1. COVID-19 as a digitisation shock
The world has not been prepared for the virus. But it has quickly become clear that social distance is mandatory for a disease that spreads exponentially. Lockdown has saved lives. But it has also brought many desirable or even necessary social activities to a halt. Substitutes were urgent. To a pronounced degree they have been found in digital services. Happily, most of these services had technically been available before the crisis. Many users did just not see the need to make the transition. In economic terms, they did not want to invest in the switching costs. In some respects, the online substitute may also have appeared less appealing than its offline equivalent. Yet if the choice is between the online version or no service, it did not seem difficult to make.
Let me illustrate the point with my personal COVID-19 experience. Most of my work is experimental. We normally use the paradigm that has been developed by experimental economics. Real participants engage real money in real interactions. The experiment manipulates conditions such that one can study the effect of alternative institutional interventions, or that one can infer cognition and motivation from the choices participants make. Such experiments are routinely implemented in physical computer labs, relying on fairly large pools of university students as participants. My institute has a highly functional lab for the purpose. But in each session, 20 to 30 participants sit in cubicles next to each other. The typical experiment last about an hour. This would have been the perfect breeding ground for the virus. There was no question that we had to close the lab immediately. But that also meant: until the virus was contained, I would not be able to generate new data. This was the impulse for embracing oTree. This platform for running interactive experiments online had been available for a few years. But in oTree programming requires considerably more advanced skills. Most of us, myself included, were still hesitant to make the shift. Yet now we had no choice. I have spent most of my time during the lockdown acquiring the necessary programming skills.
A second experience goes into the same direction. At my institute we have a beautiful meeting room, which we regularly used with pleasure. But again: some 20 researchers sitting around a large table would have been way too risky. In this respect too, a digital substitute existed before. But we enjoyed coming together too much to actually use it. Now there was no other way, and we have shifted all meetings to Zoom. The intellectual life of the institute continues, although most of us have not met for months.
My personal experiences are by no means exceptional. All parents have experienced the (more or less successful) attempts of schools at teaching children online. Zoom is now critical infrastructure in universities. As having potential COVID patients sit in the waiting room would expose the remaining patients to an irresponsible risk, doctors have moved to digital consultations. Even churches had to be closed, but have quickly offered digital services instead. None of these technologies had to be invented. All of them existed before. But they were marginal. The virus has turned them into widely distributed options.
2. Benefits from Disruptive Digitisation
In the terminology of innovation studies, the virus has been a shock that has caused disruptive innovation. As other disruptions, it has the potential to trigger socially beneficial change.
Let me again start with my personal experience. Running experiments online is much more than a technological advantage to the implementation in a physical lab. The more ambitious programming platform gives scope for new design features, like computer animations. Even more importantly, a much wider subject pool can be reached. It is possible to test a representative sample of the population; defined strata (like migrants with a certain ethnic background); or participants in developing countries (for instance, we currently run an experiment in rural Pakistan). When using subjects from pools curated by survey companies, one has much more information about the individual participant than can be gathered with a demographic questionnaire at the end of the experiment. And last but not least, online experiments are considerably cheaper, which allows to increased sample size, and generate statistically more robust findings.
My other digitisation experience has proven equally beneficial. Online meetings do not only avoid the need to commute, and thereby protect the environment. They also make it much easier for the many young parents at my institute to harmonise their professional lives with their family lives. From a scientific perspective, the irrelevance of physical distance has been most advantageous. Now former group members who work in different cities and even countries can participate. For our lecture series, we can conveniently bring in speakers from the best academic institutions in the US. Increasingly the dividing line between presentation and collaboration blurs, as the same technology can also be used for jointly working on a project.
Benefit is of course not confined to science. Once an activity has been shifted online, distance cost is minimal. In this respect, digitisation is a driver of globalisation. Individuals from everywhere in the world can have access to the same services, at approximately the same cost. This is not only beneficial for those living in less developed countries. It equally helps shrink the gap between the big cities and rural regions. Social networks can be organised across arbitrary distances, giving room for proximity without contiguity.
For digital services, the marginal cost of adding another user is minimal. Services can therefore also be offered to users with lower willingness to pay, and there is scope for tailor-made solutions for much smaller fractions of society.
More liberating even, for digital products the cost of market entry is much lower. Basic computer literacy and a reasonable command of English already go a large way. Marketing is also less of a bottleneck, as the word can literally spread much more easily.
On the horizon, there are more long-term benefits resulting from the growth of digital data sets that originate in the increasing digitisation of social life. In e-teaching, it may become much better understood which concepts are difficult to master for whom. Learning tools targeted towards these individual-specific challenges can be designed. In a similar vein, digital medicine can exploit more and more subtle markers for health risks, and drugs can be personalised.
3. Cost of Disruptive Digitisation
No disruptive innovation is free of charge, and the digitisation shock resulting from the virus is no exception. The digital divide had been on the screen of policymakers for a long time, but the virus has made it even more urgent. Online schooling is a pertinent illustration. Hardware is not available everywhere. If the family has a single computer, but multiple children, they cannot simultaneously attend virtual class. Interactive methods tend to be pedagogically powerful, but they require sufficient upload speeds for each pupil, which will often not be available.
The distributional concern is not limited to products and services that can be bought for money. If a person wants to fully embrace the potential of digital interaction, she must have computer literacy. In this respect, there is not only a gap in terms of socio-economic status, but also in terms of age. The issue does not stop with the ability to navigate tools and programs. In a digitised world, change is ubiquitous. To be successful, one needs skill and will for continuous learning, entrepreneurial spirit, and a dose of playfulness. This is not for everybody.
Digital services are very often not traded for money, but for data. The data is used to create ever more precise signals. This does not only create a problem of privacy. The more reliable the generic data (i.e. the quality of the signal), and the more differentiated the specific data (i.e. the availability of the signal), the more providers can exploit it to acquire monopoly power. They can engage in (near) perfect price discrimination and appropriate most of the gains from trade. And they can customise products to a degree that the offer is too good to reject, thereby depriving customers of the freedom to choose among competing suppliers.
In a digital world, risks differ from the ones people have learned to manage in the offline world. Risks are much less visible, and frequently highly non-linear. The very experience with the virus has demonstrated how poor most individuals are at handling risks that grow exponentially. In the offline world, cooperation cannot be taken for granted. But what experimental economists have called conditional cooperation is widespread. As long as they observe or believe most of their peers to be cooperative, many individuals are happy to cooperate themselves. This is why the tragedy of the commons looms less pronouncedly than standard theory predicts. Sharing personal data is conceptually no different. The individual only cares about personal benefit from some service, and neglects that her data makes not only herself vulnerable, but everybody from her social environment, and in the long run everybody who is sufficiently similar to her. Yet conditional cooperation when it comes to being cautious with personal data has yet to be learned on a large scale.
4. Conclusion
Every challenge is an opportunity. Any humane soul would have pre-empted the pandemic. Many mistakes have been made and those responsible for them are rightly criticised. But it seems that avoiding the crisis altogether has never been an option. The virus has imposed itself on the world. It has brought horrendous suffering, and lots of economic and social harm. But as it has happened, we were at least able to benefit from the scant positive side-effects. The push for digitisation is not the least relevant. This note sketches its potential for a disruptive, but ultimately positive effect.