The Implications for the Conduct of Policy


The stylized facts and analysis of the previous sections point to significant—if not fully accounted for yet—impacts of information and communication technologies on economic structure and performance. This would suggest that there should also be an impact on economic policy—both macro and structural, and in at least two ways. The first is the unintended consequences on the effectiveness of certain policy instruments, such as tax or monetary policy. The second is an impetus for policy reform, in order to better adapt policy instruments to the new reality of a digital economy.

Fiscal and Monetary Policy

In macroeconomic policy, both government revenue and expenditure may be affected by ICT. Possible effects of ICT on unemployment will have direct impacts on transfer payments. Moreover, for countries that index social transfers to the consumer price index or other price indices suffering from measurement problems related to the accounting for ICT, overstatement of inflation could in principle lead to excess government expenditure.

More interest has, however, tended to focus on the effects for government revenue. There are several issues here. The first relates to the discussion on the possible introduction of a 'bit tax'. This proposal has been rejected by most governments on the grounds that it would retard 'cyberspace' development. A second issue is the extent to which electronic commerce might give rise to an erosion of the tax base. Tax havens and offshore banking facilities may become more accessible. The possibility that electronic transactions will be more atomized than their physical counterpart may make it more difficult to collect certain taxes, e.g., withholding taxes. Indirect taxation may also face difficulties. Sellers would have an incentive to locate in low-tax jurisdictions from which they could send products to their customers. A special issue concerns the taxation of value-added electronic services. While the value added from such services in principle should be subject to income taxation, indirect taxation may be another issue. To the extent that value-added electronic services are not subject to indirect taxation, they receive an indirect subsidy compared to other activities that are (Mann et al., 2000; OECD, 2001).

Similar concerns apply in the case of monetary policy that will have to adjust to any changes that ICT brings to the monetary functioning of economies. This will include adjusting to any changes that affect the monetary transmission mechanism, such as changes in the response to exchange rates or interest rates. The issue of measurement error also affects monetary policy. But there will also be changes affecting the operation of monetary policy. The introduction of electronic money raises questions about the definition of monetary aggregates and their stability. The speed of financial operations raises questions as to how interest rates should be set and whether the short end of interest setting needs to become shorter, i.e., whether interest rates should be set for time units smaller than a day.

Structural Policy

Arguably however, most interest and focus of discussion has been on how structural policies need to adjust in order to reap the benefits of the shift to a digital economy for growth, employment, and prosperity in general. In effect, ICTs may reduce the role and effectiveness of macroeconomic policy instruments, possibly implying that structural policy may become more important in helping the economy adjust (OECD, 2003b).

A first policy direction in this regard concerns efforts to strengthen competition in order to provide the right incentives for the development of ICT infrastructures and their use. This involves ensuring network infrastructure competition across and within different platforms, by for example pursuing unbundling of the local loop. It also entails placing more emphasis on technological neutrality and convergence, maintaining a strong stance on competition in services, and fostering competitive conditions in digital content and applications markets. While the recent slowdown in the telecoms industry has led to calls for assistance, the focus needs rather to be on further strengthening regulatory frameworks aimed at ensuring that incumbent firms provide adequate access to their network resources for new entrants.

Table 2: ICT Policy Implications: A Topology

Type of Policy

Effects

Macroeconomic policy

Fiscal policy

  • Tax revenues and collection issues; effects on direct and indirect taxation; expenditures: measurement problems and transfer payments

Monetary policy

  • Monetary aggregates, monetary transmission mechanisms; financial operations and measurements issues

Structural policy

Competition policy

  • Conditions for network industries, for economy-wide ICT diffusion, especially in services

Entrepreneurship/framework conditions

  • Barriers to entry/exit, financing issues (venture capital), assistance to SMEs in adopting ICTs, security and trust in digital networks and transactions

Human capital and social cohesion policies

  • Labor market policies, training and skills upgrading, ICT literacy, e-inclusion policies

Complementary to efforts aimed at increasing competition are policies to help spread the benefits of ICT across the economy. This involves removing sector-specific regulations that affect the uptake and effective use of ICT, especially in services, helping small firms assess the opportunities of e-business, ensuring a level playing field for all market participants in the value chain, and fostering ICT uptake for disadvantaged groups and in less-developed regions, while not distorting market forces. Strategies for electronic government are important in this respect in order to improve government efficiency and the delivery of public services, and also to help foster demand in less-developed regions.

Fostering a business environment for effective use of ICT represents another policy direction that is gaining in importance. This involves a number of measures and initiatives to encourage entrepreneurship in the digital economy, notably by improving the regulatory environment for new businesses and for capital markets to back new ventures, through for example the direct and indirect support of more active venture capital mechanisms. It also involves reforming burdensome regulations, and facilitating firm entry and exit. While improving entry mechanisms—reducing time and cost to set up a new business—has long been a policy objective, the importance of reforming bankruptcy legislation has only recently been understood. Unlike in the U.S., where failing in business does not preclude a new start, current bankruptcy legislation in Europe is overwhelmingly geared to protecting the lender, imposes significant burdens on entrepreneurs and acts as a disincentive for new ventures.

An issue related to the improvement of the business environment for effective use of ICT, but with certain unique characteristics, is boosting security and trust to enhance usage of ICT by business and consumers. All actors in the economy increasingly rely on the use of information networks, which are often interconnected at the global level. Uncertainties over the security of payments, contracts, terms of delivery and guarantees, opportunities for redress, and the privacy of personal data remain a barrier to electronic commerce (OECD, 1999). In attempting to address these issues, governments are using both regulatory and self-regulatory (e.g., 'voluntary privacy statements') means, implementing information security guidelines, attempting to develop a culture of security, and strengthening cross-border cooperation and enforcement in privacy and consumer protection.

Policies to improve employment performance and skill profiles have also been recognized as particularly important in an economic environment characterized by rapid change and mismatch between skills in existence and skills in demand. Governments are confronted with a dual challenge: ensuring that growth of new industries and activities is not stifled by labor bottlenecks and skill mismatches, and that populations are equipped to master the basic ICT skills that these transformations require. While professional ICT skills are particularly important for growth in knowledge-based sectors of the economy, they are also increasingly needed throughout the economy. ICT skills have become a new type of "general" skill, like literacy or numeracy. Governments are accordingly implementing policies targeting different segments of the population in order to promote both basic and advanced ICT skills.

E-inclusion has also emerged as a major economic and social policy issue linked to both employment and social cohesion. Governments are therefore also addressing ways to overcome the digital divide in order to spread more widely digital opportunities and the potentially positive benefits of ICT use. Fostering a healthy and pro-competitive ICT environment will enable ICT goods and services supply at competitive prices and quality. Nevertheless, policies are required that target more specific goals and socio-economic groups that may be lagging behind.




Social and Economic Transformation in the Digital Era
Social and Economic Transformation in the Digital Era
ISBN: 1591402670
EAN: 2147483647
Year: 2003
Pages: 198

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