ECONOMY AND QUANTUM CYBERCRIME.17 de January de 2024
ARTIFICIAL INTELLIGENCE: QUANTUM ECONOMIC AND SOCIAL INNOVATIONS.18 de January de 2024
SUSTAINABLE DIGITAL ECONOMY AND THE INTERNET OF BUSINESS.
The history of modern Economics traces its roots back to the publication of a seminal book, "The Wealth of Nations," which set a milestone in our profession. Authored by the Scottish economist and philosopher Adam Smith in 1776, many of its principles remain relevant today, marking a turning point where economics gained recognition as a structured science, a significant achievement for the profession.
Economic history can be defined as the compilation and recording of data concerning significant milestones in economics, meriting attention. Thus, this history encompasses economic events that have contributed to the development of economics and humanity, stretching from its origins to the present day.
Among these historical economic events, one pivotal phenomenon began in the late 20th century and has undoubtedly carved its niche in global economic history, significantly impacting humanity – the so-called digital economy.
This new economy has altered and will continue to reshape the course of economic history. It's unfolding today, at an unprecedented hypervelocity, symbolizing the new industry of digital economic transformation.
To contextualize this digital economy phenomenon in history, we must revisit the 1990s when the internet and ICT (Information and Communication Technologies) debuted, being somewhat skeptically received by Spanish society. Concurrently, while I was working in the USA, the New York Times in 1995 introduced a pioneering book that I purchased in Boston, titled "Digital Economy, promise and peril, in the age of Networked Intelligence" by Canadian author Don Tapscott. Following the release of this trailblazing book, Tapscott undoubtedly emerged as a guru in the impact of the digital economy on businesses, institutions, and global society.
Companies of that era that recognized its utility and promptly incorporated digital aspects into their operations against all odds led the true transformation and are today well-positioned in the market. Examples include businesses capable of generating hundreds of millions annually, with market valuations exceeding 1000 million euros, such as Cabify, Glovo, and Idealista. By 2020, thirty years after the dawn of the digital economy, digital businesses accounted for 20% of Spain's GDP, a figure projected to reach 40% by 2030, according to the BCG digital economy report in Spain.
To the astonishment and wonder of those studying economics in the 90s, influenced by Tapscott's book, we realized a bridge was being established between traditional and a new economy – the future's digital economy. An economy poised to revolve around the internet as a global platform for hyperconnectivity, generating wealth, distributing, and consuming goods and services, undoubtedly meeting the planet's needs and new trends. Economists and entrepreneurs now require specialists to interpret public desires by analyzing user behaviors on networks, their Google searches and purchases, and posts shared on social media, all processed through big data. Organizations analyze this data to persuade clients, voters, consumers, or to generate credibility and trust.
The digital economy, centered around digital goods and services, encompasses digital platforms and new business models incorporating digital elements, including technological innovation and telecommunications networks. It enables companies to directly engage with end customers, eliminating intermediaries.
As a production model, the digital economy leverages technology to enhance business efficiency. This technology is currently centered around software, hardware, digital technology, and artificial intelligence, among others. This signifies that the digital economy is now the primary driver of social change and economic growth worldwide. This new economic revolution, spurred by Big Data, has enabled previously unimaginable business models and others in the making, focused on artificial intelligence, marking a significant turning point in our societies. This translates to the need for the new digital economy to be sustainable.
The digital transformation in Spanish businesses is essential and undeniable, as failing to adapt risks obsolescence and the dangers of not embracing digitalization for any reputable organization. Consequently, in a few years, the majority of Spanish businesses will base their operations on digital processes within their strategic planning. To date, its implementation and development contribute 10% to the GDP, and when considering indirectly generated value, it surpasses 25%. Half of the sectors leading the digital economy are service-related, showing increasing growth, notably in media, information technology services, among others. The reality of the new digital economy means that 60% of today's students will work in jobs related to the digital economy, jobs we can't even fathom yet.
However, this digital transformation must be undertaken in economically turbulent times, primarily triggered by a pandemic that hastened the digital process and need, followed by a war impacting energy prices due to the Russian Federation, a key energy supplier, launching a war against Ukraine, stalling and inflating energy and other raw material supplies mainly in Europe and worldwide.
To this economic scenario, we must add that the highly globalized world economy is rapidly fragmenting into geopolitical blocks, with differing systems, regulations, payment methods, currencies, and exchange rates. Consequently, this complex economic equation is compounded by high inflation, leading to impoverishment in Spain where families see reduced incomes, increased expenses, and companies becoming less competitive.
As a result of how various Spanish companies respond to the crisis, digitalization, and their activities and services, we quickly see companies adapting and thus moving at 'first speed,' and those not adapting, considered 'second speed,' swiftly becoming obsolete and trending towards closure. This leads to a two-speed Spain where businesses failing to digitize across the board face inevitable failure.
On February 15, 2013, aware of the stakes for Spanish industry and business, the Spanish Government approved the Digital Agenda to develop the digital economy and society. This initiative involved two ministries: the Ministry of Energy, Tourism and Digital Agenda, and the Ministry of Finance and Public Administration. Its six objectives set a roadmap for a country facing digitalization, and it's fair to say that it's an ambitious program unfolding based on predefined and necessary expectations published by the Ministry of Economic Affairs and Digital Transformation. The priorities include developing the digital economy for growth and competitiveness, and internationalization of Spanish businesses, strengthening e-government and digital public services, fostering credibility and trust in digital realms, implementing policies to boost R&D in the future industry, and promoting digital inclusion and literacy along with ICT professional training in all areas and specialties.
On April 30, 2022, the BOE published the strategic and operational contents of the agreements of the Council of Ministers, approving the Spanish Plan for Recovery, Transformation, and Resilience. Its main feature and objective are to modernize the Spanish economy, thus driving economic recovery and employment. The European Commission endorsed and approved the plan, allowing Spain to receive 69.500 million euros in direct transfers over three years, which could even increase to 140.000 million euros in loans before 2026.
The new digital economy is here to stay and will enable businesses to offer improved services to their clients, reducing time, costs, and prices, coupled with increased loyalty, maintenance, and acquisition of new customers. When discussing digital transformation, it's essential to highlight company websites that facilitate client services, improved and faster connectivity, virtual try-ons, quick and secure purchases, agility in deliveries and returns, and almost instantaneous accounting and auditing online. Additionally, artificial intelligence algorithms will automatically learn, understanding clients' tastes, needs, concerns, and new trends, making information a power that allows us to react promptly and appropriately.
In Spain, some successful examples of digital transformation are led by the banking, food and services, and manufacturing sectors.
However, the digital economy will be further propelled when we reach 2030, as 65% of the world's population will reside in cities, enhancing the importance of this economy.
The world's leading economy is the USA, even surpassing China, and is at the forefront in terms of digital transformation, accounting for 34% of the total global share. Spain can learn from this successful model.
The reality is that Spain will invest significant sums in Digitalization, as stated by Nadia Calviño, Spain's Deputy Prime Minister, at the virtual Accenture Digital Conference 7. She mentioned that the amount would exceed 200.000 million euros by 2023.
Consequently, the initiatives selected by the Spanish government as priorities for its digital economy include 5G connectivity, the audiovisual sector, cybersecurity, artificial intelligence, public administrations, and education to provide digital skills to the population, enabling adaptation to change. Universities are acutely aware of the importance of digitalization in education.
As for the public administration, an integral part of the Spanish economy, it faces an unprecedented shift as it's compelled to modernize administrative processes, changing digital services for the public in employment, healthcare, social security, justice, and artificial intelligence.
The digital economy in Spain represents a genuine industrial and business revolution. While it may reduce employment costs in many companies, it will create many new jobs in others, even altering many social habits yet unknown, possibly repopulating areas currently unimaginable and preventing others from depopulation. Towns whose public administrations invest in digitalization can become meeting points and generators of talent and wealth, regardless of their size. The pandemic taught us the importance of adapting to change.
Humans are highly intelligent when it comes to survival and adapting to change. I recall during the pandemic era, as the CEO of a significant university school of economics, law, and business, ESERP, we adapted within just 4 days to the new technologies available, continuing to offer classes and tutorials online to over 3000 students. My consultancy, SER, Strategic Economic Relations, also continued advising clients online in all their concerns. That's when, in my case and many others, we discovered new ways of working out of necessity, which turned out to be very effective, changing societal habits where we conduct our activities. During that time, telecommuting and the use of new technologies were implemented, utilizing the cloud to enable multiple channels through videoconferencing software like Zoom, Skype, and Google Hangouts.
The significance of the digital world is such that companies like Google, to provide exquisite service to its clients who make nearly 6 million searches daily and maintain their leadership, must use 1000 computers for each query, responding in just 0.2 seconds.
The demand for domains on the network is such that there are 370 million domains worldwide, with ".com" leading at 149 million. According to recent statistics, 78% of SMEs in Spain did not have a website in 2020; however, 50% of these SMEs digitalized during the lockdown, now offering better service through their new websites as post-pandemic public online shopping habits increased by 41%. To get an idea of the online sales business, when Apple's App Store crashed in 2015, it lost nearly 30 million euros in sales. Today, it would be almost double.
It's estimated that there are approximately 6 million smartphones worldwide associated with a single user, with Spain setting the record for smartphones per inhabitant globally, as over 90% of the Spanish population, regardless of brand, owns one.
This increases user demands as websites not adapted to mobile phones automatically lose over 60% of their visits, which is significant.
Statistics reveal an increasingly digital-focused economy. The average Spanish society spends nearly six hours daily on the internet, of which two hours are on social media, three hours watching TV, and one hour listening to music, and finally, one hour playing console games. As observed, including leisure, the world is virtual, and consequently, any activity that can be virtualized will eventually be so, including its economy. The reason for applying digitalization in businesses brings significant benefits as it allows precise selection and analysis of customer and user data, leading to decision-making based on reliable information. As a result, it enables face-to-face virtual meetings with new clients and suppliers, avoiding travel costs and giving them time to make their businesses more productive.
Over time, with the information accumulated in our systems, we'll be able to create even better systems that allow us to attract more clients, serve the ones we have better, further increase their loyalty, and keep them constantly informed with news and tracking and satisfaction programs. Any reputable sales business must have e-commerce platforms as their market expands from national to international. These platforms also enable better investment and save on storage space, resources, suppliers, distribution, and more.
However, this digital economy will bring its digital currency, as the European Central Bank is conducting in-depth studies suggesting this currency will be a reality by 2025.
Albert Einstein said, "Learn from the past, live for today, hope for tomorrow. The important thing is not to stop questioning." That's what we've done in this presentation, now questioning the future of the digital economy and what other economies may emerge from it, as the digital economy isn't entirely sustainable in a world aiming for zero pollution.
Data centers are the main backbone of continuous data storage worldwide and play a crucial role in the vast internet industry and, consequently, in everything related to the digital economy. They are responsible for processing and storing all content from so-called websites. These data centers need to operate in large spaces, always in a highly cooled environment, consuming large amounts of energy, accounting for 2% of the world's total electricity use. Coupled with constant CO2 emissions, the solution could be renewable energy, wind, geothermal, solar light, and others.
Website companies, seeing the trend towards a sustainable world, quickly embraced the concept of Green or Eco-Friendly Web Hosting. However, some of them merely buy carbon credits to offset pollution.
Out of social consciousness, Google Cloud announced its commitment to sustainability, with all energy consumed by its facilities being green and sustainable.
Other companies like Microsoft are experimenting with servers at the bottom of the sea, cooled by seawater.
Fortunately, before spiraling into self-destruction, humanity will curb the deterioration it causes with planetary pollution, as it's doing now. Coupled with the fact that consumers increasingly penalize non-sustainable companies and fortunately, companies tend to imitate the leader, let's hope this continues as the leaders are aware and already implementing non-polluting strategies.
Thank you very much.
Author: Dr. José Daniel Barquero Cabrero. Professor and Chair in Economics and Business and CEO of SER, Strategic Economic Relations.
Copyright 2023 RACEF. Royal Academy of Economic and Financial Sciences.
Spain and Jose Daniel Barquero.
Publication for the Congress: “Digital Economy” of the RACEF, in Salamanca, on January 20, 2023.