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Digital economy distorts true size of Asian economies

Fast-developing tech activities not counted well in GDP measurement

Grab and Go-Jek drivers vie for space in Jakarta’s crowded rush-hour traffic. (Photo by Shinya Sawai)

JAKARTA -- When Deddy Kurnianto* jumps on his Yamaha M3 125 every morning, pondering how his day's work will add to Indonesia's gross domestic product is probably the last thing on his mind.

"I try to pick up as many passengers as possible, and avoid the traffic jam," he said, signing off with a forbearing chuckle about Jakarta's notorious congestion.

In the year since he started driving for Go-Jek, a local ride-hailing service operated via smartphone application, Kurnianto has seen his income rise by "about 30%."

App-based businesses such as Go-Jek and rivals Grab and Uber operate at the intersection of the "real" or "traditional" economy and its "digital" counterpart, undercutting or disrupting existing taxi firms.

Self-identifying "disruptors" -- be they global giants such as Alibaba Group Holding, a sprawling Chinese e-commerce conglomerate that in 2014 made the biggest stock market offering in history, to regional players such as Lazada, a kind of Southeast Asian eBay -- are among the major Asian players in a digital economy that makes up 6.5% of global GDP, according to a recent report by the United Nations Conference on Trade and Development.

Asia's tech economies are growing faster than those elsewhere. China is already the world's largest e-commerce market with 40% of the value transactions, or 11 times as much as the U.S., according to McKinsey Global Institute. A 2016 report by Google and Singaporean investment company Temasek lumped Indonesia, Malaysia, Singapore, Thailand, Vietnam and the Philippines together as the world's fastest growing digital economy.

The Google/Temasek report suggested that the total value of those countries' digital economies could hit $200 billion -- almost the same as Vietnam's 2015 GDP -- by 2025, with Indonesia expected to be worth $81 billion of that. Grace Citra Dewi, a researcher at the Center for Strategic and International Studies, a Jakarta think tank, estimates that "for every per cent increase in mobile penetration it will add $640m to the GDP."

Aiming even higher, Indonesian President Joko Widodo wants a digital economy worth $130 billion by 2020 -- despite the fact that only around 20-25% of Indonesians have regular internet access. Though there is a big difference between $80 billion by 2025 and $130 billion five years sooner, the disparity is not necessarily down to a politician making plenteous promises. Scott Wallsten, vice president for research at the Technology Policy Institute in the U.S., wrote in 2015 that "estimating the value of the Internet is difficult, in part, not just because many online activities do not require monetary payment, but also because these activities may crowd out other, offline, activities."

Measuring the contribution of a Go-Jek to a country's economy means disentangling a noodle-bowl of economic activity to extricate the "digital." Is Deddy's 30% income jump an extra few rupiah to add to Indonesia's $932 billion GDP, or is it merely money he has earned at the expense of another driver? Or is it a negative, given that the increased taxi options offered by Jakarta's ride-hailing apps arguably worsen a gridlock that the government estimates costs the vast Indonesian capital $5 billion a year?

IMF discussion

In mid-November the International Monetary Fund allocated two days to unravelling the permutations and riddles of measuring digital economies. "There's a lot of discussion of things on your smartphone that you can do for free that you used to have to pay for," said Marshall Reinsdorf, senior economist at the IMF's statistics department, citing news as an obvious example.

Other free digital content, such as browsing Facebook and Google, is not counted when it comes to totting up GDP, noted Rachel Soloveichik, a research economist at the U.S. Bureau of Economic Analysis, speaking at the IMF.

"[T]he value of this content is not only unmeasured within the current GDP and productivity statistics, but is fundamentally unmeasurable within the current framework," Soloveichik and co-authors suggested in a paper presented at the event.

Such digital omissions could sharpen achingly-enduring disputations over GDP as the default measure of economies. The Organization for Economic Cooperation and Development described GDP as "a controversial icon" and grumbled that "it measures income, but not equality, it measures growth, but not destruction." In his book "The World After GDP," economist Lorenzo Fioramonti noted that the GDP format "only counts transactions that occur within the formal economy" and omits anything "voluntary in nature [and] performed within the household."

But even before economists figure out how to better measure economies in the so-called "digital age," the premise of a separate "digital economy" could become obsolete.

Seng Yee Lau, senior executive vice president of Tencent Holdings, another vast Chinese internet company, said at the IMF event that "the concept of digital economy is transitional and 'digital economy' will become just 'economy'."

*pseudonym used at the request of the driver

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