A new report from the McKinsey Global Institute entitled, “Internet matters: The Net’s sweeping impact on growth, jobs, and prosperity,” is a reassuring glimpse at the benefits we’re reaping from the networked world, with its lower communication costs, increased speed of information exchange, and potent field of innovation.
The McKinsey team had to limit the scope of their project to 13 countries — the US, Sweden, the UK, India, Japan, China, South Korea, France, Germany, Canada, Italy, Russia, and Brazil. All of these are high-impact economies, so the choices have face validity.
Some of the splashy facts are presented in just such a fashion — on crisply designed glamor pages:
- More than 2 billion people use the Internet now
- The Internet accounts for 3.4% of GDP in the 13 countries examined
- The Internet has created 2.6 jobs for every 1 job lost
- Small- and medium-sized businesses have experienced a 10% increase in productivity thanks to the Internet
- Small- and medium-sized businesses heavily using Web technologies grow and export twice as much as others
- The Internet is creating $18-25 of consumer surplus per month
- A full 75% of these benefits help traditional businesses
Overall, the Internet appears to have contributed 10% of GDP growth, but this is accelerating — that is, the countries that adopted it first and most widely have experienced recent growth of about double that (21%).
While the United States is the leader in the global Internet supply ecosystem, the UK and Sweden are gaining greater importance because of their strong telecom operators. South Korea is on pace to challenge Japan in its influence in the Internet economy, as well.
In one particularly arresting chart (Exhibit 3), the Internet is plotted against other traditional sectors of these economies (e.g., health care, education, financial services). At 3.4%, the Internet beats agriculture, education, and utilities as an overall sector, and is about half as big as health care.
As the authors conclude:
. . . [this report] for the first time shows the full extent of the Internet’s economic power. And that power is massive. . . . Understanding just how much the Internet contributes to national economies should spur government and business leaders to seek ways to optimize their participation in the global Internet ecosystem.
Tyler Cowen notes that beyond the breathless tone of the report, some of the facts aren’t that encouraging — overall GDP is still down, but not as much as it would have been without the Internet; the consumer surplus amounts aren’t that great as a percentage of total GDP; and the GDP gains are actually more modest than others have projected. However, in the midst of his cautions and caveats, Cowen stresses the potential:
The good news — and it is good news — is that there is lots of room for future growth from internet impact. We’ve yet to really organize our economy around the internet, as we someday will, and then the gains will be enormous. In the meantime we are waiting.
The report is more than 50 pages long, excluding appendices, and as with most consultant reports, there’s some opacity to it (proprietary calculations and data). But overall, it’s a valuable picture of how a sector of the economy has emerged, delivered benefits across the board, and is poised to do even more for us.