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Chap 5 Fostering the Economic and Social Benefits of ICT
Principles of Education (Educ 101)
New Era University
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CHAPTER 1.
Fostering the Economic and
Social Benefits of ICT
SCOTT C. BEARDSLEY, McKinsey & Company Inc., Belgium
LUIS ENRIQUEZ, McKinsey & Company Inc., Belgium
SHEILA BONINI, McKinsey & Company Inc., Silicon Valley
SERGIO SANDOVAL, McKinsey & Company Inc., Belgium
NOËMIE BRUN, McKinsey & Company Inc., Lyon
The ICT industry—including telecommunications operators, computer and software producers, electronic equipment manufacturers—is playing an increasingly important role in the global economy. It created approx- imately 5 percent of total GDP growth between 2003 and 2008, and it represented 5 percent of world’s GDP in 2008 share is expected to reach 8 percent by 2020. 1 Because of its size and the nature of its products, the industry has a notable role to play in encouraging economic growth and contributing to other social goods, including improving education and healthcare access and services. Furthermore, recent McKinsey research shows that the ICT industry can potentially contribute to reducing worldwide CO 2 emissions by 15 percent in 2020—an enormous contribution—but we will focus here on the economic and social contribu- tions of the industry. 2 ICT enables economic growth by broadening the reach of technologies such as high-speed Internet, mobile broadband, and computing; expanding these technolo- gies itself creates growth, and the fact that technologies make it easier for people to interact and make workers more productive creates additional benefits. McKinsey estimates, for instance, that just one action—bringing mobile broadband levels in emerging markets up to those of more mature markets—could add between US$300 and US$420 billion to the world’s GDP and 10 to 14 million direct and indirect jobs in areas such as equipment manufacturing and outsourcing/offshoring services (see Figure 1). ICT’s role in enabling economic growth has become more significant as governments are investing to stem the effects of the global financial crisis. As US President Barack Obama noted in January 2009, “Increased broadband spending, electronic medical records, green energy investments, and new computers for schools and libraries are all smart ways to keep America competitive while also creating new jobs and spending.” 3 And UK Prime Minister Gordon Brown has likened his government’s efforts to extend the country’s digital infrastructure to “the roads and the bridges and the railways that were built in previous times to stimu- late the economy.” 4 They are far from alone—Korea, Rep. (Korea) has long been a leader in broadband investment, and today countries from Greece to Malaysia have committed large amounts of money to develop their ICT sectors. Beyond economic benefits, the ICT industry is uniquely positioned to help build a more socially sus- tainable future. McKinsey’s most recent consumer survey shows that the ICT industry is perceived to be among the top four industries in terms of its potential contri- bution to society behind only healthcare, agriculture, and utilities (Figure 2).The importance of ICT increased more than any other sector since 2006, 5 showing that consumers place growing importance on the industry as social contributor. And the recent crisis
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has put even more pressure on all industries, ICT included one considers that no other industry in the world can reach out to over 4 billion mobile phone owners almost instantaneously, 6 or that 422 million households worldwide were connected to the Internet at the end of 2009, 7 this importance is hardly surprising. Governments have also realized that ICT can offer social benefits, so they have started large programs to improve the level of health, education, and government services they offer to their citizens. For example, as we will explore later in greater depth, ICT is making an impor- tant contribution to health delivery: doctors can directly access their patients’ medical records from anywhere. Creating these economic and social benefits will require not only large investments and commitment from different stakeholders but also changes to existing regulatory frameworks, compromises between govern- ments and industries, and strong public engagement. This chapter will detail how ICT drives growth, discuss the economic and social benefits it can create, and suggest some steps stakeholders should take to fully reap them.
Investing in ICT to drive economic sustainability Countries have started to invest in ICT because they know that the sector can have a substantial positive impact on social and economic sustainability. Investing in ICT is a key driver of economic development for emerging and developed markets alike. Figure 3 shows
the correlation between ICT readiness—the availability of broadband, computers, and software in a country— and competitiveness_._ The countries with the most- advanced ICT sectors present the highest levels of com- petitiveness, suggesting that having a country enabled by ICT improves the overall performance of its economy in the long run. In fact, investing in ICT can help countries increase their annual GDP growth by 0–0 percent on average, on an annual basis, for each increase of 10 percent in household penetration, as several studies have shown (Figure 4). 8 This impact is created by a combination of direct and indirect effects on the economy. Direct effects come from investments in infrastructure (by government and operators), increased availability and penetration of services, and increased employment in the ICT sector. A good example of direct effects is seen in Korea, where growth in the ICT sector was 43 percent between 1999 and 2003; in the same period, it was negative in Japan, less than 1 percent in Malaysia, and 5 percent in Singapore. 9 Korea drove this growth by pushing forward a national vision to develop its ICT sector; this required a concerted effort between public and private parties and large subsidies from the state country invested more than US$700 million in subsidies between 1995 and 1997 to link around 15,000 institutions in 80 major areas of the country with high-speed fiber networks. It also provided low-interest loans with minimal paper work for individuals to acquire personal computers
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Asia 150–
40–
60–
50–
300–420 billion 10–14 million
6–8.
1–3.
0–1.
1–1.
Africa
Central and Eastern Europe
Latin America
TOTAL
Figure 1: Economic effects of leveling out mobile broadband penetration (top-down estimates)
Source: McKinsey & Company analysis. Note: The figure shows absolute increases in each region. Assumptions are that mobile broadband reaches February 2009 levels of fixed broadband penetration in Western Europe (54 percent); an increase of 10 percent in broadband penetration leads to a 0 percent increase in GDP; employment elasticity of 0. percent.
GDP Jobs (US$ billions) (millions)
(PCs) and budgets for the purchase of PCs for teachers and schools results are not only 99 percent broad- band household penetration but also an ICT sector that is heavily entrenched in Korea’s economy: it represents 17 percent of the country’s GDP—making the largest contribution by any single sector—and it accounts for over 43 percent of total exports from the country. 10 The direct effects of ICT can also be seen in bringing ICT services to remote, underserved areas. In this case, direct investments will bring job creation and extra spending that benefit the population in these areasónica, for example developed the Intégrame initiative in Peru, which aims at extending ICT services via public-private partnerships. As a result of these part- nerships, mobile, landline, Internet access, and television services are now offered using wireless technology at better tariffs to 62,300 people in 180 locations through- out the country. Further, Intégrame has opened new markets for Telefónica and increased the speed of social and economic development through the inclusion of rural communities. 11 ICT’s indirect effects include productivity gains for businesses, increased foreign direct investments as a consequence of a country being ICT-enabled, the creation of innovative industry clusters such as knowl- edge cities, and higher exports of ICT services such as outsourcing. The Indian Tobacco Company, an Indian con- glomerate, illustrates ICT productivity gains for an economy agri-business division, one of India’s
largest exporters of agricultural commodities, created e-Choupal in 2000 as a supply chain management system to reach farmers have traditionally sold their products through inefficient physical marketplaces where they are forced to take whatever price is offered because they have limited access to information on market prices. E-Choupal, a kiosk with computers and Internet access, is a virtual marketplace where farmers can sell their products (e., soy, tobacco, wheat, shrimp) directly to producers, without paying fees to traders or commissions to agents tool also provides information in local languages about the weather, market prices,and farming best practices, as well as general news. According to Mr Singh, a farmer in the northern state of Uttar Pradesh, annual incomes in Kurthia have risen from up to Rs50,000 (~ 800) before e-Choupal to Rs100,000–Rs120,000 (~ 1,600–1,900). 12 E-Choupal has been useful not only for users but also for ICT, because it has created profitable direct access to farmers and raw materials without intermediary fees. As of 2009, e-Choupal had reached 4 million Indian farmers in 40,000 villages through 6,500 kiosks; the goal is to reach 10 million farmers by 2012. 13
The social benefits of ICT Beyond encouraging economic growth, the ICT industry is helping to achieve social sustainability by improving the way societies and governments provide education, healthcare, and services to citizens. Additionally, the ICT
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Various countries
United Kingdom
Australia 1
New Zealand
Malaysia
Middle Eastern country
1–1.
0–0.
Average: 0–0 percent
Figure 4: Investment in broadband and economic growth
Source: Qiang and Rossotto, 2009; CEBR, 2003; ACIL Tasman, 2004. Note: Gray boxes refer to the range indicated. 1 Tasmania region only.
Country of Study Impact on GDP of an increase of 10 percent in broadband penetration
industry is changing the way people interact with each other, creating longer-term and largely positive changes in a variety of areas.
ICT’s impact on education The ICT sector has already dramatically changed the way people study. A wide range of information is available free on the Internet—something that was unthinkable just 20 years ago use of email, websites, and virtual classrooms and libraries has proliferated, facilitating the sharing of information on a large scale. Some countries have set specific initiatives to improve education through ICT. For instance, the deployment of the Jordan Education Initiative (JEI), a public-private partnership that aims to improve education in Jordan through the effective use of ICT, was launched in 2003 with the support of the World Economic Forum. Partnerships with multinational companies such as Microsoft and Cisco have enabled the equipment, with computer labs and broadband Internet, of 100 “Discovery Schools” around the country, along with the creation of e-learning curricula for 50,000 pupils and information technology (IT) training schemes for 3,200 teachers. 14 The performance of Jordan’s students is higher in Discovery Schools than in other schools, and higher levels of education are key to reducing unemployment and poverty. Another interesting example of an e-education program is in South Africa, a country with a 30 percent adult illiteracy rate. In partnerships with local communities, IBM has implemented labs in schools and associations that use a free Web-based program called Reading Companion program employs an innova- tive speech-recognition technology that listens, guides, and teaches children and adults to read English and improve their literacy skills. 15 For children, the software provides a solid grounding in reading, while it allows adults to gain literacy skills that will help them to search for a job and obtain a driver’s license, among many other things. According to IBM, independent evalua- tions of the technology have shown that young students using the software tested significantly higher on word recognition and comprehension tasks. For adults, the software improved English pronunciation and reading skills, contributed to learning gains, and enabled greater comfort with technology. Access to Reading Companion will be expanded to over 1,000 schools in South Africa over the next three years. 16 In addition, more than 600 sites, schools, and nonprofit organizations are using Reading Companion in 22 countries. 17
ICT’s impact on healthcare The use of ICT for health (e-health) has the potential to transform healthcare by efficiently connecting people and improving information sharing. Currently, e-health is predominantly seen in developed countries. But as the availability of ICT spreads rapidly in the
developing world, there is an opportunity to expand healthcare access to areas where distance, poverty, and scarce resources are currently barriers to even basic care. Thanks to ICT, doctors can access patients’ medical records more easily, have immediate access to test results from a laboratory, and deliver prescriptions directly to pharmacists. Patients with heart problems can carry monitors, which alert their doctors if their conditions change yet allow them to continue with their daily lives as usual. Denmark is a leading country in national healthcare information exchange, with the successful development of its national e-health plan healthcare portal was created in 2003 to enable patients to view their medical profiles and histories, renew their prescriptions, book appointments with doctors, and so on. 18 Healthcare professionals also have access to the same information and additional clinical knowledge the careful use of IT, the Danish health system has saved money, improved efficiency, and laid the foundation for improvements in the quality of care. 19 Another example is a major hospital chain in India, Apollo Hospitals. In collaboration with a leading provider of telecommunications and data communications systems, they are providing basic diagnostics (blood pressure), medical check-ups, and consultation via mobile services. 20 This project will enable the provision of affordable and accessible healthcare to millions of people in remote areas.
ICT’s impact on government services Early breakthroughs in e-government—such as the use of ICT to provide and improve public-sector services, transactions, and interactions—have enabled government organizations to deliver better services more efficiently. In many countries, more than 70 percent of taxpayers now file taxes electronically, for example, and many other transactions—ranging from renewing drivers’ licenses and paying parking tickets to managing government benefits—can be conducted online. Citizens have a much easier and faster access to government services. In Singapore, for example, citizens can buy replacement identity cards online by submitting digital passport-sized color photographs and scanned copies of existing identity cards. Also, when citizens are changing their residential address, they need to submit just one single report and all government agencies, educational institutions, and selected private companies will auto- matically be notified. A customer perception survey conducted by the Ministry of Finance and Infocomm in Singapore showed that, in 2008, 85 percent of respondents made transactions with government electronically, and 88 percent were satisfied, for four main reasons: it is easy to find information, it is user- friendly, the transaction is fast, and it is easy to complete. 21 In Malta, to take another example, citizens can purchase online copies of personal documents for
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and regulators seek consumer welfare and competition. Countries that manage to bring the different agendas together will see faster adoption of ICT and will be better positioned to benefit from it. Below there are some suggestions for each group.
Government’s role: To build and support ICT strategies Governments around the world are acknowledging, sooner or later, that the benefits of ICT are great and also that the business case is difficult for ICT companies. The main role of the government should be to help craft and support a vision for the ICT sector that can bring the interests of the different parties together and put them to work toward a common goal best way to do this is by:
Creating a strong ICT vision and strategy Governments around the world are realizing that having an ICT vision matters—they need to understand how their ICT sector can best enable other parts of their economies and social interests in order to convene industry stakeholders and align them to work toward that vision. Governments in the most networked countries have done just that. Singapore, for instance, has a vision of becoming an information society by 2015 do this, its government has put in place a strategy called Singapore i2015, which, according to Vivian Balakrishnan, Singapore’s minister for communication, seeks to “double the value added of the ICT industry to $
billion, to triple ICT exports to $40 billion, to quadruple software and IT services revenues to $24 billion, and finally to create of 80,000 new jobs, achieve a household broadband penetration rate of 90 percent and ensure that every household with school-going children will own a computer with connections to the Internet.” 32 The Singaporean government is working on stimu- lating the demand for ICT services by sponsoring a broad range of programs such as e-learning, e-health, and e-government. It is creating initiatives to put several sectors of its economy at the global technological forefront e-logistics program, for example, aims at orchestrating supply chain processes in the logistics industry, which includes the busiest port in the world in terms of tonnage, to increase manufacturing produc- tivity in Singapore.
Supporting the ICT strategy financially Initial government financial support to a country's ICT strategy is crucial since economic benefits and demand for some of the new services will necessarily be unclear for industry players. Many countries in the world have made significant investments in the past couple of years (Figure 6).
The industry’s role: Deploying state-of-the-art networks and creating innovative products The ICT industry—more specifically, ICT companies— should re-examine its potential and take advantage of its significance in order to create social, economic, and
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North America
Western Europe
Eastern Europe
Latin America
Asia Pacific
Africa
85
62
32
29
17
11
72
83
66
66
48
37
93
64
25
21
14
8
Figure 5: ICT penetration rates, by region (2008)
Source: Pyramid Research data, Q3 2008; World Cellular Information Service (WCIS) online database, accessed October 2009.
Broadband penetration Mobile penetration PC penetration (% of households) (% of population) (% of households)
environmental benefits is not an industry that should be looking for profit alone; it is an industry that is part of the solution for many countries that face key challenges such as climate change or economic develop- ment for their people. Other industry stakeholders, such as governments and regulators, will start to expect more and more from the industry. Failing to participate in helping countries and people reap the benefits of ICT can actually put the industry’s current business models at risk, if, for instance, unfavorable regulations were to be passed. Industry stakeholders can do this by concentrating on what they do best: deploying state-of-the-art networks that all citizens can access and developing innovative products that help countries increase their social,eco- nomic, and environmental sustainability. If done strategi- cally, many sustainability activities create financial value for the ICT industry. Other recent McKinsey research shows that these activities can create financial value along the four dimensions of value the market typically assesses: growth, return on capital, risk management, and management quality. 33
The regulators’ role: Creating the right incentives for industry to develop the ICT sector Regulators and competition authorities will need to manage the way they design industry incentives carefully. They must allow the industry to generate enough prof- its to make their investments affordable while maintain- ing low enough prices to promote adopting the service.
It is this wide service adoption that will enable most of the potential social and economic benefits. The challenge for regulators is not an easy one. It can be illustrated by what is currently one of the hottest debates in the industry: the network neutrality debate. In this discussion, network operators (mobile and fixed) are trying to differentiate the way in which data are handled on their networks by giving higher or lower priority to different content. For example, if a content provider would like some types of services to reach the final customer faster (a video, for example), it would need to pay an extra fee. Network operators do not want companies using their expensive networks free of charge; content providers do not want to pay for the use of networks when they never had to pay for this before. Both groups have strong positions that offer benefit to society in different ways—faster networks versus more content availability way regulators resolve the issue will have significant effects on industry structure. ICT is an increasingly important industry economi- cally, and—because of the nature of its products and services—one that can create significant benefits for society as well. Increasing the reach of ICT creates economic growth and enables better healthcare, education, and government services, among many other social benefits. And all this can happen while ICT reduces its carbon emissions. The key to reaping ICT’s economic and social ben- efits is cooperation among the industry, regulators,and government policymakers. Government has a central
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Vision Timing and objective Government support (US$ millions)
First 100% fibered up country By 2015: 100% homes and in the world businesses passed Be one of the most technologically By 2018: 35% Internet penetration advanced countries in Asia Have the highest broadband Already among the highest penetration in the world broadband (94%) and fiber penetrations (34%) Fiber up the entire country, By 2014: 98% of homes and even all remote rural areas businesses passed Give all Italian citizens access By 2013: 100% of homes passed to 20 megabits per second with fiber to the home Be one of the first cities entirely By 2012: 100% homes and covered by fiber businesses passed
Figure 6: Announced government support for ICT development
Source: McKinsey & Company analysis.
Singapore
Malaysia
Korea
Australia
Italy
Stockholm 300
670
680
700
3,
1,
Qiang, C. Z.-W. and C. Rosotto, with K. Kimura. 2009. “Economic Impacts of Broadband.” Information and Communications for Development 2009: Extending Reach and Increasing Impact. Washington, DC: World Bank. Stack, G. 2009. “‘Twitter Revolution’ Moldovan Activist Goes into Hiding.” guardian.co, April 15. Available at guardian.co/world/2009/apr/15/moldova-activist- hiding-protests. Vandystadt, N. 2009. “E-Government: Most Basic Public Services Available Online in EU.” Europolitics, November 30. Available at europolitics/business-competitiveness/ most-basic-public-services-available-online-in-eu-art255060-6. Vargas, J. A. 2008. “Obama Raised Half a Billion Online.” Washington Post, posted November 20. Available at voices.washingtonpost/44/2008/11/20/ obama_raised_half_a_billion_on. World Economic Forum. 2008. The Global Competitiveness Report 2008–2009. Geneva: World Economic Forum. Yee, A. 2008. “Rebooting the Indian Farming Revolution.” Financial Times, May 2. Available at ft/cms/s/0/ c1a49bae-17e5-11dd-b98a-0000779fd2ac?nclick_check=1.
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Chap 5 Fostering the Economic and Social Benefits of ICT
Course: Principles of Education (Educ 101)
University: New Era University
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