This archive report was first published on 8 December 2019.
Published on December 8, 2019, by SAM WAMBUGU, a renowned author.
As the world continues to evolve, the economy has shifted from industrial to services, to information, and now digital. However, our basic measurement systems have not kept pace.
The Gross Domestic Product (GDP), a widely used barometer of prosperity, was developed during the industrial age. Unfortunately, it is a distortive measure that is grossly inadequate for measuring the digital economy.
Using GDP as the archetype for a country's welfare has well-known problems, but in the digital age, those problems compound. Standard GDP statistics miss the bullseye of technology's benefits, failing to account for productivity gains achieved by technological advancement.
For instance, GDP does not count free products such as open-source software, even though corresponding proprietary software is recorded and valued at its market price. This measurement also fails to account for the time saved by drivers who use Google Maps or researchers who turn to freely available online resources.
Even the use of facilitative services like mobile money transfer services is grossly undervalued, yet they are critical to our lives. Social media platforms, free email applications, and other digital tools that play a pivotal role in facilitating communication and boosting businesses do not feature in GDP computations.
Changes in quality occasioned by technology and global intellectual capital are perhaps the most significant challenges associated with the measurement of digitalisation. Given that we live in a digital and interconnected world where the use of physical capital is shrinking, GDP is simply an inadequate measure of welfare and growth.
Wrong measurements of our prosperity lead to poor decision-making. It is even more important to get reliable information on the condition of the economy and changes in economic structures in this rapidly transforming world.
In conclusion, the age-old GDP measurement is off-kilter; it is a bad barometer for the digital economy. It's about time it's amended or axed.
