What Is “Digital Capitalism?” - Part 1

 ■What Is “Digital Capitalism?” - Part 1

I read a book called “Digital Capitalism” put forth by Nomura Research Institute (NRI).

The directionality is off for policies because conventional economic indices have become outdated due to changes in long-term structures caused by digitalization.

This book takes what has been in my mind without being able to be expressed successfully for over 10 years and profoundly describes it in a straightforward manner based on theories and data.

The book explains the following 2 points.

1. The significance of consumer surplus and total surplus

2. Capitalism will be modified to become a data-driven, knowledge-producing society

1. Consumer Surplus

This book presents findings that consumers have been feeling that their living standards have improved from around 2010. While convenience on the internet has improved, prices of objects, distribution margins, and costs of goods and services have decreased. This is a subjective observation that the quality of life has improved despite the fact that GDP has stagnated, and wages are trending down.

Consumer surplus is increasing, and producer surplus is declining.

Consumer surplus is the feeling of consumers that they are getting a good deal, and producer surplus is the comparison of price and cost.

This book explains that “total surplus” GDS, which is the sum of these values, is true added value and should become a new index.

Search costs and costs to reproduce content become 0. Free digital services only produce consumer surplus. This oppresses producer surplus.

Then, producer surplus is calculated as an objective value and is reflected in GDP, while consumer surplus is subjective and not reflected in GDP. Thus, GDP has reached its limit as an index.

This book estimates that Spotify has a consumer surplus of 2 trillion yen and a producer surplus of 60 billion yen, yielding a consumer/producer ratio of 33 times. This is an incredible figure, because the ratio is less than 1 for conventional companies. Professor Brynjolfsson at MIT Sloan estimates consumer surplus in the United States as 78 trillion yen, and NRI applies this to Japan to yield 42 trillion yen.

Regarding this topic, Professor Brynjolfsson discusses the “limits of GDP” in his book, “The Second Machine Age.”

He raises the following 4 points.

1) Online music sales fell by 40% in 4 years and have disappeared from economic statistics, but quality has increased, and people now listen to a lot of high-quality music. How can the consumer surplus produced by goods and services be measured?

2) Produced value is 0 if the price is 0, but that does not equate to a lack of value. The contentment in life resulting in being able to make searches and transactions on the internet for free, as well as the benefit of a shared economy, are not reflected in GDP. The information industry only comprises 4% of GDP. This has not changed from the late ’80s. “The value produced by IT is not reflected.”

3) How should the resource of time be measured? The amount of time people in the United States spend on the internet doubled in 10 years. The value of time is applied toward the internet. In 2012, the time spent on Facebook was 10 times the man-hours needed to build the Panama Canal. This is not counted toward total GDP.

4) Future production depends on the 4 intangible capital goods of intellectual property, organizational capital, UGC, and human capital. However, these are ignored in total GDP. Therefore, new indices are being considered, such as the Human Development Index by the United Nations Development Programme and the OECD project.

10 years ago, I made objections to the fact that the Japanese government set the purpose of content policy as the “expansion of industry scale.” I believed the purpose should be the expansion of the production and consumption of content. Subsequently, the scale of the content industry in Japan has shrunk, while the amount of content shared by everybody has increased by a factor of dozens. However, this index has not been utilized.

On this subject, the white paper on telecommunications by the Ministry of Public Management, Home Affairs, Posts, and Telecommunications has attempted to analyze the consumer surplus in ICT.

The white paper stated that “although the value of ICT is granted to both companies and consumers, this value is ultimately calculated using existing statistics, such as increased GDP, for companies, while there is a (non-monetary) value for customers that is not captured in existing statistics” and analyzed the topics of ①consumer surplus, ②the economy of time, and ③information assets (reviews, etc.). 

①The total annual consumer surplus, using services providing music and video as an example, can be estimated at roughly 109.7 billion yen.

②In terms of the economy of time, online shopping saves roughly 40 minutes to 1 hour each time.

③Over 80% of users have experience making decisions for online purchases based on reviews.

Although I feel that consumer surplus is even greater, I acknowledge that this attempt was made. I believe that deepening this research and improving precision would be a global contribution. I strongly recommended this attempt as a member of the editorial board for the white paper.

The opinion that consumer surplus and total surplus should be emphasized instead of GDP and economic growth is only presented in very rare instances, and I believe that epochal for it to be presented openly by an influential sector as it was in this book.

Therefore, I look forward to thorough research to be advanced internationally.