The following is the output of the real‑time captioning taken during the IGF 2014 Istanbul, Turkey, meetings. Although it is largely accurate, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors. It is posted as an aid to understanding the proceedings at the session, but should not be treated as an authoritative record.
>> RICHARD BEAIRD: Good morning. Let me welcome everyone to the workshop entitled, Internet and Jobs, Creative Destruction or Destructive Creation. We have a very distinguished panel with us this morning and I'd like to, first of all, introduce myself. I'm Richard Beaird with Wylie Ryan, a law firm in Washington, D.C., and I'm a Senior International Policy Advisor with that firm. Let me spell out a little bit as to what the panel is about, then I'd like to introduce the panelists and then also by introducing them, indicate the order in which they will make their presentations.
But at the outset, I want to encourage all of you to participate in the panel. I know that each of the panelists have indicated that they really prefer to have you ask questions and to be a part of a discussion. So, we will, more or less, limit the panelists' first intervention to about 7‑10 minutes to allow you to in come in with your points of view.
The Internet is viewed as a source of employment growth in the IT sector and in creating new opportunities in the overall economy. However, we have noticed in recent empirical studies that there seems to be a divergence between the net effects of the Internet on jobs, and revenue production, as opposed to productivity itself. This divergence is causing some concern, obviously, by our political leaders, as well as by those who study this economic impact.
As we are looking at this issue, we wish to kind of consider it from a variety of points of view, since we also know that the IT sector is driving innovation and is a great extent, the employment trend of the future.
With this as a kind of brief introduction to kick off a very complex issue, which the panelists will comment upon, let me now introduce this distinguished group of experts.
First of all, going from the right to the ‑‑ from my right, is Lorenzo Pupillo, Executive Director in the Public and Regulatory Affairs Unit of TeleCom Italia and Affiliated Researcher at the Columbia Institute for Telecommunication. To his right is Andrew Wyckoff, Director of the Department of Science and Technology and Information at the OECD; Eli Noam, Professor of Economics and Finance at the Columbia Business School and Garret Professor of Public Policy and Business Responsibility. Lillian Nalwoga is Policy Officer at the Collaboration on the International ICT Policy in East and Southern Africa and also President of the Internet Society, the Ugandan Chapter. To her right is Minister Diego Molano-Vega in the Ministry of ICTs in Columbia; and then Michael Kende, Chief Economist for the Internet Society.
In that order of presentation, I would first like to introduce, again, Lorenzo Pupillo who will talk about the Impact of Technological Changes on Employment and the Decoupling of the Productivity Growth from Jobs and Income, the core issue of this panel. Mr. Lorenzo Pupillo.
>> L. PUPILLO: Thank you very much. To be fair, I think when we approach this issue, ICT in jobs, we have to start saying that we are living in period of economic turbulence. The big picture is not positive as it was 10 years ago, and to some extent, we have to take into account it is a general skepticism prevailing.
But we also have to be very careful of the analysis we make. First of all, we have to say that technology innovation, in this case, digital technology, is -- always has an effect on the job market, at the early stage of the diffusion, I think about the steam engine. But I think that we have to make clear that now, today, this disruption is happening in a different way. It's happening at the fastest speed and it is happening on the broader scale than in the past.
Why is it happening this way? I think this is the byproduct of one basic characteristic, digital technology. Digital technology is characterized by economy of scale, not only on the supply side, the idea you can get the cheaper production, but on the demand side. In other words it is the stronger network effect and everybody wants the leading product because everybody else has this product. So if you combine this strong economy on a scale on the supply side and the demand side, you get this model of the winner takes all. The company that gets all the markets, all the revenue, and in this sense, it is a bigger disruption of the competitor.
There are many missing points. One is the one of digital photography, as in Instagram. Big company, 145,000 people, went bankrupt and basically, we now have a company like Instagram, 15 people, they are billionaires. Okay?
Now, what are the consequences of this process? First of all, I would say this is what the economists call the job market polarization. In other words, if you plot the level of skills against the level of jobs, you find that there is in high demand for low and high‑skilled jobs. In other words, the middle‑skilled jobs are disappearing.
These are two important consequences. One side it seems the middle‑class is losing ground. On the other side, income in-equality is a growing trend. Seems that digital technology is letting the product growing but in a very unequal way.
Coaching some data from the U.S., it is unfortunately in Europe too. For us it is something new. For the first time before the Great Depression, the overall income in U.S. went up to the 10% per American in 2012. The top 1% earned over 22% over income, more than doubling their shares than in the early 1980s. This, to some extent, is what Eric called the Spread of the Digital Technology.
The second effect is we are living what can be called, the coupling of productivity growth from income and employment growth. Although this seems to be a controversial phenomenon between the U.S. and Europe, what is happening, contrary to the past, which for other innovation, productivity, income, were going all in the same direction and now it seems to be that productivity is growing but jobs and income are diverging to some extent.
Okay. I think it is also fair to look not only at the supply side but also the demand side. This is what looks more positive. On the demand side, basically we have an income effect. In other words, ICT is increasing efficiency of production, the way in which a company works and produces their own services. This is reducing prices, so there is increasing ‑‑ there is an income effect to some extent.
At the same time, many new products are created. This is a similarly interesting process, because it is characterized by three drivers in the digital technology; the fact that this technology is exponential, characterized by digital load. It's all digital.
Case‑in‑point, think about application. Sometimes we don't realize but application, like the most important application in digital technology, are the one that use or combine technology. Think about Waze. It's a combination of location sensor, data transmission, GPS system, and social network. It is important because something that we are sometimes oriented in thinking on innovation is producing only new product. Instead, in the digital technology, it is allowing us to create new product but combining the existing product. The combination can be ‑‑ can grow in an enormous amount. The limit is only how this different component can be combined.
Now, what are the policy implications that we have to look at? First of all, it seems there is a measurement problem when we define productivity. How we recapture the bounty or digital economy statistics. In other words, in the GDP, we put all of this product with a price. In the digital economy there is product and price, they have a zero price. Think about Wikipedia. Think about for instance, for us, WhatsApp has a loss of revenue. But for consumer, they get to see this for free to some extent. This is not captured in the GDP measurement.
Another very important area is this relation between ICT and education. In other words, it is true that there is a displacement of jobs, but is this coming from a lower demand for jobs or maybe for a demand of different skill of jobs? And I think that I am inclined to say that there is a need for different type of skills, and ICT can play an enormous role in making possible larger scale evolution for the population, especially the one that gets displaced.
Another interesting issue, I think that we should look at carefully, is digital market, because they are characterized by this model winner takes all, can be characterized by strong power. In other words, ICT reduces cost, but if the markets are not competitive, there is profit. Where does the extra profit go? I think that there is a need for some type of regulatory on this side. Related to that is the issue of taxation.
Increasing and importantly, need for people to be retrained, requires new source of resources for the government to do that. I think that it is important to start to think about some type of negative income tax, in other words guaranteed to everybody, some type of minimum income.
On this matter, I think it is similarly important for us as telecom operators, about is this issue of the level playing field in the digital market for taxation. We are not talking about web tax. But we are talking about having the same level of taxation all over the digital market.
Today, many over the top avoid digital taxation through systems such as the double Irish or Dutch sandwich. For instance, I think this is to some extent in this country, it is quite unfair for what is happening. I know that for instance, the OECD is working on the project. And I think this is something that needs to be looked at carefully.
Overall, I will say that as I was saying before, in my starting remark, we have to ‑‑ we know that at the moment we have conflicting message. The turbulence is prevailing to some extent in terms of positive outcome, but I think in the medium run, ICT will continue to give a great contribution to the growth.
This needs to be accomplished with fundamental changes on the supply side of the labor market. Thank you.
>> RICHARD BEAIRD: Thank you very much. Our next speaker is Andy Wyckoff, Impact of ICT on Jobs and Skills, the Evidence from the OECD Snalysis.
>> A. WYCKOFF: Good morning, and let me just start off by saying, I really appreciate Lorenzo and TeleCom Italia for organizing this and what a pleasure it is to be under the Chairmanship of Dick Beaird again. This is the most important session at the IGF. All that stuff about Internet Governance. I'm serious. If you talk to a politician, policymaker, it is jobs, jobs, jobs.
Now, Internet Governance is important. Don't get me wrong. I don't want anyone tweeting that OECD thought Internet Governance wasn't important. Thanks, Mike. This is fundamental for the economic performance and social well‑being of people. It gives people a sense of worth and we are in deep trouble. Right now, OECD put out numbers, France, Italy, sputtering; Germany, the engine of Europe has slowed down. We see really mixed performance in the bricks, particularly Brazil. We see uptick, thankfully, in the U.S. and U.K., but it has been said it is accompanied by a lot of anxiety and continued insecurity. Unemployment is especially prevalent among the youth, where we know this is a career‑long impact on their incomes and well‑being.
And we are beginning to see the emergence, maybe just because I come from France, but the emergence of a backlash against IT. We have laws being put forward in the country I live in that are basically anti‑Amazon, anti‑Uber, and are pushing back on some of the job destruction. We see renewed scrutiny of the quality of the IT jobs. Recent press stories about the pickers at these Amazon inventories and we see protests in San Francisco over the Google Bus and some of the inequalities that are very apparent there.
As Lorenzo pointed out, and I'm happy he connected to this section. We have an issue of taxes. The tax management and practices used by some of these large firms who assets are largely intangible, and allow them to engage in these practices, the Double-Dutch Irish sandwich, that are coming under scrutiny by another part of the OECD.
At the same time, we have confusion in the economics profession. You have got the kind of deemed productivity analysis, Bob Gordon, talking about how there is headwinds against innovation how this will lead to us returning to a natural low growth of productivity of like 0.5%. On the other hand, you have -- McAfee with their book, "Race Against the Machine," we are about to head into this huge disruptive period which is presumably associated with high‑productivity gains. Even Larry Summers from the "Wall Street Journal" last week, has an article talking about challenge of the future jobs.
Now the OECD is trying to use the multidisciplinary capability. My directorate looks at science and technology but also the employment and education directors to look at this. Our work is just underway. My comments today are really more of a framing of the issue and a preliminary thought and to solicit, as Richard Beaird said, your input as well as that from the analyst. I would hasten say the opinions are my own.
There is a long history of tech‑induced structural change. Just look at what happened in agriculture and all of our countries. It was only 150 years ago, 1/3 of employment was in this sector and now it is 1%‑2%. With that came huge social changes; the movement from a rural situation to more of an urban.
Likewise, the manufacturing, we've seen sustained productivity they brought that labor force from about a third down to now less than a fifth. And with it, the movement a little bit from urban/suburban living, and then we have become service‑based economies. We rely on services now for almost all the jobs. We begin to see ICT being applied and it is beginning to displace this work starting off with the easy, clerical stuff and now moving up the chain to routine tasks, transactional activities, and even some conceptual work.
I don't need to tell this crowd, you've seen big impacts on some sectors, certainly advertising. Anything dealing that can be digitized, such as content, retail, and even government services, post office, for example. And I think we are on the brink of seeing big impacts in areas such as transportation, finance, and even education as you have these MOOCs where you can have a professor teach, instead of hundreds of students, tens of thousands.
And I won't go into this because I think historical analogy is limited. Lorenzo pointed out why IT is different. I agree completely. The one thing I would add in addition to his point about what BerNeilson would call scale without mass that leads to this network effect that is have this winner‑take‑all phenomenon, is more generally the deconcentration of production. IT allows a fragmentation of production that reduces the need for the hierarchy that we've seen in big firms. We just don't need that anymore. There is an interesting theory here called Cosis Theory, that said why the firm existed, was to compile and to process information to make decisions. Well, IT means that it can be a much flatter organisation leading to things as offshoring, proliferation of global value chains, and flatter hierarchies, this phenomenon of what is being called a freelance economy where you float and you work for different employers. You're not attached to any single one.
We are also seeing a huge blurring and all of us feel this, between work and home.
Let me just throw out a few statistics quickly. Lorenzo already referred to them. If you take the poster child of Google or Facebook, they have 50,000 employees. They are roughly making $50 billion in revenue. It's roughly a million revenue per employee. That is what we mean by scale without mass.
Amazon is closer to $600,000 per employee. Compare that to a very successful firm, like Walmart, that only has $200,000 per employee. And the U.S. average here is $120,000. So these firms are really operating on a much different scale per employee. So, good sales, good profits, not so many jobs.
And it's not just the IT sector. You begin to see, as IT gets employed to other sectors, even to like steel or oil extraction, the number of employees required is far less than it used to be.
Now this may sound unduly pessimistic. I don't want to leave that as the final point. I just want to conclude with a few more positive things going forward. First, and I won't dwell on this. Lorenzo already said. ICT is a bright spot in what has been a pretty gloomy economy. It has continued to grow through the recession and invest long-term in things like R&D. There is huge demand for ICT skills. Look at something like the manpower talent shortage survey or the help wanted, and you can see this.
I think we misunderstand or don't understand very well the potential of IT as a platform for entrepreneurship. The barriers to entry to starting a job have fallen ‑‑ starting a firm, have fallen dramatically thanks to anybody being able to open a website and also taking advantage of platforms such as eBay or Facebook.
Our work at the OECD shows almost all the net job growth comes from these young start‑up firms. We see this across 19 different countries. It is young, not small. And our policies need to change a little bit to reflect that. Too often we think of small businesses and we think many of these businesses stay small forever. And the demands for young firms are actually different than that for a long‑term small firm. Lorenzo pointed out the need for skills. I agree with him. I would just say policymakers tend to rely on this a lot as a panacea and there are limits to what we can do to skill and re‑skill.
Okay. Let me just end with where I see future jobs coming. Lorenzo pointed to the need for active judgment policies. I agree with him completely, to help some of these people who are going to be displaced. That does require taxes. And I think, as I said, a need for firms to pay their fair share as well as high‑wealth individuals.
I see the largest opportunities coming in three different places. First of all, there is all these new jobs, we just can't imagine today. If you look back and had asked your grandparents some of the occupations that are most prominent today, they wouldn't even recognize them.
I would say three things. One, I think the Internet is a huge potential platform for innovation, for creating new industries we haven't thought about and new jobs. And in any country that limits access to the free‑flow of information is just shooting itself in the foot in terms of economic growth in the future.
Second, there are huge, grand challenges all economies face, whether climate change, aging populations or development more broadly, that need to harness this innovation and labor resources. I think this is a place that we can put some of the freed up resources.
Last but not least, it's not every day I agree with Carlos Slim, but I want to say his idea of reducing the size of the work week and introducing more leisure is probably not a bad thing to start thinking about. If you look at some of the growth in occupations, some of the fastest growth have been in areas that are more leisure‑like: musicians, chefs, athletes, fashion and design, even yoga instructors and so forth. What you're seeing is a growth of the leisure economy that continues and one where I think future job growth can be found. Thank you very much.
>> RICHARD BEAIRD: Thank you very much, Andy. Professor Eli Noam, will speak on Social Redistributive Affects of the Impact on ICT Jobs and Skills.
>> ELI NOAM: First, I agree with Andy that this is the most important topic before this Internet event here today. And with all due respect to the other topics here at IGF and speaking as somebody who was at the summit in Geneva in 2003 and in Tunisia in 2005, that created IGF, I have all respect for the topics here but the question who gets to determine domain names seems, in comparison to the economic well‑being of billions of people, rather secondary.
So, I will go one step beyond, which is the Internet is not, as many people honestly and truly believe, the solution to the problems of job displacement and job creation. It's not the solution. It is actually really a significant part of the problem itself.
The Internet community having benefited also has to step up and take serious responsibility, which means initiative, ideas, money and ending certain resistances such as resistance to paying fair shares in taxes. The Google thing has come up already and so on. I think it's just disgraceful.
So, but raising some of these things is not going to be terribly popular. I think if we talk about this inside this group here, we will perhaps make some progress. In the United States, the industrial blue-collar jobs are disappearing. 350,000 industrial jobs each year in the United States for two decades now, plus the multiplier job effect, so that is about 1.6 per industrial worker, 2.5 per skilled industrial worker. So that is almost half a million jobs each year vanishing. Now, many of those would have disappeared anyway but more slowly. And time is money. People would have had more time to adjust, to retrain and relocate. So there is an Internet effect here and a negative one.
Then after the blue-collar jobs, came the pink‑collar jobs. Retailing is moving online. See what is happening. Just go around main streets in so many towns and cities, hundreds of thousands. Look at what is happening to the support industries, service support industries as they move offshore, hundreds of thousands of jobs. And now white‑collar jobs are also disappearing. Middle management levels are disappearing, which is kind of good; low functions offshore to cheap labor countries, high‑level consulting of publishing just two examples. Might still originate in New York or London or Boston and so on, but the back office functions are increasingly moving to India and other countries. Lots of jobs become part‑time, perma‑temps, project‑based, no benefits and no job security.
Now I know that many will say that the Internet is also the creator of many jobs. Yes, true. But, the number of new jobs should not be exaggerated. Even in Silicon Valley, ground‑zero, the overall number of jobs has, according to the census, not increased all that much. It's been surprisingly small. And that is true for other high‑tech area too.
Sure, there are studies that will show that if you use the Internet, you are likely to get the jobs sooner and you're more mobile and therefore the conclusion that has been touted is people should use more Internet. There should be more Internet because then people would get jobs. But that is kind of ‑‑ those are the suck‑up studies in a plethora of suck‑up type of literature.
Four 20 years now you can get just about any research funded if it proposes to show the positive impact of the Internet as a force of good. An important question is the micro‑affect. Saying if you use the Internet unemployment will go away, is like saying, people, our policy is to give people coats and ties because studies have shown if you show up to a job interview with a coat and tie, you're more likely to get a job than without it. Therefore unemployment will go away. It just doesn't work. That's the difference between macroeconomics and microeconomics and very easy and fundamental.
So, therefore, the Internet, in effect, is reducing the number of jobs for all the folks who become much less useful and useable. For younger people, there are fewer entry‑level jobs. If the Internet is so great for the young people, then how come young unemployment is larger than it has ever been before? How come the younger generation for the first time in the United States is less well off than their parents? And how come if mobility, if the Internet has destroyed geography and destroyed distance, how come they still live at home with mom and dad?
We observe several things. First the Internet in its creation of greater efficiencies, bravo, is also a net job destroyer. Secondly, the Internet is an economic destabilizer. That's what destruction is all about. Third, the Internet is a force for inequality. And fourth, the Internet creates inequality among regions. Look at what is happening in some regions of the U.S. or European countries.
These are results, not of failures, but of success. It's not ill will. But they are the results of fundamental economics. And these economics are that the Internet activities are typically characterized by high‑fixed cost, low-marginal cost, network effects. This leads to major economies of scale, network effects and therefore it leads to highly‑concentrated industries with a few firms, the winners who take it all.
Second, every industry, every company, every economy is structured like a tournament. And the question is, how is that tournament is organised? Is the winner -- does the winner‑take‑all or just a little bit more? There are many winners. There is a whole literature in economics about this, and it tells us that the higher the risk in the tournament, in the economy, the greater you must make the disparity between winners and losers. You must compensate the players by a higher jackpot. That is what is happening. So the winner takes much, the losers give years of their lives and are left with lottery tickets and also known as stock options that are now worth a third.
The rapid change in knowledge and technologies means that the learning curve is shorter, and that there is less value to experience. This favors the young relative to the old in the past. So the old are expensive and out‑of‑date and expendable, not just in other industries but ‑‑ not only in all industries, but especially in the Internet industries with their rapid growth of change.
Now, just wait a little if you're young and smug about this. What goes around comes around. Do you really think that Google will have all of these current young hotshots of today, still running around tomorrow as middle‑aged, lukewarm shots? I doubt that. So there is less room for older workers. Just as the time when life expectancy rises, when retirement systems become unaffordable to societies and when companies find ways to avoid paying taxes to contribute to the pot.
They do so, mostly by playing off the various jurisdictions that have unemployment problems, and everybody has, and want to attract high‑tech firms, everybody does. So the more job losses, the Internet companies create directly or indirectly through their activities, and the more job losses happen, the lower their taxes become, because their bargaining strength becomes higher. Therefore the less relatively speaking resources communities have to create infrastructure to afford education, instead of a social safety net, we get social networks. Let them eat tweets.
And the volatility of the Internet economy also rises in the dynamics roughly as follows. An innovative idea sets hopes. A boom gets on its way. A boom gets higher. People invest. People, new firms get started. But in a competitive environment, competition drives down prices, down to marginal costs. Marginal costs are very low. That price is not sustainable for long. Companies go out of business. Investors flee. A downward spiral happens. The bubble bursts.
Now the survivors start to make money, hope rises again and a new cycle starts. And another fact for economic volatility is other industries using IT, becoming more volatile. Just look at what happens in the financial sector. Our entire economic well‑being is based on the fact that these things will not crash or interact in surprising ways. Companies go out of business in five minutes. Economists can go out of business in five days.
So, the information economy is an unstable economy. And because of Moore's law, of acceleration of everything, the cycles almost inevitably will accelerate in frequency and maybe amplitude and government remedies to stabilize this are becoming weaker and slower.
So, the consequences. First, it is important for Internet companies to take responsibility. They take after all, responsibility for the Internet, as the source of almost everything that is good: Tahrir Square, things happening right here in Turkey. But some of the negative things are always somebody else's fault.
What is remarkable in my mind, is how the backlash against inequality that is emerging. Those one‑percenters, and the job losses, have been diverted in the public eye from the fundamental source, high technology and disruptive fundamentally new economics, which is partly responsibility of the Internet community in doing what it does, and directed towards the financial sector.
Railing against banks is always popular, always gets attention, but for a while only. But this will change and the Internet companies will get a lot of unfavorable attention. And I will skip a lot of stuff for instance of time. Let me just raise four bullet points.
What to do. First, take responsibility. Stop denying. Man up. Woman up. Take some responsibility. That is already half the battle. Second, stop claiming to be the solution. The dumbest thing that the Internet community can do is try to take advantage of the problem it has helped to create, by proclaiming that it is the solution. It should receive more help from government, more support, less regulation, more access, et cetera. And everything will be fine.
Third: Recommend, support and finance governmental actions. There are smart people, out of the box type, people in this community. We can make a difference with ideas that are ahead of politicians. Which ones should this be? Unfortunately there is not time but I hope we will get to discuss it.
Fourth, do something directly, and not a little philanthropy or PR stuff. Channel the enormous creativity and problem-solving skills to do something in poor cities and countries. Locate work sites there. It doesn't mean lower Manhattan when I talk about cities. I mean Newark and Detroit. Do something for the STEM: Science and Technology and Engineering, Math, Education. Send some of your and brightest to teach it. Not just a little PR guest lecture. Train older people, in particular. It’s disgraceful how the Internet first marginalizes older folks. Makes fun of them, leaves them destitute and yes, all this without lending a hand of help.
So to conclude, the impact of Internet induced economic displacement is serious. It will not go away. It will get worse. The Internet community is full of problem-solvers, thinkers outside of the box. We need to start thinking unless we want others to do it for us and to us. Thank you.
>> RICHARD BEAIRD: Thank you very much. Our next speaker is Lillian Nalwoga. She will speak on the Impact of ICT on Jobs and Skills, the Evidence from Africa. Please.
>> LILLIAN NALWOGA: Thank you, Mr. Chair. It's kind of interesting as being seated next to someone who is a little bit, not a little bit, very much negative about opportunities of the Internet. And coming from Africa, where we are singing about opportunities created by the Internet, I find his experiences a bit interesting on this topic. So it will be nice to compare notes. Hopefully we are not heading where Developing Countries, like the U.S. is.
I'll try to stick to studies or probably some facts that come out of the opportunities created by the Internet. I will not say that we do not have challenges. The challenges are there but slowly we are trying to address them.
Studies from the ITU show that slightly 20% of the population in Africa will be online by the end of this year. And this is quite double the percentage that was in 2010. So, showing that there is some sort of increase that people are appreciating the use of the Internet. And I cannot ignore the fact that to us, ICT is a company that is leading to economic growth.
Still, I rely on figures that have been researched. I'm sure that the World Bank is a source of data. And as I was reading around this whole topic about Internet and jobs: creative destruction or destructive creation, I don't know. I seem to be, or I have from OECD, the kind of creative destruction takes away from creating opportunities.
This study was released in 2013 and the World Bank observed that 10% increase in telephone mobile phone, Internet and broadband usage, led to increase in GDP. And depending on the technology in question, telephone led to small figures but again, they show something.
I'll just share with you. The mobile, both the land line, was 0.73%. Mobile is 0.81%. Internet in general was 1.1% and broadband, 1.38% increase in GDP. And this is just for Africa. What does this tell us? That people are appreciating, people are running away from years of the traditional means of communication like the land lines, and slowly there are opportunities with the Internet and broadband access or infrastructure is providing in terms of economic growth.
Well, looking at ICTs and youth, we still have a young population and I think most of the younger population comes from Africa. And yes, unemployment is there. But you are seeing opportunities that are coming up. Some of these include opportunities presented by ICTs, things like BP oil outsourcing. Where youth face problems or challenges of not having the relevant skills, entry points set by employers, you have to have some sort of experience to enter into the job market, whereas ICT is changing that.
Through BP oil, you are able to find someone who is ready to place you somewhere where you can start and get experience. And the fact that Professor Eli shared that ICTs are kind of taking jobs away from the older folks, and creating opportunities for the young ones. For me, that is a positive.
It is just that we are heading, we are in a digital economy, all right? And if ICTs are taking away opportunities for the older folks, probably the older folks should embrace more ICT and the impact it could have on their livelihoods. And why I'm saying that is, some of the challenges we are facing is the lack of political will among our leaders back at home. Most of them have still not got away from this traditional way of doing things. We are seeing opportunities like e‑public goods, e‑governance and seeing this tremendously improving way of living, increasing access to information, access to services, and yes, there are studies that have shown how, through e-governance increase to services through ICTs, people are able to access more.
On the issue of taxation, I would say it is both ‑‑ I'll address it in two issues. Telecoms, yes, do have to pay taxes. It is one way of feeding into the economy. And I'll share something we do have in my country, and I think some of the neighboring countries. We have the rural communications development fund. And there is a levee that is taxed on every TeleCom. It's 2% of the profits that they make per year that they give back to the regulatory authority, and this money is used to provide rural access. To provide access to areas that are underserved, provide centers where people can go to access simple things like making that telephone call, accessing Internet, getting into the social media bandwagon.
We have seen people, we have seen populations, we have seen societies creating or using things like social media, Twitter, to create impact in society, demand for better services. I can share a story where it is hard to get an appointment to meet the Prime Minister in my country. However, once in a while, he does host a Twitter chat. And you don't have to write an appointment letter. He will respond to your questions directly. We still live in a place where bureaucracy is quite big and in the community system or getting through the appointment system to make a direct conversation with the leaders is hard.
And that is a positive for us. So in terms of moving on to job creation, we have seen entrepreneurship, local innovations coming up through the Internet. I would share that for instance, in Kenya, there are over 15 technology hubs that are employing youth, providing platforms or providing a space for young people in society to come together to evolve solutions relevant to their communities. And this is creating jobs and opportunities for people to embrace ICT or, you know, digital technology.
So to me, the Internet is really an enabler for economic development and social growth. In Africa, much as we still have challenges of access, not having relevant skills, we are seeing opportunities that the Internet and general ICTs are presenting.
So with those few remarks, I would like to hear more. Maybe ‑‑ this is just and experience from the U.S.
I don't know. Maybe the minister here will have a different area from Columbia. It is nice to know what is happening in your countries or continents because to us, this is a great opportunity to further catch‑up with the rest of the world. Thank you.
>> RICHARD BEAIRD: Thank you, very much. Minister Diego Molano will speak on the Impact of ICT on Jobs and Skills, Evidence from Latin America. Mr. Minister, please.
>> DIEGO VEGA: Thank you very much. I couldn't agree more with Andy on the importance of this topic. This is the most important discussion at the IGF, because everybody is concerned about jobs. Everybody. Everywhere. Everywhere. And I don't want to go back to the diagnosis. And also Lorenzo, you know, pointed that out. And I have here a slide mentioning Andrew McAfee mentioned before. He did a lot of studies on the impact of technology revolutions on jobs. What is happening now is amazing. The jobs being disrupted by this industry is huge everywhere, everywhere, in developed and Developing Countries. Everywhere. The issue here is not what the problem is, it is how we are going to deal with it. What can we do?
A few weeks ago, I was with a former President and CEO of Kodak. Do you remember Kodak? Do you remember the films? In the 90s, Kodak had 165,000 jobs, direct jobs. And Kodak created millions and millions of jobs around the world. My grandfather was -- had a little shop in his little town developing rolls, films. What happens to Kodak? Last year it was bought for just peanuts. No jobs created. All of those people who were working directly or indirectly for Kodak have no jobs. But then what happened? Facebook bought Instagram. And Instagram had just 15 employees and had 1.2 billion dollars for that company. And that is the new Kodak.
So, millions of jobs in Kodak, no jobs in Instagram. That's a clearer picture of what is happening in many, many, many industries. So what to do? That is the main challenge that politicians have.
So we have many opportunities. One big opportunity was already mentioned which isimpact sourcing. Impact sourcing. That is important. And I really encourage companies to help create those jobs in Developing Countries. We have many, many good stories in Columbia where we have focused on creating jobs in very, very poor areas, sourcing different activities to developed markets. For example, I took this picture a few weeks ago in the Pacific area of Columbia. And one of the poorest areas in Latin America, way poorer than the average sub‑Saharan Africa, but in Latin America. We created just 300 jobs, outsourcing jobs, that completely transformed a community. Completely transformed a community. We just trained people there to provide outsourcing services to the U.S. market, to the Hispanic and African American market, and it has been very, very successful. So you have a lot of stories where you can really do a change using technology and you can really create a huge impact.
However, the problem today we have is how we speed up the resilience, because we are going to have resilience. How we speed it up? That is the problem. How we take measures to make sure that people get new jobs, and we create new jobs.
So, from the Developing World, we have to see that the problem is how we develop the talent. We have a huge problem with talent. We have no jobs. But then, in every single market in the whole world, we lack engineers. There is no engineers. People do not want to study engineering, especially IT‑related engineering.
In Columbia, we have a space for 93,000 engineers now and we don't have them. In Europe, one million. That's according to Nellie Cruz. One million jobs for engineers or IT‑related professionals. What is happening today? As one of my professors says, we are in the lazy generation. Young people do not want to study engineering because they find it very complicated. Or math skills are very, very low. And you know what? Marketing, these professionals are not sexy anymore.
So, I look in the whole world the number of new schools teaching forensic sciences. You know what that is for? CSI, the T.V. show; because we need to do a new marketing of these professions. It is happening everywhere. It is happening in the U.S. It is happening in the whole Latin America and Europe. Young people do not want to study these although the opportunities are here.
Secondly, we have to work on IT skills for our people. I think the laborer of the future has to have a piece of IT engineer, every laborer. Every single profession has to develop IT skills and you see it in the OECD numbers. We all have to work on that, IT skills. We have doctors that understand technology. We need accountants, lawyers, nurses, that really know how to deal with technology; because innovation doesn't come from engineering. Innovation comes when the doctors understand technology and they see the opportunities using technology.
Innovation comes -- I always say innovation comes from serendipity and serendipity happens when there is a variety of people thinking and understanding the opportunities. So, we have to improve the IT skills of the people.
You know what? The problem we have is how we take advantage of what is happening in the world to solve the single most important problem of the world, which is poverty. With the challenges that we have seen today in job creation or job destruction we have. My concern is this fantastic tool we have in our hand, which is technology to reduce poverty, it is not going to work.
You know, we've been listening to many, many stories and promises of the technology world that with technology we are going to solve the problems of poverty around the world. But you know, we are not going to deliver that, unless we help Developing Countries to create their own skills to do that.
Look at big companies. The ones that have been mentioned here today, the Facebooks and the Googles and the big ones, the Amazons, they are not coming to the Developing World to solve our problems. We have to solve our problems ourselves. In order to do that, we have to help the Developing World to develop innovation ecosystems. We have to develop the African countries to create their ecosystems and that means we have to develop them to create the right talent and to create the right environment to develop their own solutions using technology -- using technology. That is key.
That is what we are doing in Columbia. We are working very hard, not only in expanding technology, which we have already done that. We have broadband access everywhere, even in the middle of the jungle. The challenge we have is how we create applications for the poor, applications that help the poor to leapfrog. That is what we are working on and in order to do that, we have to create local innovation ecosystems. That's the most important task that we have in front of us.
So we have that challenge. The IT industry will blamed for the destruction of jobs sooner or later. We are going to have new laws, new regulations. Then the issue here is not what the problem is, it is how why take advantage of technology to solve our problems, and in our case, the single most important problem is poverty. How we really use technology to reduce poverty. Thank you.
>> RICHARD BEAIRD: Thank you very much, Mr. Minister. Finally, Michael Kende, who is the Chief Economist at ISOC, will speak on the Internet as the Driver of New Entrepreneurship.
>> MICHAEL KENDE: Thank you for the invitation. The Internet Society, one of the things we do is promote access to the open Internet. Promote deployment of Internet and making sure it is open. One of my jobs as the Chief Economist is to look for and hopefully eventually start to quantify the benefits of access to the open Internet. We recently put out a report available on our website, a global Internet report that talked about a number of, what is the open Internet and the benefits of accessing it?
So, what I'd like to talk about today is, how access to the open Internet can enable entrepreneurship, and then particularly, a much more inclusive entrepreneurship, reaching all the regions of the world and people that might not have had access to the opportunities without access to the open Internet. And this is ongoing research. I don't want have any numbers. I can't talk about the micro- much less the macro‑economic impact of it. But, you know, I'll present our initial thoughts on the topic.
So today, much of the entrepreneurship, at least in the public view, is focused on big, high‑tech clusters. Of course Silicon Valley is the prime example of that. If you look at a company like Google, it is a good example of the benefits of being in that cluster. The Google founder started at Stanford and used the Stanford network until they basically overwhelmed it and moved into the typical garage to start it up, raised their money through venture capitalists in Silicon Valley, found their CEO, former CEO there and really grew through the benefits of being in this cluster. Of course being in a cluster can raise barriers for people who aren't in the cluster and have no access to a cluster like that. Many Governments have tried to duplicate these clusters with mixed results.
But what we are looking at is the fact that many of the ingredients that make up a cluster are now available online and can promote entrepreneurship without direct access to the cluster. We've talked about a few of these here and I'll just run through these quickly. Education. MIT's entire catalog is available online so electrical engineering and all the other aspects. Then the MOOCs, the video courses that are available to anyone with a good Internet access. You can do a lot of research online, of course. Find out more about the area that you're thinking about. You can download a lot of open source software and tools to help save you time in developing your innovation. You can raise seed money online. I'm wearing one of the Pebble Smart Watches. So, I put in some money in Kickstarter and they raised $10 million to start the production of the watches and then people that contribute got a discount on the watches once the company had been started.
You can hire employees. There is many websites to hire full‑time employees or to find people to do particular tasks. Equipment used to be a significant capital expense but now you can have access to Cloud Computing and turn it into more of an operating expense to run your company online.
You can find mentors online. There is platforms, like in Africa, there is one called Maramentor, where entrepreneurs can have access to mentors to help them through stages of the innovation cycle. You can collaborate online. There is sites like GitHub where people collaborate on the creating software. Some of it is open sourced some is a platform for creating proprietary software as part of a company. And of course everyone department have to be in the same location for that.
What is really interesting is that now, having a GitHub portfolio can act as your resume. We talked to someone at one of the innovation hubs in Kenya, and he said that the computer engineering, the education system isn't that good there, so people are self‑trained and as a way of showing their skills, they just make access to their GitHub portfolio to show what bugs they have found and what they have done on other people's software projects and their own projects. And that is their resume and that acts in place of a traditional education.
So, a lot of opportunities available. And in this report, I was talking about -- we have examples. My favorite is an engineer in Togo, found some plans, open source plans for a 3D printer online. Designed it using electronic waste piling up that is largely being shipped from Europe and other places, designed a $100 3‑D presenter using open source plans and electronic waste. Raised money, $4000 on a European crowd sourcing, crowd‑funding website, and now has a little business creating 3‑D printers. So a lot of that of course, most of it, probably all of it, only possible because of access to the Internet for him sitting in Togo.
So a lot of tools are online. There is still a role for face‑to‑face meetings. We see that here. We are all on the Internet but we still come to meetings like this because you can't replace face‑to‑face interactions. And certainly there is innovation hubs springing up across Africa and other places where entrepreneurs can get together and meet people and have interactions, meet potential funders and the like.
So the interesting research will be what role those innovation hubs take in the whole process. There has not been many exists yet. It's hard to study the long term impact, but at least they don't seem to be as inclusive as a traditional cluster like Silicon Valley. One or two floors in a building where people get‑together every now and then, meet, get access to the Internet, and work on the initial stages of their companies.
So in conclusion, really, obviously this isn't going to be the end of Silicon Valley, this online entrepreneurship. Might not even be the source of the next Google or Facebook, but it offers opportunities for mainly like this engineer in Togo that wouldn't have had access to the money and research and markets without the Internet. For us, that is very important as we make the case for why is it important to have access to the Internet and keep it open for everyone. Thank you.
>> RICHARD BEAIRD: Thank you very much, Michael. Let's now open it up to the participants at the workshop, and online. Let me take your questions to any of the panelists or comments, please. Thank you.
>> AUDIENCE: You mentioned problems that I certainly found. My name Louis Bennett from the BCSN in the U.K. and a few years ago, I audited the creation of our national accounts and it was quite clear that we weren't capturing the digital economy properly, and that has been mentioned by several of the participants. Could you give me your views on how we can capture the digital economy properly in our national accounts in GDP, and also how we can adequately value free services on the Internet and their contribution to our economic wellbeing.
>> RICHARD BEAIRD: Thank you very much. I think there were two questions there. Perhaps Andy, you would like to address the first and then perhaps Michael could take on the second.
>> A. WYCKOFF: First of all, GDP always gets encumbered with trying to do things it was never intended to do. We shouldn't make too much of GDP. It's limited. And I would just to provoke Lorenzo a little bit, yes, there is consumer surplus we are not capturing, but if Bob Gordon was here, he would say look at what indoor plumbing doing to consumer surplus. We probably haven't been capturing consumer surplus for a very long time. There is a question now whether it is worse now than it has been.
Where I see the greatest gains are really in the industrial classifications. I think we are still working in the past. I'm very happy to see the ISOC Rev 4, if that means anything to anyone, or the North American Industry Classification System move forward because I think that gives you greater granularity and we are able to pick out aspects of the digital economy, particularly digital content that we haven't been able to do before.
>> MICHAEL KENDE: So the second question was capturing the value of free services. Clearly a good point. I think there is two parts to that. One is to keep in mind when you look at something like the app economy and look at the total amount of money and the number of developers that a lot of them are working for free, essentially. So don't get carried away with total numbers but look at how it breaks down. And I think that has been covered where the winner takes all aspect of something like the app economy.
But I think the second point that many of these services are not free. They are accompanied by significant advertising. So Google, one could say they are offering free services, but of course they are capturing billions in revenue off of advertising. And I'm not sure if that is being captured directly, but clearly they is where the money is and it is just a different way of looking at the secondary source of revenue from the advertising and the value that it brings.
>> DIEGO VEGA: I agree with Michael. There is no such thing as free services, a free lunch. If you read in detail, when you open and account in free services, what you're giving away, so you see that you're paying a high price for that. But the macro problem we have today is that ‑‑ what we are seeing in Europe, and other Developing Countries, is the balance of trade of technology.
You know, when I met Eli many years ago, like 16 years ago, we were working on accounting breaks. Remember those days? The money ‑‑ Lorenzo, remember that debate in the 90s? Americans and Europeans were paying a lot of money for international traffic so Developing Countries were happy and they were seeing a lot of money. So, the balance of trade, of technology, was positive in favor of the Developing World. Now it is the opposite.
We are paying a lot of money to, especially the U.S. in terms of technology, thanks to these services and applications. So this is not the Robin Hood effect. I call it the Hood Robin effect. But then, the issue here is, how these new services are really challenging the creation of local content? Because in the past, before the digital age, the revenue of the company that created local content in the Developing World was basically advertising, local advertising, and that revenue would create local content. Now, the free services are getting that money from advertising, online advertising, and next year, in Latin America, 35% of the revenue of advertising is going to be online. And that 35% of money, who was before in the region created local content, now goes away. They don't even pay taxes. That money doesn't even pay taxes, and that goes away somewhere else. I don't want say where but perhaps tax heaven.
So we have 35% less money to create local content. That is what I'm talking about. What are we going to do? Because that is challenging Africa, Asia, Latin America and also Europe, on how we create local content. Now local content means news, television, but also applications.
>> RICHARD BEAIRD: Thank you very much, Mr. Minister. Yes, please.
>> AUDIENCE: Thank you, European Broadcasting Union. If you were here yesterday, probably you heard my President Filipo, mentioning the case that confirms what you're saying of Brazil, where there is one company, the leading company of the market, media market is global, that employees 30,000 people, creating high‑value contents, that means programs, it means news, print media, et cetera.
And last year, for the first time, 80% of global incomes were compared and reached by faith single company that has only 100 employees in the country. And that doesn't produce any single news, any single programme, any single item in the country.
So this creates a big huge problem for the media industry. And the media industry was underlined yesterday, is essentially not only in the economic sector but essential for the democratic future of the country. So, this opens, as the minister properly underlined, another issue and another kind of problem that we need to face and we need to tackle, that is the future of our democracy, the sustainability of our democracy at the national level. Unless we are thinking to create also a Global World with Global Governance that these run the central level for everybody.
The two things are going in a direction that is incompatible. You cannot have economic power that completely shift somewhere else without affecting the national balance of power, the national checks and balance of the different situation that we have. Thank you.
>> RICHARD BEAIRD: Thank you very much. Other comments in the front? Yes.
>> AUDIENCE: From Columbia. We have very good opportunities in this forum to talk with, for example, the minister here. And I think that it is important to find a way that this commercial approach of this idea of creating jobs is very important, but we have other consideration also. If you seen the commercials in the commercial business model, maybe we need to think another kind of model, for example, the free culture models that are deepening the traditional business models.
And I think that in technology, this is a good approach to these kind of projects, to this kind of problem., how to create more jobs. Maybe we use a proprietary approach. Maybe that way could be useful for us. And that is one of our concerns. When I you listen to you, maybe we need to include some other approach, not only the commercial one. Not only the business one. There is other options. And I really want to see that in this panel, also.
>> RICHARD BEAIRD: Thank you for that comment. I believe in the back here, sir.
>> AUDIENCE: I'm from Spain. First of all, thank you very much for the very interesting interventions, and I would like to see your opinion on two points that are the most interesting in my view. One is the problem with taxation and the localization of taxation. And the second one, the preservation of the open Internet as a tool for job creation. Not only in the sense of preserving the access, the open access, but also avoiding the creation of new monopolies in terms of search engines, operating systems, especially mobile operating systems, app stores.
So my question is, do you envision any kind of measures that can be taken to solve these problems? Thank you.
>> RICHARD BEAIRD: Thank you very much. I believe the first point was for the panel to speak more broadly about taxation as a tool. The second point, I'm afraid I did not catch. Perhaps the panelists did? Very good. Eli, would you like to take those points?
>> ELI NOAM: There are obviously numerous ways to circumvent national taxation. There are some countries, in particular, some smaller places that make a living of being tax havens, which is a friendly way to saying that they encourage and support tax avoidance, maybe legal, sometimes not. It is very difficult to do something about that short of armed invasion. So therefore, I think that countries should establish some minimum taxes on companies doing business in their territory so that if you can do artfully something by avoiding taxes by structuring your deals so that somehow all the profits are in Ireland that would be ‑‑ the ability to divert taxation would be reduced.
That's a question of political will, frankly. And the problem in most countries is that the people who have an interest in avoiding taxes are also fairly influential. So therefore you don't have it. So, all across Europe, say, with the social democratic government and yet these loopholes are just glaring. Somebody mentioned the film industry. The media industry is just astonishing that structures are being set up that people somehow support film industry by avoiding taxes and in turn, so this is some of the ideas officially that this supports national culture. But the realities, of course, are that even Hollywood use German tax shelters in order for German investors to reduce taxes. So I think it would be a possibility for national, if there is the will there.
The second issue is what?
>> Open Internet.
>> ELI NOAM: I'm not sure if that is a response to the question because I also didn't hear it. One way is to -- for getting people to upgrade their skills that would be ‑‑ here is an idea. So instead of having your social security retirement benefits kicking in at 65, 67, or whatever, if you could take a year or two off much earlier to re‑train, that you would get your free support such as social security, during that year or two, and then would retire one or two years later. In other words, why get people to be stuck in the wrong skill set at the age of 40 when they could still go on, if they could afford retraining? So can pre‑pay your retirement benefits and then retire later.
>> LILLIAN NALWOGA: I think the political will should be to tax these big corporations. In my country, everyone pays tax but I think we seen the political will taking it a little bit too far. Before, we did not have taxes on IT equipment and software development. So, in this current financial year, government introduced a tax on IT equipment and of course there is excise duty, but we were already paying excise duty on airtime, like data. So I think there needs to be a balance.
For us who are pushing for promoting use of ICTs in general, when you overtax, it takes back. And as that, we are going to find that the many technological we are enjoying life smartphones, many people cannot afford them. So with this taxation it will make it even more impossible for someone in a rural area to appreciate the benefit of a smartphone, because they cannot simply afford it. So that is where the issue of balancing how far can you go with taxation to get money to build the economy.
I think that is a different picture of what getting ‑‑ from what is happening in other countries and what is happening at home. It is something we are still trying to fight with the ministry. We don't know if we will win the battle because it is sort of a tough one. We don't know if the tax will be removed but we are hoping it will be.
>> MICHAEL KENDE: To answer the second question, as I understood, was how to preserve the open Internet with the large market shares of the search engines or the closed walled gardens of the app stores. So that is something we need to think about.
I think there is challenges and new economics involved in that for instance, search, the switching cost are in some senses, zero, I can remember clearly the day I was using AltaVista and switched to Google and the argument is, it's just as easy to make the next move from Android to iPhone. It might be a little more complicated but it also comes back to the question of free.
One of the traditional ways to look at these kinds of market shares would be through antitrust, but if the price is free what is the consumer harm? If Android is being given away and took this market share from the previous leader, what is the market harm? So I think what we would focus on is the benefit of the open Internet and access to the availability in trying to educate users and everyone else to try and push for more open platforms. But I think traditionally for governments it's a harder one to address than with traditional things where you have a price and you can see where the price would go up with market power.
>> RICHARD BEAIRD: Thank you very much. Let's take one more question and we are reaching the concluding hour, please.
>> AUDIENCE: I'm from the Swedish Development Agency, SEDA. I'm interested in the idea of impact sourcing, mentioned by Minister Vega. I wanted to hear from the other panelists what you think about that idea, maybe from my perspective, specific to create jobs in Developing Countries where other job opportunities might be hard to come by, for example post-conflict countries. Thank you.
>> RICHARD BEAIRD: I believe the question was to outsourcing and our experience with that and our views on it. Would anyone wish to take that on, perhaps? Minister Molano, would you like to speak to that, please?
>> DIEGO VEGA: That's a huge opportunity. Look at, for example, the example I mentioned. We develop this program and subsidize training in this very, very important area in the Pacific coast of Columbia. We created a call center. We went to the U.S. and talked to AT&T and we closed a deal with them and they are very, very happy because those people in Columbia, they helped AT&T Spanish‑speaking African Americans. It has been very, very positive for AT&T. Very, very positive for this community.
We have plenty of these examples in Columbia. We have a line of work in the government to help impact sourcing. I think this is a great opportunity. But, the issue here is how we could create training. How we make it sustainable. We help at the beginning with training those people. We subsidize the building of the facilities and so the issue is how we make it sustainable. That is the other challenge we have.
>> RICHARD BEAIRD: Thank you all very much for this very interesting session. I believe we all come away agreeing that this is one of the most important panels of the IGF, because it addresses the fundamentals of employment and of eradicating poverty. We have seen that the Internet, which is the subject of this forum, and also the subject of much of our careers, is seen both as a benefit but also as a cause of some of the difficulties that many countries are experiencing with the disruption that brings about slow employment gains and income and equality.
But at the same time, there is, in the words of Eli Noam, we all need to take direct responsibility for the consequences of this technology and to, as one of our participants indicated, to begin to think out of the box and to find alternative models and solutions to deal with the consequences of a technology, which is very much going to be with us and continue to drive our economies and our societies.
With that, let me conclude and thank you all very much and thank you Lorenzo for organising this panel. Thank you.