Andrew WyckoffDirector of Science, Technology and Innovation

OECD11 September 2020

COVID-19 and digitally induced structural change

Digital Economy Forum 2020 (DEF2020)

11 September 2020

Some big leaps along path towards digitalisation…

The mainframeIBM 360 (1965)

Personal ComputerIBM PC (1981)

The Internet / WWW (1995)

WiFi and 3G (1999, 2001) iPhone

(2007)

“Big” data, machine learning, AI (2018 Turing Prize)

…while others were not as big as expected at first.

The Year 2000 bug (2000)

Virtual Reality and avatars (2003)

Google Glasses (2013)

Going Digital flagship reports

https://doi.org/10.1787/9789264312012-en https://doi.org/10.1787/9789264311992-en

The OECD’s recent work to assess the digital transformation -- “Going Digital” -- and ….

Scale, scope and speed

Ownership, assets and

economic value

Relationships, markets and eco-systems

Scale without mass

Panoramic Scope

Speed: Temporal and Intertemporal

dynamics

Intangible assets and the new forms of value creation

Transformation of space

Empowerment of the edges

Platforms and eco-systems

…into their properties that disrupt public policy.…the fundamental properties that affect policy.

https://read.oecd-ilibrary.org/science-and-technology/vectors-of-digital-transformation_5ade2bba-en#page1

Scale without mass

Coursera: 2000+ courses, 24m users, 30 languages

Whatsapp: 300m users, 50b message/day, 55 employees

Wikipedia: 40+m articles in 300+ languages, 15b+ views/month, 280 staff

Challenges policies aimed at “small” businesses, de minimus activity. Allows a global reach with no footprint, challenges notions of

sovereignty.

1) Scale without mass (or a physical footprint)

Panoramic Scope

Challenges policies based on traditional sectoral/product lines, rise of multi-sided business models or legacy conceptions of the roles of

particular actors.

2) Panoramic Scope

8

New Holland : Precision Land Management

AWS: Cloud Computing

Challenges policies directed at capital, e.g. tax incentives or accounting rules, trade policy (goods vs services).

Intangible capital and the new forms of value creation

Rolls Royce: Power-by the-

hour

3) Intangibles and new sources of value creation….

Storage

Map reduce

Analytics

data analytics & software

1010111010101001010010101010110101001010101001000100

10001010

1010111010101001010010101010110101001010101001000100

10001010

big data value addedknowledge

Data: a new factor of production?

9

….especially data.

COVID-19 is accelerating structural change…

“We’ve seen two years’ worth of digital

transformation in two months.”

Satya Nadella, CEO Microsoft, commenting on MS’s Q1 2020 earning report

and the surge in Teams use.

Large demand drop for sectors that enable mobility…

https://www.counterpointresearch.com/global-smartphone-shipments-plummet-300mn/

…and even devices that enable mobility.

Demand for “social distancing” affects real estate….

https://www.statista.com/chart/22196/manhattan-apartment-sales-coronavirus/ and https://www.nytimes.com/2020/08/30/nyregion/nyc-suburbs-housing-demand.html

Japan - NTT

Communications:

increase in data usage

of 30% to 40%

Korea: traffic increases of

13%, reaching 45% to 60% of

deployed capacity

UK – BT: 35% to 60% increase in

daytime weekday fixed

broadband usage

Spain – Telefónica: nearly

40% more bandwidth; mobile

traffic growth of 50% voice

and 25% data

Telecom Italia: traffic

increase of 70-90% in fixed

networks and 30% in

mobile networks

United States - AT&T: mobile

voice minutes up 33%, Wi-Fi

call minutes up 75%.

Verizon: 52% increase in

VPN traffic

While sectors that enable staying in place or maintaining “social distance” thrive…

0

25

50

75

100

0

3

6

9

12

%Tbps

Sep 2019 Dec 2019 Mar 2020 Growth, Sep 2019-Mar 2020 (right axis)

Internet bandwidth at Internet exchange points, by country

….beginning with the underlying Internet infrastructure which has seen a surge in demand.…

…that enables an acceleration of existing trends that allow consumption of services at a distance: e-commerce,…

16 March + 100k

14 April: + 75k

…spreading across retail….

https://www.zdnet.com/article/shopifys-q2-shines-as-businesses-go-digital-en-mass-amid-covid-19-pandemic/

https://www.nytimes.com/interactive/2020/04/07/technology/coronavirus-internet-use.html?smid=em-share

….but also a sharp increase in tele-work, e-learning….

0

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Million

United States streaming membership International streaming membership

Netflix subscribers, in thousands (2010-19)

Source: Netflix, Quarterly Earnings data, www.netflixinvestor.com/financials/quarterly-earnings/default.aspx.

…entertainment…

Q1 2020

https://www.missioncriticalmagazine.com/gdpr-policy?url=https%3A%2F%2Fwww.missioncriticalmagazine.com%2Farticles%2F92949-covid-19-fails-to-slow-cloud-spending

…“cloud” computing,…

https://www.verdict.co.uk/big-tech-results-q2-2020/

…and “big tech” is thriving...

…but not all “platforms” are succeeding…

•Uber 2020 Q1-Q2 ride sharing revenue down 57%

•AirBNB 2020 Q1-Q2 revenue down 60%

“COVID-19 Is Also a Reallocation Shock” by Jose Maria Barrero, Nick Bloom, and Steven J. Davis, WORKING PAPER · NO. 2020-59, MAY 2020; https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_202059.pdf

…and new entrants (US) are down...

… and a missing generation of new firms could have a persistent negative impact on jobs.

Persistent employment losses following a 20% decline in the number of entrants

Source: OECD (2020) , “Start-ups in the time of Covid-19: facing the challenges, seizing the opportunities”

Source: Mary Meeker, Internet Trends 2019, page 157

….or a crisis that necessitates change?.

Will Covid impact be an “inflection point” or a “blip”?

Human behaviour is very “sticky”

Germany

United States

France

0

1

2

3

4

5

6

25-Mar 01-Apr 08-Apr 15-Apr 22-Apr 29-Apr 06-May 13-May

Bill

ion

$Evolution of Covid-19 related research funding

Government research organisations funding calls Intenational initiatives Philantropic/non-profit organisations Industry schemes and partnerships

Data were gathered from public sources published by funders. Overall funding is underestimated as expected level of funding is not yet known or validated for all funding

schemes, and some funders do not disclose publically the sums allocated. The sharp increase in funding seen in April is linked to the clarification of resource allocation to major

funding programmes by important research funders.

Evolution of Covid-19 research funding programmes and pledges between March and June 2020

Only science can provide an exit from the pandemic…

29

…but R&D is very cyclical: will private R&D and innovation investments resist the business cycle?

The impact of the business cycle on business R&D investments, OECD countriesAnnual growth rate

-6

-4

-2

0

2

4

6

8

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

GDP BERD

Note: BERD stands for Business expenditure on R&D.

Source: OECD (2020), "Main Science and Technology Indicators", OECD Science, Technology and R&D Statistics (database), https://doi.org/10.1787/data-00182-en and OECD (2020) "National Accounts at a Glance", OECD National

Accounts Statistics (database), https://doi.org/10.1787/data-00369-en (accessed on 11 May 2020).

2008-09 global financial crisis

2001-02 recession

Implications for Policy

•An accelerant to the digital transformation: - evolution, not revolution;- Importance of data (TTT, logistics, drug discovery);

• The Covid Crisis favours cash rich, technologically advanced firms which tend to be large firms

- renewed concern about concentration- decline in innovative start-ups.

• shift towards, intangible, KBC (R&D, IP, software, skills, data) or “intact” investments

- Decline of sectors that used traditional capital - Rise of sectors that rely on KBC (R&D, skills, software, IP,

organisational know-how and data)

More STI Covid Response Insights

OECD Covid Hub

http://www.oecd.org/coronavirus/en/

STI Policy Compass

https://stip.oecd.org/Covid.html

AI Policy Observatory

https://oecd.ai/https://oecd.ai/