsky-Berger, 2017). There is real value that will drive future markets and we have only just started to calculate that value. 

The Federal Research discussion on the value of consumer goods is broken down into the home goods that we buy to access networks and the subscription services for digital services (Byrne & Corrado, 2019). The value not reflected in standard GDP measurements amounts to approximately $1,775 per connected user per year from 2004 to 2017. The formula they use for the value of consumer digital services is below (hardware+subscription):

(Byrne & Corrado, 2019)
There is growing consensus that digital innovation has real value and influence on the development of new wealth. If we add in business development networks (i.e. collaborative networks) into the overall mix we will likely find that the value of efficiencies and innovation isn't being fully realized. We are missing a golden opportunity to develop areas of our nation that spearhead new ways to return manufacturing back to the U.S.

One of the major advantages of technology is that it creates spill over that speeds the pace of cluster growth.. "The digital spillover happens when technology accelerates knowledge transfer, business innovation, and performance improvement within a company, across supply chains and amongst industries, to achieve a sustainable development economic impact"(Xu & Cooper, 2019, p. 24).


Principle: Data services and technology have real value on innovation and GDP.



Consider that emerging online networks and software empowers companies to collaborate in ways that was not possible 20 years ago. Information is increasingly being shared and having major impact on jobs, life, and the economy as we know it! Those networks lead to innovation that is responsible for things like new cell phones and improved government efficiencies.

As much as $1.7 Trillion can be added to the economy by 2025 through digitization (Xu & Cooper, 2019). The same report said that 24.3% of the global GDP will be from digitization. Matched with proper cluster management it is possible that number could be much larger putting the U.S. on a leading path of inventors and builders. 

Principle: New inventions and the Butterfly Effect Increase Cluster Development.

In the cluster model the right factors lead to innovation and in turn impact the growth potential of the entire cluster. Think of a new manufacturing method in one company and how it is quickly adopted throughout the cluster to strengthen the entire system. The networks (physical and virtual) improve the speed of technology transference to other members of the system that creates benefits for the entire cluster. 


Principle: Technology can Increase Innovation through Connecting Ideas


Innovation occurs by connecting new and unique ideas to solve problems. Companies that are in close proximity to each other, share resources, and have movement of employees (spill over) have an easier time innovating. In the cluster model it is possible to see how creative destruction (Schumpeter) leads to pressure to innovate through the need for change, the firm invests in new products/services, and the social networks create and disseminate that innovation throughout the entire cluster. 


In the physical world, companies have an advantage by being next to each other and share physical assets. In contrast, in the virtual world companies have the mutual advantage of sharing intellectual resources. Physical proximity enhanced with digital interactivity that leads to product innovation through the sweat spot of economic growth. 


According to an article in Wall street Journal the U.S. has the largest digital economy 35% of GDP when compared to 18.5% average for other advanced nations (Wladawsky-Berger, 2017).  The number further represents about 1/3 digital assets and 2/3 digital spill over. Spill over often results in additional innovation as its make its way throughout its cluster.


The digital economy is going to continue growing. According to a 2017 Huawei Technologies Co., Ltd. and Oxford Economics study entitled Measuring the true impact of the digital economy, the digital economy will move from 15.5% of the entire global economy in 2016 to 24.3% in 2025. The U.S. should be leading that growth sector by making adjustments now to enhance future invention and manufacturing sectors.


More interesting the same study found that for every $1 invested in digital technologies over the past three decades a whopping $20 was added on average to GDP (Xu & Cooper, 2019, p. 24) That was much higher rate of return when compared to other investments that maintained on average a $3 return per $1 invested. As investment in technology increases so does wealth increase for a nation.

Principle: Investments in national technology leads to high impacts on GDP.

Interactive clusters strength is based in part on its infrastructure. Of which, the ability to share data and information relies heavily on high speed data delivery that can move ideas and resources quickly. Cities that invest in their technology infrastructure may find better opportunities for future growth as networks form to improve cluster development.

Principle: Technology infrastructure can enhance cluster development.

Our digital GDP provides a major strategic advantage that will lead to national innovation when harnessed properly. It is through this digital economy and the innovation it provides that new products that enhance manufacturing occur. When we put people to work building the products our companies invented we will find, not only our national wealth growing, but also our personal and local income.


There are two important things to consider when fitting this study into an economic cluster research....


1. Digital collaboration networks create value for businesses within a cluster. 

2. Bunching these networks into interactive clusters may enhance GDP through market driven innovative outcomes.

The study I'm working on fits with modern cluster research but was developed semi-independently from other theories. It has a few advantages that include sustainable development and the connecting of a few theories into one that may lead to break out markers. It is not a finished product but you may read about how far I am HERE 

David Byrne, Carol Corrado (2019) Accounting for Innovations in Consumer Digital Services: IT still matters Federal Reserve Board, Washington, D.C.https://www.federalreserve.gov/econres/feds/files/2019049pap.pdf

Wladawsky-Berger, I (September, 2017). GDP Doesn’t Work In A Digital Economy. The Wall Street Journal. Retrieved https://blogs.wsj.com/cio/2017/11/03/gdp-doesnt-work-in-a-digital-economy/

Xu, W. & Cooper, A. (2017). Measuring the true impact of the digital economy. Huawei Technologies Co., Ltd. and Oxford Economics.
  https://www.huawei.com/minisite/gci/en/digital-spillover/files/gci_digital_spillover.pdf




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