Digital Services, Real GDP Per Capita, and Economic Well-Being
I’m
trying to think clearly about economic well-being in the digital world. I’m doing this in the context of thinking
about teaching macro and about the use of real GDP per capita as a measure of
economic well-being. So these are hardly
complete thoughts about the matter. I’m
stumbling around with the issue.
One
of our primary measures of economic well-being is Real Gross Domestic Product
per capita. The following table presents
data on RGDPpc for all the countries with a population of 50 million or more,
based on the data found here. (These countries account for about 75% both
of world GDP and world population, as reported in the dataset.)
Country
|
RGDPpc
|
United States
Japan Germany France United Kingdom Italy Russia Brazil Turkey Mexico China Thailand Iran Indonesia Egypt Nigeria Philippines Burma Myanmar India Vietnam Pakistan Bangladesh Ethopia Republic of Congo (Brazzaville) |
$51,000
$45,100 $43,300 $39,900 $37,800 $32,200 $12,100 $11.500 $10,800 $9,900 $5.900 $5,500 $5,300 $3.600 $2,700 $2,600 $2.300 $2.200 $1,700 $1,500 $1,100 $ 700 $ 400 $ 200 |
Leaving
aside the question of how well these data actually reflect economic well-being
in these 24 countries (a ratio of about 250-to-1, comparing the US to Congo),
there is, it seems to me, another significant difference, which I think I’ll
call the digital divide. One convenient
measure of this (maybe) is Facebook usage.
Not surprisingly, 8 of the 10 countries with the largest number of FB users are also in the 10 countries with the highest RGDPpc (Russia and Turkey
are in the high-income group; Indonesia and India are in the large-user base
group).
The
question this raises for me is how services like FB are valued in the official
statistics from which we calculate GDP (and GDPpc). Users pay, directly, little or nothing for
using many digital services (FB, reservation services such as Expedia, and so
on). Yet these services do apparently
add value in the economy and thus contribute to economic well-being.
Although
I can’t find anything completely definitive, it appears that digital services
contribute to GDP mostly as intermediate services provided to businesses (or
individuals) who advertise on their sited.
So, for example, Facebook reports $7.872 billion in revenue in 2013, of
which $6.986 billion was from advertising,
and 757 million worldwide users (by one metric; over 1.2 billion by another,
but I suspect there’s some double-counting here). That’s revenue of a little over $10 per user. But essentially none of that revenue comes
from users.
I
don’t know how one might calculate the use-value of FB to a typical user, but
surely it’s more than $10 per year. My
household has 2 FB accounts, and between us, we probably spend 2-3 hours a day
on FB. Call it 800 hours a year. If we value our time on FB at $0.25 per hour
(which I suspect is low; my alternative uses of time—like writing blog posts—are
worth more to me than that), that’s $100 per year each, or more than 10 times
as much contribution to GDP as can possibly be attributed to FB in its
provision of advertising services (an intermediate, not a final, good).
What,
for the US, would that amount to? With
about 151 million users, we might attribute $3 billion (a disproportionate
share) of FB’s revenue to its US member base.
But at $100 a year, users might value their time on FB at $15
billion a year. A conservative guess,
then, might be that digital services in the US are contribution in the range of
$100 to $200 billion a year to GDP, which might be counted currently as between
10% and 20% of that.
This
is not particularly large, in per capita terms—perhaps between $300 and $600
per capita in the US (between 0.6% and 1.2% of measured RGDPpc), of which our
official measures might be capturing between $30 and $60. Still, as the range of unpriced digital
services expands, the gap between RGDPpc as a easure of economic well-being,
and actual economic well-being, is only likely to grow.
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