Policymakers still know too little about the Economics of the Internet

The internet is ubiquitous and essential in our daily lives. But to many policymakers, it badly lacks visibility. When it comes to the availability of statistics and real hard numbers about the contribution that the internet makes to the UK’s economy, there are a lot of blanks.

The numbers that we do have, however, are dramatic.

The number of internet companies in the UK increased by 33 per cent between 2012 and 2016. This added up to £44.8 billion in economic activity in the UK in 2016 — an increase of more than a fifth since 2012. Meanwhile, the number of people employed in the internet industry soared by 72,000 between 2012 and 2016. This 13 per cent increase compares to a 5 per cent increase in the number of people employed in financial services and a 3 per cent increase in the number employed in manufacturing.

The value of each job in the internet industry to the economy is over £116,000, making staff in internet companies more productive for the UK economy than staff in all but a few other industries. Each job in construction added over £47,200 of value in 2016 while the figure for each manufacturing job is £70,500.

These estimates come from analysis and research conducted by the Internet Association, but they present an incomplete picture of the internet’s contribution to the richness of our lives or how it connects people and communities. We know much too little about the benefits that the internet brings the UK economy.

Take mapping as an example. These days my smartphone provides instant, accurate traffic data, collected and distributed in real time. It tells me instantly if it makes sense for me to take the M6 Toll Road rather than slog through the Birmingham suburbs. If I’m in London and the Circle Line is out of action, an app will tell me straight away to take the Jubilee Line and change onto the Central. If I have a meeting in a city abroad, say, Copenhagen, the same app provides a seamless service there too.

The UK is about to spend tens of billions on HS2 based on the productivity gains that extra seats and time saved will bring to the economy. Yet the ways in which services like mapping are already making a huge contribution are not properly understood or captured by government data.

Part of the problem is that many internet services are free and most are new. A printed map of the London Underground might register as more valuable to the economy than that same smartphone app because the Government knows how to measure the map’s production.

The savings and productivity gains must run into billions and billions of pounds, based on what we know. Those numbers will only grow as we increasingly become a knowledge economy. After all, the World Wide Web was designed right from the start to make knowledge universally and instantly available. An open internet is the only thing that can make that prize a reality.

Our recent polling shows that 61 per cent of staff say that losing access to the internet at work would negatively affect their productivity. For businesses themselves, the internet brings the ability to find customers anywhere in the world at the click of a button — literally.

These things aren’t impossible to measure, but we do need to use different ways to measure them. Both the Bank of England and the Office for National Statistics have made some progress, but the pace needs to quicken.

We need to look at people’s revealed preferences about how many hours a day they spend using the internet or smartphone and where and when they do so. We could also use surveys or hypothetical data – essentially asking them how much they would have to be compensated to do without a service. One study suggests that people would have to be paid £10,000 to give up internet search.

If we did have a better idea of all this, it wouldn’t just mean that policymakers were able to really understand what’s going on in the British economy, it might also explain some of the biggest puzzles in economics right now.

This data could help explain the slowdown in measured growth and the fact that productivity appears to be stuck. It might just be the case that tectonic shifts are going on out there which we just don’t know about.

But the biggest reason for improvement is that, without really understanding the terrain, we risk making some severe mistakes. Internet Association set up an office in the UK because we want to be part of the discussions which will shape future policy.

We want the Government to design and implement policy which is sensible and proportionate; which doesn’t hold back progress with the potential to bring huge gains in areas like healthcare; and which doesn’t hinder new entrants from bringing new opportunities to consumers, citizens and businesses.

If we don’t understand the real world impact of the internet, we are all operating in the dark. For policy to work, it has to be based in evidence and risks have to be properly understood. At the moment, that evidence is lacking.